DoCoMo's Got Some Get-Up-and-Go

NTT DoCoMo(NTDMY) is king of the hill when it comes to mobile-phone applications.

Wireless equipment vendors can practice their hyperbole ad infinitum about third-generation systems and 3G's more efficient use of bandwidth. They can make carriers salivate about all the speedy data access that will fuel revenues. But when it's time for wireless promises to make the leap to reality, the industry turns to NTT DoCoMo. What will users pay for, refilling carrier coffers with the billions of dollars the companies spent on 3G licenses? Ask NTT DoCoMo, because its 26.1 million i-mode users pay an average of $19 a month to send messages, post pictures of themselves on the Net, check the pop charts and put animated icons on their mobile phones.

DoCoMo counts 37.8 million users, a stunning 69% of whom subscribe to the data-based i-mode service. After the company's total user additions took a dip in June, NTT DoCoMo was back in stride in July with rejuvenated marketing efforts that helped it garner 58.6% of new Japanese subscribers. In July NTT DoCoMo signed up 1.1 million new i-mode customers, while its monthly churn dropped to a scanty 1.22%. Over the past three months, the company's stock price has not been as fortunate, however, losing 30% of its value (shares of its parent company, NTT(NTT), are down more than 20% in the same time period).

Much of DoCoMo's stock trouble has been caused by worldwide wireless pressures. Its 16% stake in AT&T Wireless (AWE) and its investments in Dutch telecom company KPN(KPN) have slumped with the markets, delaying DoCoMo's attempt to gain exposure by listing in New York and London because of valuation concerns.

DoCoMo's reputation remains intact, however, and AT&T Wireless investors still consider DoCoMo's investment to be a major positive, because they know the 3G game will be won by companies that know how to get customers hooked on data.

To be sure, NTT DoCoMo has run into some high-profile handset and network-software glitches in its 3G service rollout to 4,500 customers in Tokyo, Yokohama and Kawasaki, but those don't detract from i-mode's success. Additionally, it's easy to pinpoint DoCoMo's problems because it's working so aggressively on 3G. When the rest of the pack gets around to testing their 3G networks in 2004, we'll see how smoothly their efforts materialize.

DoCoMo's i-mode service utilizes a model that will need to be modified outside Japan -- from its pay-per-packet economic model to its teeny bopper games. But you would be hard-pressed to name another company that's been able to inspire confidence based on its applications credentials. Are you willing to bet that with DoCoMo's marketing savvy and experience in hooking Japanese customers its success can't be duplicated in other areas with the right partners?

In the end, NTT DoCoMo has been inspirationally successful in getting users excited about more than talking on their mobile phones. With the Japanese market estimated at 51% penetration, according to Credit Suisse First Boston (factoring out the Personal Handyphone Service users expected to move to mobile phones in the future), the country has 10% to 20% more growth ahead before it hits European saturation levels. Add to that its international partners, with their barely cultivated markets for data services, and DoCoMo's track record looks ready to translate into big revenues.

Who won today's Face-Off? Tero Kuittinen Tish Williams

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