Future visions

Telecommunications International, Jan, 2005

As we look to 2005 and beyond, it's clear that operators from around the world--and from different sectors of the industry--are grappling with the same problem: how to increase revenue while simultaneously lowering costs. A selection of senior telecom executives spoke to Telecommunications[R] International about their strategies for growth.

NTT DoCoMo: services, services, services

MASAO NAKAMURA PRESIDENT & CEO, NTT DoCoMo

Fierce competition in Japan's mobile market is taking its toll on NTT DoCoMo's financial results. In the first six months of its fiscal year ending 31 March 2005, year-on-year operating revenues were down 3.3 per cent to [yen]2.45 bn. Ever more generous discount packages to prevent churn and the introduction of a flat-rate tariff plan for i-mode access via FOMA (to encourage 3G take-up) has meant that DoCoMo's ARPU figures are heading south. What can a mobile operator do in these circumstances to turn things around?

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Masao Nakamura, president and CEO of NTT DoCoMo, is unequivocal. "We will continue to offer and promote new services aggressively, such as video communication and i-mode FeliCa [DoCoMo's mobile wallet service]," he says. "I am optimistic that this will open up new sources of profit."

The i-mode FeliCa service, which uses Sony's IC chip technology, was launched in July 2004 and allows the mobile phone to be used for a variety of financial functions--e-money, credit card or even a ticket--at places that have the necessary reader/writer equipment to interact with the handset. And it has proven to be popular. As of November 2004, DoCoMo had sold a total of 780,000 FeliCa-compatible handsets with the services currently available at 12,000 shops around Japan.

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"In the short-term, we expect i-mode FeliCa to make a profit through the additional packet charges for downloading i-applis [graphically rich Java applications] and electronic tickets, as well as downloading e-money to the handset via the i-mode network," says Nakamura. "Furthermore, by making i-mode more useful, we can add value to the mobile phone and retain customers."

Nakamura does not comment on the ARPU performance of FeliCa customers or the nature of revenue-sharing agreements it may have with merchants. However, he does say that in those cases where companies are interested in introducing i-mode FeliCa but are concerned about making the initial investment, DoCoMo will provide the necessary funds and recover it through a 'handling fee that's suited to the service and the way it is used'. "We've already signed such deals with Geo [a video-rental chain with 600 stores nationwide] and CircleKSunkus [a convenience-store chain with over 6,000 stores nationwide], which include the installation of readers/writers," says Nakamura. By the end of last year, NTT DoCoMo said that a 'diverse array' of 46 companies, including airlines, had announced that they would provide a service for i-mode FeliCa users.

Arguably, the strategic importance of i-mode FeliCa will lie more in churn prevention than raising ARPU since the traffic volumes involved will be relatively small. To generate more traffic over FOMA, NTT DoCoMo has introduced higher capacity handsets. "Last December we introduced a new FOMA handset, the 901i, which can transmit and receive large

image files of 500KB for Chaku-Uta [downloading music] and Chaku-motion [downloading music with video-clips]," says Nakamura. "We're also promoting international FOMA roaming by expanding the number of participating carriers."

Other services that NTT DoCoMo is looking to develop are machine-to-machine business and mobile TV. "We're in the product-development stage for terrestrial digital broadcasts, which will be made available to handsets this year," says Nakamura. "But while we see great potential for new [TV] uses that are tied to mobile telephony, we haven't committed to any particular service at this stage."

To complement its 3G FOMA offering, NTT DoCoMo is pushing into other technological areas. It has its own WLAN service called Mzone, which, as of the end of September 2004, was available in 295 locations in Japan. And through partnerships with other WLAN access providers, including iPass, Mzone users can have extended coverage in Japan and overseas (a total of 10,000 'hotspots').

It is also at the forefront of HSDPA development, a packet-based data service using W-CDMA downlink channels with possible data transmission speeds of up to 8-10Mbps. "We expect HSDPA to be ready during our fiscal 2005 but we haven't yet decided on a start date for service as there is still more study to be done in determining specific applications and fees," says Nakamura.

As well as looking at ways to increase revenue, DoCoMo is working to reduce FOMA handset costs. In November 2004, it announced a common software platform to support its range of applications, which it will license to handset manufacturers. But while compatible with Linux and Symbian operating systems, the software platform will not work with Microsoft. Nakamura does not go into detail as to why DoCoMo appears to have marginalised Microsoft. "The handset manufacturers need to use their own judgment when choosing an OS," he says. "If their handsets support key functions like i-mode, and have satisfactory security and DoCoMo network connectivity, we're not going to exclude phones with other OS." Nakamura adds that DoCoMo plans to roll out this year low-end FOMA handsets whose procurement costs will be around '[yen]10,000 less than the current models'.