Case analysis from DoCoMos point of view

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Case analysis from DoCoMos point of view

• Group 2B FT 2005
• Simone Huijs / Suraj Basnet / Ken Kodaka
• / Eugene Kolesnikov / Joan Moreau / Piercarlo
  Oddone
• Rotterdam School of Management
• Erasmus Graduate School of Business

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Agenda

• Overview
• Business analysis
• Key issues
• Future strategy

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DoCoMo company
Overview
Business analysis
Key issues
Future strategy

• History
• Feb 1992 NTT, the largest Japanese telecom
  company, spun off its wireless division DoCoMo
• Feb 1999 DoCoMo launched i-mode service
• Main facts and figures
• Mobile phone users 45 million
• i-mode users 40 million
• Revenue US 45 billion
• Employees 21,000
• Market share in Japan 57

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Past DoCoMo success factors
Overview
Business analysis
Key issues
Future strategy

• Japanese market specifics
• High mobile penetration / low enthusiasm for PCs
• High costs of dial up internet access
• Attracted to new gadgets
• Long commuting time by public transport
• Oligopolistic market with dominant position of NTT

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What is i-mode?
Overview
Business analysis
Key issues
Future strategy

• Always-on mobile internet service
• Bundled service
• Pre-configured handset providing
• Closed portal
• i-Menu/Bookmark list
• M-commerce
• E-mail
• Downloads

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What are i-mode services ?
Overview
Business analysis
Key issues
Future strategy

• 1. EntertainmentCharacter download / Horoscope
• / Fortune telling etc.
• 2. InformationNews updates / Weather forecasts
• / Sports news etc.
• 3. DatabaseTelephone directory / Search
• / Restaurant guide etc.
• 4. TransactionMoney transfer / Checking balance
• / Security trading etc.

A 3D baseball game
Pokemon Hiroba
CNNUp-to-the-minute news
Weathernews
Amazon.co.jpThe online book store
Northwest AirlinesFlight schedule, prices
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What is i-mode technology ?
Overview
Business analysis
Key issues
Future strategy

• Hardware
• Network packet data service
• Specific handset
• Middleware / Application
• Based on c-HTML
• Use of packet switching
• Integrated billing system

• Is it WAP/WML ? No
• WAP is based on circuit switching (slower)
• c-HTML can do WML 1.0
• Capabilities of WML 2.0 exceed the ones of c-HTML
  !

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Distinctive value of i-mode
Overview
Business analysis
Key issues
Future strategy

• Horizontal integration mobile phone with
  internet
• Internet access information (24/7)
• Mobile phone access wherever you want
• Vertical integration
• Integrated contract/billing system with content
  providers
• Electronic concierge
• Customer value
• Focus on content, pricing based on usage
• Integrated content (Internet/Voice/Proprietary)
• Low costs
• Compatible technology from start on
• Strong brand positioning / link with NTT

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Business model
Key issues
Future strategy
Business analysis
Overview
Network externalities Increasing value of
network

• High switching
• costs
• specific handset

Economies of scale
Clear/strict rules for content providers
Use of content aggregators
Characteristic
Attractive for new customers
High customer retention
Lower cost supporting customer
Clear and simple environment for customer
Affordable cost for customers Efficient content
consolidation
Benefits
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Revenue mechanism
Key issues
Future strategy
Business analysis
Overview

• Direct revenue streams
• i-mode service subscription
• Packet volume payment
• Shared revenue streamsfrom content usage
• DoCoMo 9
• Content aggregators 70
• Individual content providers 21

Network
Content
Billing
Handset
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Value creation -Value network-
Key issues
Future strategy
Business analysis
Overview

• Firm infrastructure

HR management
Technology development
Procurement
Network promotion contract management

• Advertising and promotion to mobile phone users
• Selection of Content Service Providers (CSPs)
• Maintaining subscription contracts
• Maintaining contracts with CSPs
• Lobbying with regulators
• Service branding
• Attractive revenue sharing
• Ease of content creation by C-HTML

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Value creation -Value network-
Key issues
Future strategy
Business analysis
Overview

Firm infrastructure
HR management
Technology development
Procurement
Network promotion contract management

• Advertising and promotion to mobile phone users
• Selection of CSPs
• Maintaining subscription contracts
• Maintaining contracts with CSPs
• Lobbying with regulators
• Service branding

• Service provisioning
• Mobile phone provisioning
• Phone usage options
• Integrated billing system
• i-menu

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Value creation -Value network-
Key issues
Future strategy
Business analysis
Overview

Firm infrastructure
HR management
Technology development
Procurement
Network promotion contract management

• Advertising and promotion to mobile phone users
• Selection of CSPs
• Maintaining subscription contracts
• Maintaining contracts with CSPs
• Lobbying with regulators
• Service branding

• Service provisioning
• Mobile phone provisioning
• Phone usage options
• Integrated billing system

• Infrastructure operation
• Network maintenanceand expansion
• Front office operations
• Back office operations

Model Stabell and Fjeldstad (1998)
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SWOT today
Key issues
Future strategy
Business analysis
Overview

• Strengths
• First mover advantage, experience, brand
• Resource leverage
• Bold and innovative company culture
• Synergies with NTT including handset production
• Broadband capability via 3G

• Opportunities
• Low penetration rate European/US market
• Transition to 3G/4G new multimedia services
• M-commerce / L-commerce
• New technologies in the RD pipeline
• Entering into new markets (e.g. China)
• Machine to Machine communication

• Weaknesses
• Lack of own network in other countries
• Late globalization effort
• Narrowing technology gap with other companies
• Limited international management experience
• Dependent on partners outside Japan

• Threats
• Other mobile networks encouraged by i-mode
  success
• Mobile operators providing network connection
  (e.g. WiFi transformation into WAN, satellite
  broadband)
• Traditional ISPs using 3G/4G capability
• Cultural differences in Europe and USA

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Porters analysis
Key issues
Future strategy
Business analysis
Overview
New entrants ISP / Data providers Mobile
operators Barriers high Licenses Regulations
Roll-out costs

• Buyers
• Short term
• Medium bargaining power
• Can buy from competitors in Japan
• High switching cost
• Long term
• High bargaining power
• Standardization increases bargaining power
• Competitors in global market

• Suppliers
• Content providers
• Non-partners no bargaining power
• Partners low bargaining power
• Manufacturers medium bargaining power
• May increase the costof handsets due to
  specialization

Industry rivalry High Japan established
position Global expansion
Substitutes Handsets PDAs (based on WindowsCE,
PalmOS, etc..) Network Standardized networks
(WiFi/3G) Content Open standards (WAP2)
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Key issues
Overview
Business analysis
Key issues
Future strategy
Future strategy
Overview

• Lack of own networks, tough competition globally
• Case study Partnership with ATT
• Narrowing technology gap with other companies
• Case study Innovation at DoCoMo
• New technologies competing for network services
• Case study 3G 4G generation
• Business model success encourages competitors,
  traditional ISPs and operators come into play
• Case study WiFi

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Case study ATT (1/2)
Overview
Business analysis
Key issues
Future strategy
Future strategy
Overview

• Reasons for partnership with ATT
• Global standardization of 3G (W-CDMA)
• Globalization of i-mode
• Revenue and growth opportunities (US mobile
  penetration is 50)
• Share risk reward
• Acquisition of international management
  experience
• Developing advanced services (e.g. i-appli, M2M
  communication)
• Results
• Shift to technical cooperation with Cingular to
  enhance W-CDMA
• Starting 3G service in US with Cingular from
  December 2004

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Case study ATT (2/2)
Overview
Business analysis
Key issues
Future strategy
Future strategy
Overview

• Update of the case
• Partnership was a failure
• DoCoMo had 16 of ATTs shares but lost 75b
  (three fourth of its investment) by IT bubble
  burst
• ATT acquired by Cingular wireless
• Sold share of ATT to Cingular
• Not yet succeeded to standardize i-mode / W-CDMA

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Case study Innovation at DoCoMo
Overview
Business analysis
Key issues
Future strategy
Future strategy
Overview
Unless we are able to cultivate and grow data
traffic, we cannot guarantee further growth for
the mobile industry Keiji Tachikawa, CEO of
president

• 1997 - Launched packet data communication service
• 2000 - Launched phones with cameras
• 2001 Launched i-Appli, a service based on Java
• October 2001 - Launched 3G (FOMA) service in
  Japan (currently 3m users)
• October 2003 - Introduced 2Mpix devices that can
  record video and use i-Appli DX
• In the works - Finger Phone using bone
  conduction technology
• Machine to machine communication

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Case study 3G/4G/WiFi capabilities
Overview
Business analysis
Key issues
Future strategy
Future strategy
Overview
Mobility Area / velocity

Opportunity to penetrate into ISP / Wireless
market
Wide Area / high speed
4G
Urban Area /medium speed
2G,3G
Wireless LAN, ISP
Limited Spot / walk speed
Fixed line /no mobility
0.1
1
10
100
Speed of communication (Mbps)
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Case study 4G technology (1/2)
Overview
Business analysis
Key issues
Future strategy
Future strategy
Overview
Family Safety
Shopping
1980 1G
1990 2G
2010 4G
2000 3G
Voice service
Voice Low speed data transfer 64kbps
Voice High speed data transfer 384k- 2Mbps
Voice Super high speed data transfer 50M-
100Mbps
Traffic solution
Natural disaster
From Analogue To Digital
Improve utilization of frequency
Providing ubiquitous seamless services
Ubiquitous

• Beginning of data transfer service

• Solution to multimedia communication that needs
• huge data transfers

• Solution to lack of frequency
• Alignment to global standard
• Proposition of affluent content

Pet safety
Home electric appliances
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Case study 4G technology (2/2)
Overview
Business analysis
Key issues
Future strategy
Future strategy
Overview

• Seamless, ubiquitous and super high speed
  connection
• Business use examples
• Business trip with super high speed connection
  from anywhere by using your PC
• Video conference from high speed train
• On time supply chain management
• Reporting by using video
• Home use examples
• Solution to avoid redundancy between mobile phone
  and current internet connection
• Faster connection for video download or TV
  telephone than 3G

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Case study WiFi (1/3) Competition
Overview
Business analysis
Key issues
Future strategy
Future strategy
Overview

• Barriers of implementation
• Cost of deployment
• Coverage -gt tiny range applications
• e.g. Over 1000 companies use Cisco phones in
  office environment to make voice calls routed
  over internet at no additional cost
• Oriented towards VPN and local secured networks
• Current trends
• Competitors of DoCoMo in Europe are about to
  install a WiFi based phone over IP in big cities
  (e.g. SFR in France)
• Industry to invest in technologies
  (Skype/Siemens, or Linux/Openwave, even
  WindowsCE/HP)
• Speed reaching 4G levels with WiMax, or several
  other standards

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Case study WiFi (2/3) Threat or opportunity ?
Overview
Business analysis
Key issues
Future strategy
Future strategy
Overview

• Currently not a significant threat
• More focused on B2B than B2C
• Technology still not stable and under development
• But, in the long term
• Could replace 3G/4G phones in big cities, which
  is the biggest market of mobile companies like
  DoCoMo
• Could push out of market any proprietary, not
  Internet based, technology
• Mix Voice and Data over a single IP broadband
  network
• Fully multimedia, using Windows or Linux based
  PDA/Mobile phones
• It is also an opportunity for DoCoMo because
• Entering ISP market through using 4G network
  connection
• It is a new free network to use the same
  strategy as for I-mode
• Increasing attraction to technology in Europe

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Case study WiFi (3/3) Recommendations
Overview
Business analysis
Key issues
Future strategy
Future strategy
Overview

• Maintain current customer base
• Aggressively compete with current ISPs to
  minimize opportunities for their capture of the
  4G services market
• Penetration into ISP or WiFi service market
• Reduce cost for connection time
• Educate customer of new opportunities in ISP
  usage
• Partnership with ISP
• Competing/Partnering for providing Docomo
  WiFi/4G handsets
• Mobile companies that would be partners for
  I-Mode become competitors

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Future strategy
Overview
Business analysis
Key issues
Future strategy
Overview

• Objectives Acquire new customers, provide
  increasing value of services on a global basis
• Acquisition of new customers
• Expand in emerging markets
• NTT DoCoMo is likely to invest 10Bn in China
• China currently has 200M mobile phone
  subscribers with
• 5M new subscribers every month
• Partnership
• Partnership with KPN, Hutchison
• Competing with similar services by Vodafone,
  T-mobile Telia etc.

October 9th 2003 Economist
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Future strategy
Overview
Business analysis
Key issues
Future strategy
Overview

• Improve value of the following services
• i-appli
• i-shot
• i-motion
• i-area
• M2M communication
• Provide a wide range i-mode content
• Provide TV programs and movies by partnering with
  media companies
• Collaborate with CRM system
• Provide higher quality pictures and video
  messages than 3G
• Introduce interactive mobile games

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Questions ?