DoCoMo-KDDI Battle Rages On
By Carlo Longino, Fri Jul 30 14:15:00 GMT 2004

The fight between Japan's top two carriers is taking its toll on NTT DoCoMo's profits.

DoCoMo said its fiscal first-quarter profit was off 13 percent from last year due to increased customer-acquisition costs as it tries to win over customers to its 3G FOMA network. The carrier evidently spends 10,000 yen (about $90) more in acquisition costs for 3G users than it does on new 2G customers.

The costs are made up of handset subsidies, dealer commissions and tariff discounts -- a strategy that can punish earnings in favor of driving market share and subscriber additions. Though DoCoMo added more new users in June than KDDI for the first time in 8 months, its market share in the quarter slipped two-tenths of a point to 56.1%.

In addition to higher costs hitting profits, lower ARPU sent revenues 2.5% lower. Data ARPU was up only 40 yen (about 35 cents), with a fifth of FOMA users now on a flat-rate data plan, and voice ARPU was off more than 10% to 5,450 yen (about $49).

KDDI, on the other hand, said revenues at its au mobile-phone unit (PDF) increased 12% over the previous year, and operating income grew nearly 25%, driven by a 20% increase in subscribers. KDDI's ARPU slipped too, but only by about 3%, compared to DoCoMo's 9% drop.

DoCoMo is playing a dangerous game, and while it may be able to absorb the higher costs and deeper discounts in the short run, customers won't react well when it tries to raise prices in the future. And it's pretty certain that when it does, KDDI, which has proved a thorn in the bigger company's side, will be waiting to pounce.