DoCoMo Ends IPhone Holdout to Win Back Customers

September 11, 2013 Leave a comment

DoCoMo Ends IPhone Holdout to Win Back Customers

NTT DoCoMo Inc. (9437) agreed to offer Apple Inc. (AAPL)’s iPhones as Japan’s largest mobile carrier backs the latest handset to reverse market-share losses as customers flock to smaller rivals. Two new smartphones, including a cheaper $99 version in bright colors and an updated high-end device, will go on sale Sept. 20 for the Japanese carrier’s network, Tokyo-based DoCoMo said in a statement. Apple debuted the 5C and 5S iPhones at an event at its Cupertino, California, headquarters.DoCoMo had resisted the iPhone to focus on handsets from Sony Corp. (6758) and Samsung Electronics Co. (005930) and protect its online store, called dmarket, from competition with iTunes, a stance that’s resulted in customers moving to rival wireless carriers. DoCoMo’s share of mobile users slumped to 46 percent in August, compared with 52 percent in 2008, as first SoftBank Corp. (9984) and then KDDI Corp. (9433) won Japanese users with the Apple handset.

“The causes of cancellation for DoCoMo’s phones has been the lack of iPhone and this would prevent customers from moving,” said Yusuke Tsunoda, an analyst at Tokai Tokyo Securities Co. in Tokyo. “As all three will have the iPhone, they will compete on price, sales method and network.”

China Mobile Ltd. (941), the world’s largest carrier by users, is the biggest Asian operator that doesn’t offer the Apple smartphone. The companies are close to an agreement for the iPhone, a person with knowledge of the matter said last week.

Apple had 36.1 percent of Japanese smartphone shipments in the latest quarter, compared with 20.6 percent for Sony and 13.9 percent for Sharp Corp. (6753), according to research-firm IDC.

Seeking Share

The iPhone 5C, which has a plastic casing and a 4-inch screen, will come in blue, green, pink, yellow and white. The iPhone 5S will come in white, black and gold and has a 64-bit chip that the company said will make it work twice as fast as the iPhone 5. It will also have Touch ID fingerprint-sensor technology that is located on the phone’s Home button, which people can use to unlock their phone and confirm purchases from iTunes and Apple’s app store.

Adding a wireless provider controlling the largest share of Japan’s mobile-phone market is critical for Apple as sales and profit growth have slowed and it seeks new customers for its handsets. Apple plans to open a store in Tokyo’s upscale Omotesando shopping district as early as March, adding its first outlet in the city since 2005, a person familiar with the plans said last month.

DoCoMo rose 1.6 percent to 165,000 yen at the close in Tokyo yesterday, leaving the shares up 33 percent this year, compared with a 68 percent rise for KDDI and a more than doubling in SoftBank’s stock price.

Catching Up

DoCoMo has been adding fewer subscribers than KDDI and SoftBank, partly because it doesn’t offer the iPhone. DoCoMo added 43,000 users in August, compared with 209,200 at KDDI and 250,300 for SoftBank, according to the Telecommunications Carriers Association in Japan.

The addition of the iPhone for DoCoMo could curb growth at SoftBank, Satoru Kikuchi, an analyst at SMBC, said in a Sept. 4 report. Japan’s third-ranked carrier, led by billionaire Masayoshi Son, has used the Apple handset to revive its business, and this year completed a $21.6 billion deal to take control of Sprint Corp. in the U.S.

“It’s negative for SoftBank as the image that SoftBank’s network is weak still remains,” said Hideki Yasuda, an analyst at Ace Research Institute in Tokyo. “SoftBank has improved its sales and profit dramatically thanks to iPhone.”

DoCoMo Chief Financial Officer Kazuto Tsubouchi said in an interview last month that the carrier was reducing the number of phone models in its stores by as many as half, as its focused promotions on Sony and Samsung handsets.

Smartphone Strategies

Tsubouchi said at the time that DoCoMo would consider offering the iPhone if it could limit the smartphone’s share of sales to less than 30 percent of the company’s total. The Japanese carrier’s dmarket online store offers music, videos and games, competing against Apple’s iTunes Store.

DoCoMo forecast smartphone sales would rise 20 percent to 16 million units in the year ending March 31 from 13.3 million a year earlier, the company said in April.

The carrier’s so-called two-top strategy to promote Sony’s Xperia and Samsung’s Galaxy in its summer campaign is hurting sales for other suppliers. NEC Corp. (6701) said in July it ended development of smartphones, and Panasonic Corp. (6752) said Sept. 4 its smartphone operations will probably shrink due to falling sales.

To contact the reporter on this story: Takashi Amano in Tokyo at tamano6@bloomberg.net

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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