DoCoMo puts a brave face on it, but competition's costing it dearly
- New price plans shave US$1.5bn from Japanese telco's profits
- DoCoMo banking on 5G VAS, customer experience push to take on Rakuten
- But further price cuts not out of the question
NTT DoCoMo chose its words very carefully in the documentation accompanying its full-year results earlier this week, but the facts are pretty clear – it is feeling the pinch from regulatory changes and the arrival of new competition, and it might have to cut prices further to retain customers.
Fiscal 2019 was weak for Japan's mobile market leader, with revenues slipping by 3.9% to 4.65 trillion yen and net profit down by 10.9%. The telco has taken great pains to note that it beat its initial guidance, but that does not change the fact that it is having a really tough time.
DoCoMo introduced two new rate plans this time last year, rolling them out in June, in response to government pressure to reduce prices and boost competition in the market. Those plans, GigaHo and GigaLite, which are essentially better value data plans for both heavy and light users, have already had an impact on DoCoMo's finances.
16.51 million people had applied for the new plans as of the end of March, DoCoMo CEO Kazuhiro Yoshizawa revealed in a statement accompanying the telco's numbers. That's a substantial portion of its 78.5 million-strong mobile customer base. As a result, operating profit at its telecommunications business, which accounts for two-thirds of revenues, was down by 18.4% year-on-year to JPY706.5 billion. Or to put it another way, being forced to offer more competitive tariffs has shaved almost JPY160 billion off the telco's profits, which equates to around US$1.5 billion. Ouch.
Yoshizawa attempted to play down the financial hit at the telecoms unit by sharing that, "On the other hand, the operating profit from Smart life business and Other businesses posted a year-on-year increase of 0.5% to JPY148.1 billion," but that's an uptick of around US$7.5 million, which isn't really in the same ballpark, particularly given that the Smart life unit saw profits more than halve, with all the growth coming from 'other'. Double ouch.
But I digress.
Sadly for DoCoMo, its full-year figures do not reflect the full extent of the challenge it faces. Much-hyped market newcomer Rakuten Mobile launched on 8 April, after the end of DoCoMo's financial year, and its pricing plans massively undercut the incumbent's. As we pointed out last month, DoCoMo's GigaHo plan for heavy data users is more than twice as costly as Rakuten's unlimited data tariff. And that's without taking into account the fact that Rakuten is offering a free service to its first 3 million customers.
It is too early for Rakuten to have shared any details on uptake of its service, but it's not too early to speculate that DoCoMo's figures this time next year will reflect the impact of its new rival.
In the meantime, DoCoMo has a plan. A carefully-worded plan. It's a three-pronged strategy, the first of which is dubbed 'further reinforcement of customer base.'
"As we enter a new dimension of competition with the launch of commercial 5G services and the full-scale market entry by a new network operator, we will continue to enrich our rate plans catering to the usage needs of customers and make steadfast efforts for an early buildout of 5G coverage, one of the sources of our competitiveness, to solidify our customer base even further," Yoshizawa explained.
"Enrich" suggests DoCoMo aims to tackle Rakuten's super-cheap plans by offering customers more data. Whether it will be more data for less money remains to be seen. Oh, and it's placing one or two eggs in the 'roll out 5G as fast as possible' basket too.
Yoshizawa also indicated that improving customer experience and loyalty will also feature, while point two of the plan appears to be centred on building stronger customer relationships and boosting stickiness by encouraging customers to take up financial and entertainment service offerings.
Point three, 'new value creation for the 5G era,' is essentially DoCoMo aiming to persuade subscribers to upgrade to 5G by pushing the value-added services it can offer. "We plan to create and offer new sensory services and experiences centred on video, e.g., 8KVR lives, multi-angle viewing and gaming services," the CEO's statement reads.
That's very commendable, but with the global economy taking a hit – to put it mildly – as a result of the Covid-19 pandemic, will customers look to pay more for 5G VAS from the incumbent, or pay less for a more basic plan that includes unlimited data from a start-up?
DoCoMo itself warned that the pandemic will have an effect going forward, in that it declined to provide guidance for the current financial year, through 31 March 2021, since it is unclear what the impact will be.
One thing is clear though: NTT DoCoMo faces a tough year ahead. We just don't yet know whether Rakuten Mobile or Covid-19 will prove the greater threat.
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