NTT DoCoMo and Japan’s Wireless Industry

15.249C: Japan/Korea

Anu Bhave

Haakon Brown

Will Chu

Jose De Oteyza

Mario Lewis

Wendy Miller

Luis Pintado

March 15, 2001

March 15, 2001 2

Agenda

Introduction

NTT DoCoMo

• Company Overview

• Organizational Overview

• Product & Service Overview

• Industry Overview

• Strategy Overview

• Current Challenges

• Questions to Ask

Conclusions

March 15, 2001 3

Company Overview

Major Lines of Business

• Mobile voice, PDC cellular phones: 34,218,000 subscribers (12/31/00)

• Mobile data, i-mode: 20,468,000 subscribers (3/11/01)

Ancient History

• 1987

Mobile telephone service offered by NTT

• 1991

Provisional parent company established

Subsidiaries established in 8 regions

• 1992

Renamed NTT Mobile Communications Network, Inc.

Takes over all of NTT's mobile operations

March 15, 2001 4

Current Facts and Figures

• Japan’s largest mobile communications firm 2nd largest firm worldwide (behind Vodafone AirTouch)

57%+ market share but penetration rate flat

1.75% “churn” rate (extremely low)

• i-mode service

introduced in 1999

and is hugely

successful

• i-mode on pace to

pass AOL and

become the

world’s largest ISP

Company Overview (cont’d)

20,468,000 total usersAvg new subscriber rate = +750,000/month = +25,000/day = +1,000/hr

March 15, 2001 5

Company Overview (cont’d)

Financial and Operational Highlights

• 67% owned by NTT

• IPO 1998; traded on NYSE, ticker NTDMY (ADR)

• Market Capitalization: ~$160 billion, P/E 65 (March 2001)

• 15,000 employees

• 2000 Revenues: ~$32 billion

• 96% of revenue from mobile phone service

• Over the past three years EBITDA grew at 22%

• EBITDA to sales ratio of 38%

Comparables: Vodafone Airtouch (33%) and AT&T Wireless (16%)

March 15, 2001 6

Organizational Overview

Typical Japanese company?

• Intricate relationship with sub’s • Heavy organizational structure

March 15, 2001 7

Product & Service Overview

i-mode (information-mode)

• Mobile voice and data services

• 99% coverage within Japan (8 regions)

• Monthly fee + data usage charge

• 25+ i-mode compatible phones (OEM)

Advanced phones (256-color displays)

• E-mail (¥1 to ¥10/message)

• Aggregated transaction services

• Information portal

• Internet access

March 15, 2001 8

Industry Overview

General Characteristics of the Industry

• Rapid deregulation in each country

• Increasing mergers and acquisitions

• Entry of various global players into local markets

Five Force Analysis

• Illustrates drivers of profitability

• Provides insights into industry dynamics

• Helps identify key success factors for NTT DoCoMo

March 15, 2001 9

Industry Overview (cont’d)

Intensity of Competition: High

• Emergence of international players

• Fight fiercely to defend their large specific assets

• Difficult to differentiate

Supplier Power: Moderate

• Handset Manufacturers – Low (Philips, Sony)

• Infrastructure Providers – High (Motorola, Ericsson)

• Technology Developers – Moderate (Qualcomm)

Buyer Power: Low

• Very fragmented

• But low switching costs

March 15, 2001 10

Industry Overview (cont’d)

Threat of Substitution: Low

• Any kind of communication method

Barrier to Entry: Moderate to High

• Ownership of wireless spectrum licenses

• Excess network capacity

Deters new investment

Allows for reseller type new entrants (Virgin)

Profitable industry, but increasing competition can erode profit margins in the near future

Currently DoCoMo is well positioned - dominant status, ownership of key technologies

March 15, 2001 11

Strategy Overview (Resources)

Core Competencies

• Strong management team (Sloan MBA’s in executive positions)

• Marketing skills

• Investments in R&D and Technology

• Relationships with manufacturers

• Relationships with content and service providers

Resources

• Economies of scale

• Financial resources

• Brand recognition

March 15, 2001 12

Strategy Overview (Execution)

Internationalization

• "Friendly" alliances to enter new markets

• Partnerships & Joint Ventures

Global Strategy

• Sliver global strategy

• Expansion of technology (set W-CDMA technology standard)

• "Friendly" alliances and acquisitions

42.3% AOL Japan (40.3% owned by AOL)

20% KG Telecom (Taiwan)

20% Hutchinson 3G (U.K.)

19% Hutchinson Telecom (Hong Kong)

16% AT&T Wireless (U.S.A.)

15% KPN Mobile (Europe)

3.6% Telefonica Celular (Brazil)

March 15, 2001 13

Current Challenges

Major player in the global telecom market

• Increased rivalry in wireless industry

• Investing in telecom infrastructure

• Young and inexperienced player

• Implementing an aggressive global strategy

March 15, 2001 14

Questions to Ask

• What are the management skills required to make the leap from a

leading domestic player to a major global player?

• Have you thought about seeking a major partner or acquisition to help

make the transition to a global player?

• What are your growth targets over the next 5 years in terms of

revenues, subscribers and market share?

• How do intend to finance the build out of worldwide mobile

communications infrastructure?