TOKYO -- When you walk into the brand-new headquarters of

NTT DoCoMo

, Japan's top mobile-phone operator, it's easy to see how powerful the company has become.

While many Japanese companies have fired their receptionists to cut costs, DoCoMo has eight smiling women who greet guests with a bow. They also have five guards walking around the reception area, no doubt making sure none of the three dozen businessmen waiting around get unruly.

DoCoMo's success in a struggling economy is nothing short of inspiring and the news Wednesday that it may have clinched a deal with

America Online

(AOL)

pleased investors. Shares of DoCoMo jumped

90,000, or 3.1%, to

2.97 million ($27,195.31) after the

Nihon Keizai Shimbun

, Japan's leading business daily, reported that DoCoMo will make AOL content accessible to phone users not just in Japan, but worldwide. Both DoCoMo and

AOL Japan

declined to confirm or deny the report, but the paper said a deal could be sealed as early as next month.

DoCoMo, which is 67% owned by Japan's telecom monopoly

Nippon Telegraph & Telephone

(NTT)

, is at the top of its game. It has more than 31 million domestic subscribers, capturing about 57% of the total market. Group net profit for fiscal 1999 rose 23% to a record

252.1 billion ($2.3 billion). Its i-mode Internet phone service, which started in February 1999, already has 8.3 million users. The service is so popular that many Japanese have come to prefer shooting mail to one another over their phones rather than actually talking.

Trying to Tap the U.S.

That said, for a company that has such a marketable technology, DoCoMo has been rather slow in securing a chunk of the global pie. To be sure, it has cut deals with Hong Kong's

Hutchison Whampoa

and the Dutch

KPN

(KPN)

to break into the European market for third generation mobile-phone services, but DoCoMo has missed huge opportunities so far, losing bidding wars for the U.K.'s

Orange

and, most recently,

VoiceStream Wireless

(VSTR)

in the U.S. So despite the potential AOL deal exciting the market, the firm's shares, which are down 33% from the high posted earlier this year, may slide even lower if it doesn't plug a major hole in its expansion plan: a deal with a U.S. carrier.

"We're still new to the overseas game and yes, I admit we do have some human resource problems," says Kiyoyuki Tsujimura, managing director of DoCoMo's global business division.

The supposed deal with AOL will lose its luster if the firm isn't able to distribute the content in the U.S. Although Tsujimura "regrets" not securing a deal with VoiceStream, he insists he has "a few deals" cooking. Possible linkups include

Verizon Wireless

(VZ) - Get Report

,

AT&T Wireless

(AWE)

,

Sprint

(FON)

,

Nextel Communications

(NXTL)

, the venture to be formed by

BellSouth

(BLS)

and

SBC Communications

(SBC)

, and Canada's

Telesystem International Wireless

(TIWI)

.

The Barriers to Expansion

There are many barriers to DoCoMo expanding overseas, starting with language. Tsujimura estimates only 250 people out of the total 15,100 employees in the entire firm speak English. That's going to be a pain when DoCoMo tries to peddle services in the U.S.

And other hurdles for DoCoMo won't be easily overcome unless the government steps in.

"The merger & acquisitions scene in Japan

could be so much bigger if it weren't for the existing laws," says Masahiro Tsuda, general manager at

Nomura Wasserstein Perella

, one of Japan's top M&A advisors. "Although we've seen some decent domestic IT-related mergers, the chances of Japanese firms buying out overseas firms is slim."

One of the biggest blocks is what is known as the commercial code, which is a set of rules written a century ago that governs everything from share swaps to public offerings to the shareholder meetings. For example, the stronghold of the parent NTT partly exists since the code makes it hard to spin off subsidiaries due to high taxes. The Japanese government started to review the code this summer, and officials say it will take at least two years before any changes are made.

In addition, DoCoMo can never be at the forefront of the M&A scene since it's avoiding taking a majority stake in firms. Since its parent NTT has so far refused to lower its stake, DoCoMo doesn't have enough shares to conduct equity swaps. Also, with the government still holding nearly 60% of NTT's shares, it is somewhat forced to take minority stakes since overseas regulators probably wouldn't approve a merger that indirectly involves a foreign government. DoCoMo's worries are not far-fetched, since the U.S. has already raised concerns about

Deutsche Telekom's

(DT) - Get Report

deal to buy out VoiceStream.

And perhaps the biggest risk for DoCoMo is whether the firm's WCDMA technology, which is also backed by

Ericsson

(ERICY)

and

Nokia

(NOK) - Get Report

, will prevail in the U.S. market over rival technology CDMA2000, developed by

Qualcomm

(QCOM) - Get Report

.

These problems, however, don't bother Makio Iunui, analyst at

Nikko Salomon Smith Barney

. He reckons the firm's shares should be around 4 million even though the stock currently trades a whopping 221 times more than its earnings. Inui recommended the stock as a buy in a recent report since DoCoMo has superb overseas marketing capabilities due to their success with i-mode. (Nikko Salomon Smith Barney has done no underwriting for DoCoMo.)

"Of course we'll have to make some modifications from the current service, like adding bigger screens and so forth. But I envision everyone in the U.S. will have access to this," Tsujimura says with a grin, as he punches a string of buttons on his personal i-mode. And in a matter of seconds, the phone is ringing the tune of the "Star Spangled Banner." So loud it almost drowns out his laughter.