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AJAY KATHURIA

OVERVIEW

Executive Summary

NTT docomo Inc. is the world’s largest mobile communications company with over 80Mil customers as of end May 2012. With the launch of Docomo’s LTE services following the launch of world’s first 3G services based on W-CDMA in 2001, Docomo has entered a completely different league in Japan’s telecommunication industry. Docomo achieved 10% population coverage for 3G services between 2006-2010. Japan’s mobile phone market surpassed 100 Mil subscriber base in 2007 and the penetration reached 98% at the end of 2011.

For NTT, the Data ARPU accounted for 55% of aggregate ARPU in 2011 and targeted to reach JPY 2071.0 Bil( approx. USD 25.2 Bil) by 2012. Docomo’s advantage in the rapidly expanding smart phone segment is its major service platform i-mode. Docomo established a unique service model based on i-mode and is aiming to create a new ecosystem with Smartphones well.

Early 2007 saw reforms changing NTT docomo to perceive mobile phones transforming from an information search tool to a personal assistant. To Aid this NTT has been providing consumers with behavioural support ranging from data services to e-money to facilitating payments through mobile Felica integration and now high speed 3G through Felica. The LTE network is able to accommodate richer content such as 3D images and moving pictures. It also enable finding games online, sporting events and concerts delivered instantaneously, or large files representing books and other documents to be downloaded in a blink. From the perspective of a global strategy, NTT has envisioned to turn NTT DOCOMO’s wireless communications technologies into world standards. Docomo plans to bring 70% of Smartphone to be released in the first half of FY 2012 compatible with LTE.

The number of LTE subscribers as of March 2012 increased to 2.22 Million and the target for 2012 is to grow this number to 10 million. This has been possible through enriched product line ups, creative billing plans and aggressive roll out plans for achieving maximum coverage. While other competitors such as KDDI and Softbank compete with the company for voice, data and technology integrated phones, Docomo gears itself up by convergence of Mobile media content, ecommerce, finance, security and aggregation in order to reach its revenue target of ¥500 Bil by 2012.Although NTT docomo is some of the few companies in the world to practice value innovation, the big question for the telecommunication providers remains what next? As the markets saturate with the voice, data and technology integrated personal assist services getting saturated in Japan. While Softbank and KDDI win subscribers post lauch of Apple i-phones in Japan, the business imperative for Docomo is how to maintain its leading market share and promote alliances with private companies and local governments to create new value and markets.

1. NTT Docomo Competitors

Competition: Japan has become one of the most highly developed mobile communications markets in the world. Changes in the Japanese regulatory environment in recent years have accelerated competition among cellular network operators. In a saturated market where competition is intense, mobile phone charge rates have been falling steadily. Japans mobile operators have been working to boost revenue from data services, and fixed-mobile convergence has become a major focus of competition. The main competitors of the company are Hutchison Telecommunications Hong Kong

Holdings Limited, KDDI Corporation and SOFTBANK Mobile Corporation. In a mature market like Japan, it is necessary to attract the subscribers of the competition as it is difficult to rely only on the potential subscribers who haven’t used the mobiles even once. Thus, as a result of the heated competition it is essential to minimise the loss of subscribers to existing competition. The network operators in Japan have been competing against one another to retain existing subscriptions, to acquire new subscriptions and to capture revenues from new markets by addressing the following issues:a. Pricing strategy: Offering free voice calls among family members subscribing to the same

operator, free voice calls among phones subscribed under the same corporate subscription account, introduction of new discount services conditioned upon long-term subscriptions, introduction of packet flat-rate services, and introduction of billing plans offering discounts to Smartphone users, etc.

b. Handset sales promotion: Introduction of installment payment scheme for the purchase of a handset, and mobile phone protection service for lost or damaged handsets and delivery of a replacement phone, etc.

c. New service introduction: Electronic payment using mobile phones, music and video distribution, automatic information delivery tailored to user’s preference, location information service, provision of applications for mobile phones, electronic book service, etc.

d. New handset development: Release of handsets and Smartphone equipped with various features such as contactless IC (Integrated Circuit) chip, GPS-based positioning, or security functions, etc.

e. Networks: Improvement of communications quality and expansion of high-speed data service areas using HSPA and LTE, etc.; and

f. Alliances: Collaboration with external partners in other industries, such as retailers, financial institutions, content holders, etc.

The competitive environment for the mobile communications market will remain intense in the future due to market, regulatory and technology changes. NTT Docomo’s future financial condition and operating results depend on the Company’s ability to continue to develop and offer new innovative products and services in each of the markets it competes in.In order to stay ahead of the competition, NTT Docomo is committed to implement the following:a. Expansion of packet usage: aim to increase packet ARPU by promoting subscriptions to flat-rate

billing plans for packet access through mobiles and tabletsb. Proliferation of smartphonesc. Rollout of the Xi Services: will move ahead with the development of network, devices and

services to establish a foundation for promoting a wide array of advanced mobile broadband services

d. Deployment of social servicese. Expansion of International business f. Promotion and further enhancement of service personalisationg. Further enhanced of charges and devices as well as collaboration of device and networksTaking the actions mentioned above as well as pursuing further operational efficiency by particularly focusing on cost reduction in such areas as network-related costs and other general expenses, NTT aims to achieve an operating income of over ¥900 billion for the fiscal year ending March 31, 2013. They also strive to further expand our business by cultivating new business opportunities as well as

becoming a “comprehensive service provider” centred around mobile communications, which they envisioned in their new corporate vision, “Pursuing Smart Innovation: HEART”.

The direct competitors of Apple Inc. by market cap include

Direct Competitors Market Cap US $Hutchison Telecommunications Hong Kong Holdings LimitedKDDI Corporation SOFTBANK MOBILE Corp.

2. NTT Docomo Financial Analysis:

The Mobile Phone business primarily consists of: Cellular (Xi, FOMA, and mova) services, packet communications services, international services, satellite mobile communications services, and sales of handsets and equipment for each service, etc.

For the year ended March 31, 2011Operating revenues: decreased by 77.0 billion yen or 1.8% to 4,090.7 billion yen from 4,167.7 billion yen in the prior fiscal year Cellular services revenues: Revenues from voice and packet communications of mobile phone services, decreased by 92.3 billion yen or 2.6% to 3,407.1 billion yen for the year ended March 31, 2011 from 3,499.5 billion yen in the prior fiscal yearEquipment sales revenues: Decreased from the prior fiscal year due to a reduction in the wholesale price per unit. Operating expenses in the mobile phone business segment decreased by 88.1 billion yen or 2.7% to 3,233.9 billion yen from 3,322.1 billion yen in the prior fiscal year.

As a result, operating income from the mobile phone business segment increased by 11.1 billion yen or 1.3% to 856.7 billion yen compared to 845.6 billion yen in the prior fiscal year. Operating revenues from the miscellaneous businesses increased by 16.9 billion yen or 14.5% from 116.7 billion yen in the prior fiscal year to 133.6 billion yen for the year ended March 31, 2011, which represented 3.2% of total operating revenues.

Credit Rating: The ratings on NTT DOCOMO Inc. (AA) reflect the Japan-based carrier's leading share of that domestic wireless market, backed by strong technological capabilities and a solid customer base; and its extremely low rate of customer turnover. Other strengths are the company's extremely strong financial standing, which is supported by strong cash flow, and its significant contribution to Nippon Telegraph Telephone Corp.'s (NTT; AA/Stable/A-1) group profits and extremely high strategic importance within the NTT group. Constraints on the ratings are a long-term decline in NTT DOCOMO's share of total subscriptions, due to competition for customers among wireless carriers, and falling operating revenues, due to a shortfall between rising average revenue per user (ARPU) for data and declining ARPU for voice.

3. Product/Service Analysis

Whereas voice communication via a simple phone call was initially the only option, NTT linkages with conventional brick & mortar services. As convergence between existing services (paper/cash-based, etc) and the mobile IT technologies continues to expand, a truly unique service capability is beginning to unfold.

a. I-Mode: i-mode is a mobile Internet service that has caused a revolution in both business and private lifestyles in Japan. 48 million subscribers have been attracted to this service since its start in February 1999 and currently more than 95,000 Internet sites are providing a variety of contents. Docomo’s Imode related services are:

i. i-area: Location Based Serviceii. i-motion: Dynamic Video Contentiii. i-motion mailiv. i-shot: Digital Camera Capabilityv. i-channel

b. Xi (pronounced “crossy”) was launched by DOCOMO in December 2010 as Japan’s first wireless connectivity service based on LTE next-generation mobile technology. Some of the aspects for Xi services are illustrated below:

c. "Osaifu-Keitai" (mobile phones with wallet functions) service. A mobile phone can now be a credit card, ID card or a key to a person’s home. Evolving from the convergence of i-mode technology and contactless IC card technology, the "Osaifu-Keitai" service enables the integration of such services in the mobile phones.

4. Mergers and Acquisitions

Some of the recent mergers and acquisitions that DOCOMO entered into are :a. DOCOMO and PacketVideo Form Strategic Alliance to Accelerate Innovation and Growth in

Mobile Multimedia Software and Services: NTT DOCOMO and San Diego, California-based PacketVideo Corporation, a subsidiary of Next Wave Wireless , a pioneer in wireless and digital home multimedia software and service applications, forms strategic alliance . DOCOMO has acquired a 35 % stake in PacketVideo for $45.5 million.

b. NTT DOCOMO to Sell Stake in U Mobile: September 15, 2009 --- NTT DOCOMO sell its shareholding in U Mobile (a Malaysian3G mobile operator) for USD 100 million - the same amount DOCOMO originally invested for the shares. Under this agreement with major stakeholders, DOCOMO will sell its entire stake - amounting to 16.5% of U Mobile's outstanding shares - to the majority shareholder, U Television Sdn. Bhd. (UTV).

c. NTT DOCOMO and Tata Agree on Strategic Alliance in India: November 12, 2008 --- NTT DOCOMO, Tata Teleservices Limited (TTSL) and Tata Sons Limited, the prime promoter for Tata companies including TTSL, form agreement on a strategic alliance in India, under which DOCOMO will acquire 26 percent of TTSL's common shares for approximately 130.7 billion Indian rupees (US$2.7 billion).In addition, DOCOMO, in accordance with regulations of the Securities and Exchange Board of India*, expects to make an open offer to acquire up to 20 percent of the outstanding common shares of Tata Teleservices (Maharashtra) Limited (TTML), a Tata telecommunications company, through a joint tender offer with Tata Sons

d. NTT DOCOMO Buys Stake in Bangladeshi Mobile Operator: June 16, 2008 --- NTT DOCOMO announced today that it will acquire a 30 % stake in TM International (Bangladesh) Limited (TMIB), a mobile phone operator based in Dhaka, Bangladesh, by directly acquiring all stock in TMIB held by A.K. Khan Co. Ltd and its four group companies. The deal, worth US$350 million, is expected to be completed by the end of 2008.DOCOMO will participate in TMIB's management and actively draw on its expertise to enhance the company's business in the fast-growing Bangladeshi mobile telecommunications market.

e. TOKYO, JAPAN, January 19, 2011 --- DOCOMO, China Mobile and KT Form Business Collaboration. Through the collaboration, DOCOMO aims to provide mobile customers with new experiences and greater convenience in the rapidly growing regional market of Northeast Asia, where increasing international cooperation is creating opportunities for new business development.

5. The Generic Strategy Model

i. Strategic Strength: NTT docomo falls into a differentiating

strategy is because, they have served specific unique underserved needs of their consumers through a shift in their personalisation and technology integration for consumer behaviour support. An early mover advantage in launching certain services helps NTT charge a premium price for it. They have access to certain strategic alliances and partnerships that gives them access to intellectual capital and have thus built a reputation for innovation.

ii. (Focus) The Strategic Scope: The Company’s services are segmented into mobile communication and miscellaneous services apart from various products. NTT Docomo satisfies the need of the mass market and competes on differentiation using its unique capability to provide innovative services. NTT Docomo targets the mass market with its iMode and smart phones, combining this broad scope with a differentiation strategy with the help of Xi (LTE) and Osaifu-Keitai services. Apple also has some corporate customers (e.g KDDI & Softbank) for its Felica based mobile partnerships.

Conclusion: Based upon the current positionining in the general matrix, I recommend that NTT Docomo should retain the positioning of a differentiating strength at a broader scope and continue to develop innovative services and products.

5. Assessing the Five forces model of competition:

NTT Docomo operates in communication, media and mobile telephony industry. With the onset of technology integration services such as mobile wallet, travel card and employee id identification, I believe NTT has also stepped into service personalisation in financial services, travel and technology industry.

i. Rivalry (High): Currently, the mobile telephone industry in Japan is considerably high resulting into limited players controlling the market share (closer to a monopoly). The rivalry often intensifies in this business due to a move taken by another competitor resulting in price wars. High rivalry is reflective due to the following reasonsa. Slow market growth due to maturity of mobile phone telephony industry in general,

now shifting to other service variations satisfying current underserved needsb. High exit barriers result from high initial investments in the software and hardware space

pushing companies to remain in the businessc. Switching Costs: Any consumer looking to change their handsets experience a high switching

cost due to loss of contacts and other important Felica applications such as ID, e-buddy payments and travel facilitators. All the aforementioned requires considerable time and money investment

ii. Threat of substitutes(Moderate): For the purpose of defining substitute if we perceive mobiles, PC and tablets as a medium to stay connected , engaged and entertained as well as professional work then the threat of substitutes are low in the form of a television a radio , landline, portable media players and notebooks etc. Most of the consumers in Japan feel that they prefer mobile phones over laptops for convenience.a. Relative price performance of these substitutes is also low to medium

Degree of Rivalry

Supplier Power

Buyer Power

Barriers to Entry

Threat of Substitutes

b. Buyer’s propensity to substitute is medium to low c. Switching costs for such substitutes are medium ranged in monetary terms but a medium to

high investment in timeiii. The Buyer Power(Weak): The Buyer’s power are weak in case of NTT Docomo’s products due to the

following reasons:a. NTT forward integrated to include personalised services by collaborating with strategic

suppliers such as in the case Mobile Felicab. The switching cost of buyers is increasing due to higher product dependency aggregated by

the integrated service and product eco system that NTT has been able to create over the last decade

c. Buyers are fragmented with no single buyer having any particular influence on product or price.

iv. The supplier Power (Low): Suppliers in this industry are handset manufacturers, infrastructure providers, and technology developers. Suppliers such as the application. Handset and infrastructure manufacturers do not have strong market power because of the relative ease of market entry. For instance, most major electronics manufacturers, such as Philips and Sony, are building handsets today. There are several competing wireless standards such as CDMA and GSM, which undermine the bargaining power of technology developers. It is also noteworthy that wireless service providers cannot switch from one technology provider to another without incurring high costs in rebuilding infrastructure. To counter this, DoCoMo backward integrated by investing heavily in R&D and developed its proprietary standard 2G (2nd Generation) PDC1 and 3G W-CDMA to reduce reliance on technology providers.

v. Barrier to Entry: (Moderate - High): Three key reasons why barrier to Entry in such a business are high: a. Due to internal technology platforms being reused at NTT Docomo, asset specificity is highb. NTT Docomo has been investing in R&D and partnerships/collaborations heavily and has

proprietary know how of technology provision c. Consumers are beginning to face huge difficulty in brand switching

1

High

Moderate- High

Weak

Moderate

Low

6. Value Chain Analysis: Basic Value Chain Analysis for Telecommunication Providers

a. Mobile transport: This is the basic network involved in communications, including transportation, transmission and switching for voice and data. This includes major telecommunications players such as NTT DoCoMo

b. Mobile services and delivery support: This involves, for example, the infrastructure in connecting to the Internet, security, the server platform, and payment systems. Standards such as the wireless application protocol (WAP) and iMode are key building blocks towards enabling the delivery of Internet services via mobile handsets and key standards for payment and security

c. Mobile interface and applications: This process centres on integrating the infrastructure and systems with users hardware, software & communications .This includes the user interface, navigation & application/middleware development, as well as the authoring tools.

Content: a. Content creation. The focus in this value space is on creating digital material such as audio,

video and textual information. For example, digital news feeds and real-time stock information are available from Reuters.

b. Content packaging: In this box, we are likely to see digitising, formatting, editing, customising, and the use of software to combine and package content. This could include, for example, packaging Reuters’ stock information for FT.com, the online version of the business and financial newspaper. The information on this site is also customisable for individual users who may, perhaps, only be interested in certain financial markets.

c. Market making: Marketing & selling content is the primary role of mobile portals. This includes programme development, service delivery and customer care. For example, the Yahoo! Mobile Web portal provides a one-stop shop for a large number of services.

v

Recent Developments: In April 2010 NTT docomo launched docomo Market, a portal site providing services just for smartphones. While the rich variety of apps available through Android Market and other sites is a major feature of smartphones, docomo Market carefully selects and presents appealing apps and content that tend to be buried in the vast selection available, and that are most likely to appeal to Japanese users. The docomo Market also offers original content from DOCOMO that allows users to enjoy their smartphones, and is part of our effort to help first-time smartphone users to use their smartphones in a simpler and more convenient way. By making DOCOMO's unique services, as well as the services most needed in the Japan market available for smartphones,

Docomo is seeking to enhance customer convenience, and to build for smartphones the same kind of ecosystem DOCOMO has already developed for i-mode.

7. IT Function Leadership:

Data services assistance

Everyday service provider

Communication provider(voice)

IT impact on core capabilities

IT and business Model Transformation

8. Risks Associated:

1. Competition may increase, resulting from the introduction of other new services and technologies, especially low-priced and flat-rate services, such as fixed-line or mobile IP phones, high-speed broadband Internet service and digital broadcasting, public wireless LAN, and so on or convergence of these services. With the use of smartphones and tablets becoming increasingly widespread, many businesses and others have entered the competition in service offerings on mobile phones and it is possible that those businesses, etc. may eventually launch services that are more convenient for customers, thus further intensifying rate competition. Under these circumstances, the number of net new subscriptions they acquire may continue to decline in the future and may not reach the number they expect. Also, in addition to difficulty acquiring new subscriptions, they may not be able to maintain existing subscriptions at expected levels due to increased competition. Furthermore, in order to capture new subscriptions and maintain existing subscriptions, they may need to incur higher than expected costs.

2. Current and new services, usage patterns, and sales schemes introduced by NTT Docomo’s corporate group may not develop as planned, which could affect their financial condition and limit their growth. For example: The expansion of packet communication services and other data communication services is possible from promotion of the use of i-mode, sp-mode and other services, the development and expansion of new services, such as credit services mainly associated with FeliCa, that are useful in everyday life and business, and the development of social support services in various areas, including the environment and ecology, health and medical care, finance and settlement and education. However, a number of uncertainties may arise to prevent the development of these services and constrain their growth. Furthermore, if market growth slows or the market shrinks, the services, forms of usage, and sales methods provided by them may not develop sufficiently, which could affect their financial conditions and limit their growth.

3. The introduction or change of various laws or regulations or the application of such laws and regulations to NTT Docomos corporate group could restrict their business operations, which may adversely affect the financial condition and results of operation. Various governmental bodies have been recommending or considering changes that could affect the mobile

Communication provider(voice)

IT impact on core Strategy

Multimedia services engager

telecommunications industry & there may be continued reforms including the introduction or revision of laws or regulations that could have an adverse effect on NTT Docomo.

9. Recommendation

Possible Alternatives: Three key differentiating alter natives for NTT Docomo:

a. Integration of a Personal life agent:

With the convergence of mobile services and technology and a shift towards providing everyday service in-sync with NTT Docomo’s 2020 Vision – Pursuing SMART Innovation, it is recommended that NTT develops a personal life agent on the lines of Siri in order to aid consumers about key recommendation, tasks, travel schedules etc.Such an ecosystem will increase the switching costs for consumers thus driving the threat of substitutes high for NTT Docomo.

b. Further Internationalisation: With the Japanese market 100% captured it is indispensible for NTT Docomo to increase its share of investments beyond Japan, specifically in emerging economies where the penetration rates are comparatively lower. NTT has been forward thinking in investing in such economies but couple of strategic upcoming economies worth consideration could be Mexico, Papua New Guinea, Vietnam/Combodia amongst others. This would help Docomo in diversification and will pull down the degree of rivalry especially with well diversified players.

c. Development of a Personal Cloud:

industries/services leveraging “DOCOMO’s clouds”, to allow people to lead a smart life

characterized by enhanced convenience, fulfilment. With NTT Docomo’s emphasis on new markets creation such as M2M business, Environment, Aggregation Platforms and Security such a cloud would be a blue ocean value creation increasing business and personal dependence.

10. Reference

http://www.scu.edu/sts/nexus/winter2001/RatliffArticle.cfmmanufacturer-we-feign/http://www.packetvideo.com/Content/en/PressRelease.aspx?pid=61http://www.nttdocomo.com/about/core_foundation/core_foundation.pdfhttp://cct.georgetown.edu/research/thesisdatabase/Li-FangChou.pdfhttp://www.nttdocomo.com/pr/2011/001504.htmlhttp://thenikkei225investor.over-blog.com/article-33293328.html