Steering Japan's DoCoMo Out Of The Doldrums

CEO Nakamura is stressing video phones and data services to reverse its slide

NTT DoCoMo (DCM ) has long been one of the most innovative players in the global cellular business. The Japanese company led the industry with its i-mode data service, and in 2001 it became the first carrier in the world to offer 3G. But these days, with the Japanese cell-phone market nearly saturated, DoCoMo is having trouble finding growth. Last year, DoCoMo's sales dropped by 4%, to $45 billion, and operating profits tumbled 29% to $7.3 billion. DoCoMo CEO Masao Nakamura, appointed a year ago, sat down with BusinessWeek editors to explain how the company plans to pull out of its funk. Edited excerpts follow:

How can DoCoMo get back on track?

We have to grow the traffic volume -- not voice, but data traffic. If you look at the overall customer base, 80% of our customers are either not using data service at all or only slightly. Just increasing the usage of those customers by 100 yen a month could provide a huge boost to our revenue. One possibility is pushing information out to get customers to use more data. The second booster would be visual communication services such as video phones and live video streaming.

What are you doing to develop that?

We are having a hard time convincing customers to take up video phone conversations. Grandparents might want to talk to their grandchildren over the video phone, but that's about it. And until now the number of customers with video phone-compatible handsets was limited. So they were not able to find people to call. But I think we can resolve this issue by increasing the number of subscribers.

Also, some women, for instance, don't want to pick up a video phone call when they're not wearing makeup. So the first connection will be established by voice, but when they're ready, they will be able to switch over to video phone. We have another feature that enables an avatar to replace the caller. A cartoon character can be shown instead, and when you're ready you can switch over to your own face. But video phone service is not really rooted in the culture yet, so we have to try to further promote it.

Do businesspeople like the service?

There is a variation that is not a face-to-face conversation, but you can show, for example, a video of a construction site if there's a problem.

Given the troubles you're having getting people to use these services, did you perhaps rush your investment in 3G?

We acquired only 1 million subscribers in the first two years after the launch of 3G. Now, after four years, we are on a growth track, and currently most of the handsets sold by DoCoMo are 3G. But I don't think we were too early, because if we didn't start four years ago, we wouldn't be in the position we are today.

There will soon be new mobile competitors in Japan. How will that affect DoCoMo?

Softbank and E-Access have raised their hands to enter the market. The entry of those companies has changed the DSL market completely. But in cellular, price isn't the only factor. First and foremost, it is important that you have a good network. Second, you need to offer sophisticated handsets, and your ability to provide good content also matters. So although these players will affect us, I don't think we'll see the same kind of changed landscape that we saw in DSL.

DoCoMo hasn't been terribly successful outside of Japan. Will you try again overseas?

One big strategy is to leverage the i-mode platform so that we can increase the number of players who will be using the same handset models. That way we can increase the volume of handsets we buy jointly with other carriers and bring down prices.

The second possibility is Asia. There might be some operators who have to roll out 3G networks from scratch, but who will need some financial assistance. So we might seek a capital relationship with those Asian players -- except in China. It is quite difficult to enter the Chinese market as an operator. But three or four 3G licenses may be issued, so there may be demand for a Web-type service. That could be a chance for us to enter China.

What is your vision of the future of mobile?

A hot topic is the blending of mobile and fixed-line communications. With the faster speeds of 3G, we are beginning to be able to offer these solutions to corporate customers. For instance, we are offering a handset that combines a cell phone with Wi-Fi. So when employees are in the office, they will have a Wi-Fi connection to the fixed network. But once they go outside, they will have access via our mobile network with the same phone.

It will be very hard to survive if you are offering only voice. So data will be key in acquiring customers going forward, and therefore you will need to improve your content lineup and offer new, innovative data features and services.

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