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NTT Docomo, Japan’s largest mobile operator, has recently hinted it will step up its efforts to expand its international businesses via further investment in Asia and by increasing cooperation with the large Chinese mobile firms. Last year, the operator – which is battling slowing growth in its domestic market – set a target of 10 percent of its sales to come from foreign ventures within a decade. For its fiscal-year 2008 (which ended 31 March 2009), Docomo’s international operations accounted for JPY90 billion (US$966 million) of revenue, representing some 2 percent of total operating revenues of JPY4,448 billion. It forecasts that international revenues will grow to JPY100 billion (2.3 percent of projected total revenue) in its current fiscal year, which ends in March 2010. Currently the majority of its international revenues derive from international dialing and roaming rather than contributions from its overseas affiliates. International dialing and roaming accounted for JPY54.1 billion (60 percent) of international revenues in Docomo’s FY2008.

Docomo divested many of its earlier overseas assets – which once included equity stakes in major international operators such as AT&T, KPN and Hutchison/3 – at the beginning of the decade, incurring significant write-down costs in the process. In the last couple of years, however, the operator has steadily increased its international footprint. As our 1Q09 group data shows, Docomo now has interests in mobile operators in eight Asian markets outside Japan.

Its most significant (and most recent) overseas venture concerns its 26 percent stake in India’s sixth-largest mobile operator, Tata Teleservices (TTSL), which it acquired for JPY264 billion (US$2.8 billion) late last year and closed in March 2009. On both a total and proportional basis, India is now Docomo’s second-largest market in terms of subscriber connections. Investors have questioned the size of the investment for a minority stake but Docomo has been keen to highlight the key role the firm will play in TTSL’s future expansion. The firm – currently a CDMA-based operator – launched its new GSM-based network in the circles of Chennai and Tamil Nadu last month under a new brand, ‘Tata Docomo.’ The new network is expected to be rolled-out across the entire country by year-end. Network rollout cost is estimated at US$2 billion, though Docomo has said that build costs for the GSM network are around 30-40 percent lower than usual as TTSL is able to utilise its existing CDMA facilities. Rollout of WCDMA – another key area where Docomo is expected to provide expertise to its local partner – is also expected once licenses are issued in the country, scheduled for later this year.

Docomo has given no firm projections for a return on its investment in India, but has forecast that the new GSM network could attract 100 million customers (net additions) over the next three years. According to Wireless Intelligence data, total Indian connections grew by 39.2 million to 391.8 million in 1Q09, making it the fastest growing mobile market in the world in terms of volumes, while penetration stands at only 34 percent. This is in stark contrast to the situation in Japan, where connections grew by less than 2 percent in the quarter.

Other recent investments by Docomo have targeted similar high-growth Asian markets that are at early-stage rollout of WCDMA. In April 2008, Docomo and long-term partner KTF of South Korea jointly acquired a 33 percent stake (16.5 percent each) in new Malaysian WCDMA operator U-Mobile. Docomo also owns two separate stakes in the fast-growing Philippines, a 14 percent stake in second-placed mobile operator Smart and a 13 percent stake in its subsidiary, Piltel. It also closed the acquisition of a 30 percent stake in Bangladesh’s Aktel in September 2008, a market that is also in the process of issuing WCDMA licenses.

Docomo’s other overseas interests such as Hutchison (Hong Kong/ Macau) and Far EastTone (Taiwan) date back to its earlier international investment drive at the turn of the century. However, the Pacific island of Guam remains its only wholly-owned mobile subsidiary outside of Japan. Most of the Docomo-affiliated operators are part of the pan-Asian ‘Conexus’ roaming alliance. Docomo’s targets for further investment in Asia remain unknown, though the operator has ruled out direct investment in China due to the high costs of acquiring an equity stake in one of the country’s three major operators, China Mobile, China Unicom and China Telecom.  A technology partnership with one of the Chinese operators is deemed a more likely strategy.

Matt Ablott, Analyst, Wireless Intelligence

Having retrenched to its domestic market earlier in the decade Docomo’s strategy is now to build an international footprint, primarily through investment rather than acquisition. Asia is a natural starting point and India will be a key focus in the medium- to long- term. Despite its minority equity stake, Docomo has stated its intention to be an equal partner with TTSL in the rollout of the operator’s new GSM network. Docomo is likely to play a key role in targeting TTSL at the high-value consumer and enterprise segments, two areas where Docomo’s brand and expertise will be beneficial in differentiating the network in a crowded marketplace. As well as supporting the financing of the GSM build-out, Docomo is also likely to be an influential player when India’s long-awaited WCDMA licenses are allocated. Outside of India, Docomo has already made moves into similar high-growth markets such as Bangladesh, the Philippines and Malaysia, where it could pursue similar strategies. Further investments look possible in markets such as Indonesia, Thailand and Vietnam.