Interview: Masayuki Hirata of NTT DoCoMo

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Competition for NTT DoCoMo has strengthened in its home market of Japan, but the company is cutting costs and focussing more on corporate accounts, says CFO Masayuki Hirata. Meanwhile it has changed its international investment strategy, and is also investing in production companies to create new programming for mobile TV, he tells Alan Burkitt-Gray

Masayuki Hirata

Masayuki Hirata: we are trying to produce programming for DoCoMo customers that is not available from digital broadcasters

DoCoMo is now part of the GSM Association's LTE — long-term evolution — strategy. How does that fit into DoCoMo's own long-term strategy?
Masayuki Hirata:
LTE is currently under development. We believe handsets and services eventually will be developed and will be on the market from around 2010.
However though the development will be completed around 2010, the commercialisation of handsets and services is a different question: we had a hard time as the first commercial operator in launching wideband CDMA-based 3G.
Therefore in terms of reducing costs for early deployment we are trying to avoid the situation being repeated again for super-3G — so we are looking for operators so we can benefit from a mass procurement of handsets and deployment of services to keep costs under control.
We are looking at the timing of super-3G with other operators, which we believe naturally would be those with high packet traffic, which are looking for efficient throughput technologies of high packet traffic, which will reduce the cost of early deployment.

Does that mean you're looking for partnerships with other operators around the world?
It's not as extreme as "partner" — maybe "partner" might be too strong a word. We are looking for operators that share the same mindset, that are looking to reduce cost from handset vendors, by increasing the number of handsets while they ensure the right timing to deploy commercial services.

Are you and they approaching handset companies already, to start to talk about this policy?
Yes, we have approached a number of vendors, in terms of development at this stage of base stations and handsets. NEC, Fujitsu and Panasonic are the vendors that we are co-developing base stations with.
We are at the stage where our R&D team is effectively pursuing both base station and handset development.

Until then how is DoCoMo competing in the market in Japan? The company is facing strong competition now and DoCoMo was the leader very early on. You want to maintain that position: what is your strategy for doing that over the next few years?
That's a very difficult and challenging question. Of course there's competition in handsets as well as network configuration, as well as competition by price cutting. In all elements we'd like to enhance the service level, to seek better handsets as well as improve the quality and the affordability.
As the number one operator our focus on strategy is as important as new acquisition of subscribers — equally important is the retention of our loyal base of existing subscribers.

Has number portability changed the mix in Japan so there is more competition — with people moving from you to other operators and back again?
We do not feel a large impact from users migrating from us to operators that we compete with. This has been less substantial and as time goes on there has been a smaller number of ported out subscribers and as a result we are not seeing a significant influence.
In effective terms, pricing competition has a greater impact. For example, Softbank, the number three operator, has been challenging by cutting prices. Though Softbank, by their aggressive pricing strategy has earned — through number portability — a greater number of new subscribers, they have a smaller ARPU.
This is in fact demonstrates that you may increase your subscriber base by discounting your pricing and tariffs. However you will earn only a lower ARPU base of subscribers.

Does that mean — because of price competition — you have to reduce your costs? You have a lot of fixed costs: how do you reduce the costs of the rest of the operation?
There are two major elements. We have started to stop the subsidies that we provided as sales incentives for handsets. Handset subsidies went too much to the extreme — just before we ended our handset subsidies we had to provide 37,000 yen of subsidies per handset sale on average.
Last November we switched to a new handset sales model, and handsets are now sold at a fixed price. In exchange for that higher upfront cost the subscriber has to pay we provide a discount on basic charges — and we believe that will substantially reduce the sales cost.
In fact the second element is that we had eight regional sales companies in DoCoMo. We are going to integrate these sales companies — they had duplication in customer centres, repair centres and so on, and we are trying to integrate them. It reduces the sales cost and the maintenance cost.
Our competitors, several years back, already started to integrate their formerly separated regional sales companies.

Will that reduce the number of people employed by the DoCoMo group — and by how much?
As you know very well about Japanese employment practices, they will be shifted or reallocated — to the more demanding corporate sales front, especially for the enrichment of corporate services.
This is because our activities related to corporate accounts for sales and marketing has been enhanced. We see activity rising for fixed-mobile convergence — so you can follow your sales activity or your staff by using your handsets internally as a corporate phone and outside as a mobile phone. We are going to reallocate our staffing to the corporate side of business development — and also in consulting and providing proposals.

How many staff will that involve?
If my memory is correct, of the order of several thousand for the nationwide coverage of corporate accounts.

Let's turn now to NTT DoCoMo's strategy outside Japan. You used to have investments in Europe and elsewhere, but your policy has shifted.
Our main focus is in Asia and the Pacific. The stepping stones that we will further exploit include roaming and to further expand common services to corporate accounts. What is slightly different is our equity capital investments and seeking a certain return on the investments. We acknowledge well that seeking returns on our equity investment is of course very important. However beyond that we're trying to seek returns on enriching our service line-up. This is because we're investing as an operator.
We have already invested in a number of stakes in operators in Asia. However, to our regret — with a very small exception — our stakes have been minority stakes. Some states still have foreign ownership restrictions which limit us from majority stakeholding.

Are you saying that if there weren't those restrictions you would like to have a majority stake in some companies?
Yes, we do have the intention to take majority stakes if we are provided with the opportunity, with the lifting of foreign ownership stake restrictions. In Guam and Saipan we have a 100% equity stake, because they do not have any restrictions. This is justified because of the number of Japanese visitors — 1.3 million — to Guam and Saipan. We want to provide the same services when our customers travel to Guam and Saipan as they would enjoy in Japan.

Does that mean investment is largely to provide services for your customers abroad, outside Japan, rather than that you see growth opportunities for your services from the local population? Does the local market come into the calculation?
Yes, 3G wideband CDMA services are just starting in Asia — and we have invested to deepen our support. This is also the right timing because we do see more affordable handsets with dual mode capabilities — GSM and WCDMA handsets coming to the market.

Does that give you more leverage with your vendors?
It is very challenging. We are trying to work it two ways. We want to increase our influence on global vendors, and secondly to increase the opportunities for Japanese vendors to sell their handsets in the region where we have invested.
We are trying to capture some parts of the Asian markets which are more demanding in terms of handset functionality — though in general Japanese handsets have relatively high functionality. We do believe that in certain parts of Asia we see a rising level of demand for more highly functional handsets.

Which takes us to mobile television, in which you're investing in Japan. It's still a very controversial area, and some people are very sceptical about mobile TV.
At the moment, though we have mobile TV reception, it hasn't earned us revenue because we are simulcasting digital terrestrial services. However it's become a standard feature, because our subscribers are looking for mobile TV-equipped handsets.
Japan still has restrictions on simulcasting, but we will see the restriction end this year. We have invested already in programmers for programming that will fit the size of mobile handset screens.
We are already addressing the question of mobile TV production by investing in a TV production studio and a film producer.
What is the killer application for the handset size? What is the content that we should be producing? We are trying to produce applications, or content, or programming, that is not currently provided by digital terrestrial broadcasters and will create continuous viewing on handsets.

Will you solely do this with these investment partners or are you considering replicating the model you had for i-mode, of creating an ecosystem for content producers?
There are two separate things. Receiving broadcasts on handsets is a regulated field and that is why we are working with broadcasters and developing the programming.
However communications is deregulated, and we have provided a platform for mobile internet access via the i-mode platform. The i-mode channels from content producers can be numerous, unlimited.
There is a limited number of licensed broadcasters and broadcasting spectrum is limited to carry the programming — and therefore we are trying to serve the viewers by producing the right content with programmers. GTB