New Strategy Presents DoCoMo Resurgence Opportunity
BMI View: The creation of new services via technological innovation, big data analysis and technical support will help Japan's NTT DoCoMo improve its response to fierce competition in the domestic market. Greater regulatory latitude with regards to combining mobile services with wireline broadband offerings of sibling NTT Communications will also improve the company's ability to increase its revenue-generating opportunities. However, in line with similar exercises carried out by US carriers, investors should not expect a swift improvement in NTT DoCoMo's performance indicators.
NTT DoCoMo is establishing four new units that will be tasked with extracting new revenue streams from relatively untapped fields. These units will improve the operator's ability to monetise information resources such as customers' service usage records, attract new partners in the content and advertising industries and develop new services that customers will be more likely to want to use intensively.
|New Plans Needed At NTT DoCoMo|
|Blended Mobile ARPU By Operator (JPY)|
Although NTT DoCoMo remains the largest player in the Japanese mobile market - its 63.1mn 3G and 4G subscriptions accounted for around 42% of the market at the end of March 2014 - the company is facing heightened price competition from its long-standing rival KDDI and is losing traction in the premium value-added services market to new entrant SoftBank Mobile, which leverages its parent's expertise in the financial services market to develop highly attractive new mobile commerce services.
The market leader supported 24.35mn smartphones on its nationwide network at the end of March 2014, of which 79% were connected to its 4G LTE network, all capable of accessing advanced non-voice services, many of which are offered under the dmarket channel. Amongst the most popular of these is the video streaming application, dvideo, which has 4.4mn registered subscribers. Clearly, the company understands that there is vast market for premium value-added services. However, innovations have been few and far between in recent years and the company has been slow to respond to the relatively late sea-change in digital media consumption trends now playing out in Japan.
Growth is currently being driven by customer migration from the 3G FOMA service to the Xi-branded 4G LTE platform. However, NTT DoCoMo is only now beginning to recognise that its subscription plans need to reflect this change. As part of the restructuring, NTT DoCoMo will introduce new loyalty plans and packages that will allow family members to share data allowances as well as voice over LTE (VoLTE), for example. Similar measures have been implemented by US carriers AT&T, Verizon Wireless and T-Mobile and, although customer retention and non-voice usage rates have improved markedly, this only became apparent over the medium term. We expect a similar situation to play out at DoCoMo, with blended ARPU unlikely to improve significantly from the JPY4,320 (USD42.4) recorded in Q114 for at least another year.
KDDI, SoftBank and eMobile are also seeing ARPUs fall, owing to price competition and despite SoftBank's considerable prowess in the non-voice services field. However, the latter's rate of decline is fairly shallow relative to its peers and BMI believes NTT DoCoMo is well advised to emulate the newcomer's strategy with regards to service and product innovation, an opportunity afforded by the creation of new units dedicated to product R&D, service differentiation and integrated product billing platforms.