Global Insight Perspective | |
Significance | NTT DoCoMo is considering ending 2/2.5G ‘mova’ mobile handset sales and only selling 3G FOMA handsets in the future. |
Implications | Such a move would enable the operator to focus efforts on growing its 3G business but it could face the risk of weakening its foothold in the low-end market. |
Outlook | Japan's mobile market will see further intensified competition after mobile number portability (MNP) takes effect from November this year. This presents both an opportunity and a threat for DoCoMo. |
Japan's largest mobile operator said today that it is considering ending sales of its 2/2.5G mova handsets to focus on the 3G FOMA business, Dow Jones reports. It plans to continue offering mova services, but the handsets will begin disappearing from the shelves of outlets. A DoCoMo spokesman said that his company would decide when to halt 2G handset sales depending on demand. DoCoMo rival KDDI has already begun selling only 3G phones.
Outlook and Implications
Boost for 2/2.5G to 3G Migration: DoCoMo hopes that such a move will help accelerate the migration of customers from its 2/2.5G network to 3G. Both DoCoMo and KDDI have seen a rapid increase in their 3G customer bases. DoCoMo's W-CDMA FOMA service had acquired 24.6 million subscribers by the end of last month, accounting for 47.8% of its total subscriber base. Meanwhile, KDDI had 22.2 million customers for its CDMA 2000 1X service, representing 96.4% of its total subscriber base. Both operators have reported sequential increases in non-voice/data as a proportion of service revenues/ARPU. With MNP expected to arrive this year, DoCoMo could also take advantage of this opportunity to further expand its 3G customer base.
3G's Uncertain Uplift of ARPU: Given intense price competition in the voice space and the migration of customers to flat-pricing plans, rapid 3G uptake in itself is not enough to simulate ARPU growth. Both DoCoMo and KDDI have seen continued ARPU erosion, as data ARPU growth has failed to compensate the rapid decline of voice ARPU (see World: 26 January 2006: Mobile Metrics - Asia Leads the Way in the Global 3G Market). In such a situation, DoCoMo hopes that the provision of advanced non-messaging services - such as gaming, music and mobile TV - will help lift ARPU and revenue levels. The migration of customers to more content-centric 3G handsets could encourage the usage of such services.
Ability to Serve Low-End Customers: If DoCoMo stops selling 2/2.5G handsets, it will be facing the risk of weakening its foothold in the low-end market. Despite its efforts to grow data services, total ARPU and revenues are still primarily driven by voice usage. Therefore, the importance of the voice service cannot be ignored. Although DoCoMo is beginning to experience a rapid decline in its 2/2.5G customer base, more than half of its customers are still on its 2G/2.5G network at present. Although the number is expected to further decline, there are still a large number of low-end customers to serve in the market. These are mainly interested in voice usage, rather than new services and functionality delivered over 3G networks.
Opportunities for Smaller Rivals: Japan's mobile market will see increased competition from two new comers, IPMobile and eAccess. The former is to begin offering commercial services on 1 October 2006, while the latter - the mobile arm of eAccess - aims to launch on 15 March 2007. Although both operators are yet to develop a clear mobile strategy, the low-end market segment could present a good opportunity if DoCoMo decides to leave it. Even Softbank, which recently acquired Vodafone KK, could take this opportunity to strengthen its position in the low-end market while continuing to grow its 3G business. The operator has so far lagged far behind its larger rivals on the 3G front, with some 3 million 3G customers out of its 15.2 million-strong mobile customer base (see Japan: 4 April 2006: Softbank Borrows US$10.9 bil. to Fund Vodafone Tender Offer).