NTTDoCoMo Reportedly Set to Buy Big Stake in AOL Japan - TheStreet

TOKYO-- Both firms are giants at home, but nobodies overseas.

Now

America Online

(AOL)

, the U.S. Internet service provider, and Japan's mobile phone operator

NTT DoCoMo

are saying enough is enough.

The two firms, which have been the talk of Tokyo over a supposed tie-up for nearly three months, are looking to seal a deal very soon for a broad alliance to develop an international Net service for mobile phones.

Most recently reported by the

Wall Street Journal

, NTT DoCoMo will likely inject around $120 million into AOL's Japanese subsidiary

AOL Japan

, in return for a majority stake in the firm. The report said AOL will cut its stake in AOL Japan to about 39%, while trading firm

Mitsui & Co.

(MITSY)

and publisher

Nihon Keizai Shimbun

will jointly control about 17%.

Although NTT DoCoMo would not officially confirm the

Journal

report, one company source familiar with the negotiations told the

TheStreet.com

: "I would say the deal has a good chance to be signed by the end of the week, followed by a formal announcement early next week." The official also said the tie-up can be expanded at some point, perhaps to include a European telecom carrier or ISP.

By investing in AOL Japan and strengthening its ties with AOL, NTT DoCoMo is also looking for a way into the untapped (from Japan's point of view, anyway) U.S. mobile phone market. The firm wants a quick way to introduce its mobile phone Net service, called I-mode, which enables consumers to use their phones to read the news, trade stocks, book concert tickets, and figure out where to get the best sushi. The service, which was introduced in February 1999, already boasts about 12 million subscribers and has captured about 57% of the market of mobile phone users who have Internet access.

The alliance is not just a boon for DoCoMo, however. AOL has very little presence in Japan, and wants to pull the rug from under current ISP kingpin

Nifty

, which is owned by

Fujitsu

(FJTSY)

. The

Journal

report said AOL is also looking to distribute its email service though DoCoMo phones and to use DoCoMo's retail shops to distribute software packages so it can tap the personal computer market.

A report released today on global wireless commerce by

Jupiter Research

reckons the number of wireless customers with Net accessible handsets will increase by the end of this year to 6 million in both the U.S. and Europe, compared to 30 million in Japan. That means Japanese mobile phone companies will rake in about $400 million of revenues, versus the paltry $15 million for U.S. and European firms. But there is room for more growth in the U.S. and Europe. "The notion that the success of mobile services in Japan is wholly attributable to cultural factors is a handy cop-out by carriers in other regions," said to Seamus McAteer, research fellow at Jupiter.

The latest news on the alliance had little affect on DoCoMo shares traded in Tokyo Monday, largely because the tie-up has already been leaked to the press numerous times and because investors were still taking profits on large-cap shares before the upcoming close of the fiscal first-half on September 30. DoCoMo shares closed down 30,000 yen at 3.04 million ($28,148.15--yes, you're reading that number right).

That said, if investors think this will be the end for DoCoMo's international expansion, think again. The source told the

TheStreet.com

that the firm was still in talks with several U.S. and Canadian telecom carriers. This makes sense since the company is now rumored to be mulling a share placement at the top of the year to raise cash so it can keep expanding overseas and spread its I-mode gospel.