Next on DoCoMo's Calling Card: The U.S.
Call it Keiji Tachikawa's worldwide wireless adventure. Last year, the intrepid CEO of Japan's wireless-phone giant NTT DoCoMo Inc. spent $6 billion buying up stakes in European and Asian wireless companies. Now he appears to be marshaling his bank account for a full-fledged push into the U.S. Tachikawa fired the first salvo with his $9.8 billion investment in AT&T to grab a 16% stake in Ma Bell's wireless subsidiary.
Expected to be completed in the next few weeks, the deal gives DoCoMo a solid beachhead in the fast-growing U.S. consumer-wireless market. But industry insiders believe it's just the beginning of a broader DoCoMo strategy. Last month, the company named a stellar U.S. advisory board, including the CEOs of investment bank Goldman Sachs and data-hosting giant Exodus Communications and the outgoing chief technologist of the Federal Communications Commission.
Analysts say the company could be looking to take stakes in everything from search engines such as Google to location-specific content providers such as Vindigo and Zagat. And within the next 18 months, DoCoMo could move to snare a majority stake in AT&T Wireless, says Andrew Cole, head of the global-wireless practice at technology consultancy Adventis. The company should be able to augment its liquidity after it floats its depository receipts on the NYSE, probably in late February, in an offering underwritten in part by Goldman Sachs. "They've got more plans," says A.G. Edwards analyst Kent Reynolds.
Indeed, it appears Tachikawa is a man with ambitious intentions. In May, DoCoMo agreed to pay $3.82 billion for a 15% stake in Dutch mobile-phone provider KPN Mobile, which also has licenses in the Netherlands, Germany, Belgium, Hungary, Ukraine, and Indonesia. Then in July, the Japanese company coughed up more than $2 billion for a 20% stake in Hutchison 3G UK Holdings, a British next-generation wireless company with licenses in Austria and Italy that's a subsidiary of Hong Kong conglomerate Hutchison Whampoa Ltd. The two moves gave DoCoMo a toehold in Europe.
But a grand entrance into the U.S. -- the world's biggest and richest potential market -- could dwarf DoCoMo's other international efforts. The logic is simple. Share prices in every tech sector in the U.S. are depressed. That means easy pickings for the cash-rich company from Nippon.
As for DoCoMo's core wireless focus, the U.S. is clearly the lowest-hanging fruit of the remaining major markets. Only 39% of U.S. adults use wireless phones. That compares to more than 50% in Japan and up to 70% in some countries in Europe. The immature U.S. market clearly has much growth potential.
DoCoMo executives are concerned about growing competition in the very lucrative Japanese market. So by going global they hope to stay ahead of smaller rivals in Japan. Add to this a growing call in the company's senior ranks for substantial acquisitions, and you have all the ingredients necessary for a buying binge in the U.S., says Adventis' Cole.
The blueprint could follow along the lines of DoCoMo's wildly successful i-mode wireless data service in Japan. The company staked out new wireless turf by offering the first always-on connection to the Web that charged customers a small monthly fee. An information and e-commerce portal on a small cell-phone screen, i-mode has more than 17 million subscribers only two years after its launch.
Since many Web developers favor the format, the service has enjoyed a wealth of offerings from cell-phone quiz shows to downloadable cartoons. That formula has rewarded the company with a hefty $1.9 billion in profits for the six months from April to September in 2000. That represents a 22.2% rise over the same period in 1999 -- and actually exceeded anaylsts' expectations.
With DoCoMo's success in providing content through i-mode in Japan, the company is likely to form alliances with U.S. content providers, including search engines or popular e-commerce sites such as Amazon.com and eBay, says Jupiter Research analyst Joe Laszlo. The company could also partner with U.S. location-based content technology providers, according to other analysts.
But any major moves into the U.S. market -- particularly in the highly regulated realm of telecom -- will require savvy politicking. That's where DoCoMo's all-star advisory board is expected to come in.
Check it out: Member David Farber served until Jan. 12 as the FCC's chief technologist. Royce Holland became the CEO of scrappy data- and voice-communications outfit Allegiance Telecom, after learning the ways of Capitol Hill while fighting the regional Bell companies in the 1980s. Ellen Hancock, chairman and CEO of Web-hosting company Exodus Communications, has built this company into the dominant server-farm operator and data-services provider. Goldman Sachs Group Chairman and CEO Henry Paulson packs serious Wall Street muscle. And Larry Sonsini is the chairman and CEO of Wilson Sonsini Goodrich & Rosati, Silicon Valley's premier tech law firm. Small wonder many analysts believe DoCoMo has something up its sleeve.
Several board members told Business Week Online that DoCoMo officials haven't mentioned anything beyond minority-interest acquisitions in the future. Allegiance's Holland holds that view, too. But he also believes the company will "selectively seek a larger presence" in the U.S. Already the Japanese company has tied itself to AT&T Wireless. The pending deal prohibits DoCoMo from investing in AT&T's wireless rivals in North America, according to AT&T.
Regardless of DoCoMo's dance partners, its arrival from the land of the Rising Sun is sure to shake up the U.S. wireless market. DoCoMo has already shown significant technological prowess by bolting to the lead in its rollout in Japan in May of third-generation wireless services boasting high-speed data transfers and broadband capabilities. That early unveiling should beat most European companies by eight months and DoCoMo's U.S. counterparts by a couple of years at least.
AT&T Wireless recently unveiled a technology strategy that appears to hew closely to DoCoMo's lead. Some analysts believe DoCoMo will ask for a larger share of AT&T Wireless as a precondition for further assistance in moving the spin-off to a next-generation wireless network. In fact, AT&T Wireless will likely to become an "essential jewel" in DoCoMo's crown, Cole says. "The issue is really how long it'll take for them to get regulatory approval."
Other U.S. wireless operators don't seem too concerned about DoCoMo playing a bigger role stateside. "It'd be just a different owner," says Kris Rinne, vice-president for technology at national wireless carrier Cingular, which formed out of the merged units of SBC and Bell South. For now, parent AT&T holds a firm grip on the reins of its wireless subsidiary. AT&T Wireless Vice-President Tom Trinner says DoCoMo is an important minority investor -- but nothing more.
As Japan's economy tanks, some wonder if DoCoMo will want to spend more cash on acquisitions. Says Phillip Redman of Gartner: "[AT&T] was a fairly large investment for them. I'd be surprised if they do more acquisitions." Redman could be right, but DoCoMo now looks like a company with the right stuff and likely won't lack for potential partners. And if Japan is any indication, DoCoMo is the best-equipped to turn cell-phone users into mobile Web surfers. With that qualification in mind, AT&T might want to welcome its Japanese investor with open arms.
By Olga Kharif in New York
Edited by Alex Salkever