NTT DOCOMO, INC.

:
Mobile FeliCa

NTT DoCoMo Inc.,: Overview

NTT DoCoMo was established in 1992

It had more than 49 mn customers and a market share of 56% in Japan

Worlds second largest and Japan's top mobile communications company

First wave of growth Mobile Voice services through subsidising

Second wave of growth Mobile Data services (i-mode data services)

DoCoMo currently facing challenges to its core businesses:

The market was becoming saturated

Its growth in data services would be limited by using flat-rate rather than traffic-based pricing

Rivalry in mobile phone industry would escalate regulatory changes

Need a third wave of growth

DoCoMo growth: Innovation through

i-mode

i-mode was launched in 1999. It was a wireless internet service provided by NTT DoCoMo,
Japan. Some features of i-mode include:

i-mode utilized an always on packet-switching technology

targeted initially to trendy young consumers rather than business people

formatted i-mode content with compact html

DoCoMo relied on third-party providers to charge consumers directly

able to quickly offer many i-mode handset models

Within 6 months of its launch, it had attracted over 2mn subscribers and by 2001, it had over
30mn subscribers

DoCoMo: Venturing into the World

Buoyed by success of i-mode in Japan, DoCoMo ventured into other markets by

buying stake in major players

Issues with international expansion of i-mode:

3G licenses required large investments

Outside Japan, carriers lacked the power to dictate handset specifications

Many consumers preferred to access the internet via PC

International expansion was a disaster for DoCoMo

Value of DoCoMos investment plunged due to global collapse of telecommunication stocks

Had to writeoff $17 billion

Exited by selling stakes but had partnership agreements to provide i-mode technologies

Current Situation

Market Maturation:

Japanese mobile phone market was becoming matured

Industrys ARPU for voice service dropped from 6,320 pm in Dec 2002 to 5,803 at the
end of 2003

Data service ARPU was growing but data use had a skewed distribution

3G services:

In Oct 2001, Docomo became the first carrier in the world to launch 3G services, branded
as FOMA

FOMA mirrored i-modes business model, adding high-bandwidth content. The service
employed W-CDMA

In Apr 2002, KDDI launched its 2.5G service based on Qualcomms CDMA2000-1X std

KDDIs handsets had slower transmission speed but they were more compact, less
expensive and had GPS capabilities

2.5G services could use existing network facilities, which provided better coverage

Current Situation

Regulatory Challenges:

regulations allowing mobile phone number portability was expected during 2006

significant differences in data service quality between Japanese carriers and nonportability of carrier specific e-mail addresses still couldnt raise switching cost much

Number portability in Japan was expected to:

Increase marketing costs

Reduce prices

Boost subscriber churn

In 2004 Japan govt announced that it would allocate new spectrum for mobile services.
DSL providers Softbank and eAccess were the new threats.

DoCoMos response : FeliCa

DoCoMos third wave of growth plan is to use lifestyle infrastructure vis--vis FeliCa

FeliCa a small chip that can transfer information over short distance between an IC
and a reader

DoCoMo wanted to build FeliCa into mobile hand sets and by doing so can move
beyond telecommunication

This mobile can be used to make small payments in stores, ride commuter trains and
even security. This can potential be a substitute to bank Debit/Credit card

First FeliCa phones introduced in July 2004

DoCoMos response : FeliCa

FeliCa History

Developed by Sony in late 80s and early 90s

Used in Hong Kong for their public transport systems and was subsequently sold to
customers in India, Singapore and China

Struggled to penetrate market in Japan

Success came after East Japan Railway (JR East) has adopted the technology

DoCoMo and Sony began talks for using this technology but the business objectives of both
these companies differ

Solution was setting up a new company - FeliCa Networks (Sony - 57%, DoCoMo 38% and JR East - 5%)

FeliCa: Value Proposition and

Challenges

Three potential sources of value from mobile FeliCa:

Improved mobile churn and subscriber acquisition rates

Profit from FeliCa Networks, a JV between Sony and DoCoMo

Revenue docomo could earn directly by providing mobile FeliCa services

Challenges facing FeliCa

Security Concerns: who will be responsible in case the phone is lost/stolen and how to
compensate for any fiduciary loss due to the FeliCa wallet

Competing Technologies: Type A and Type B technologies adopted by Europe and Japan
respectively posed a challenge to FeliCa. Sonys response is to integrate contactless and contact
technologies

FeliCa: Strategic Rationale

FeliCa helps DoCoMo in two ways:

Decrease churn and increase subscriber acquisition in core business

New source of revenue through FeliCa Networks

Core Business: Increased switching costs

FeliCa can work against number portability as existing eMoney stored in the FeliCa phone
needed to be exhausted first

Core Business: Increased differentiation over rivals

Could be offered as exclusive feature in the phones especially if they can proliferate market with
readers

Competitors will take time to introduce this feature

FeliCa: Sources of Revenue

FeliCa would not provide DoCoMo with its traditional source of revenue but it can
provide with alternate source of revenue.

Licensing of FeliCa chip technology to handset/mobile and reader producers

Transaction fee during purchases

Receiving large money upfront for using as eMoney which could generate interest

Recharge money for JR East rail commuting networks

Technology Licensing to other companies if DoCoMo decides to license this technology

to rival companies

DoCoMo already uses their programs for loyality programs in small shops, this can be
further streamlined using FeliCa phones

FeliCa: Access to Rivals

It would be prudent to give access of FeliCa technology to rivals

Access leads to adoption of FeliCa technology instead of competing

technologies

As a stakeholder in FeliCa networks, DoCoMo will also generate revenue in the

form of licensing fee

Access also leads to mass adoption being easier I.e., people will use this
technology regardless of mobile carrier

As user base increases stores will be more likely to adopt this technology

Can always be the poineer in introducing tis technology as a stakeholder in

FeliCa networks

Can invoke strong anti-trust laws if access is not given

FeliCa: Strategy for eMoney and

Credit Cards

eMoney:

Inter operability between different eMoney providers would go a long way in helping
customers as well as retail shops

Suica already has more number of customers than the built in Edy

JCB was aggressively planning to install in supermarkets and other places where
speed of transaction Is important

Tie-up with three eMoney providers will lead to less investment in subsidizing for the
substantial reader installation

Credit Card functionality:

It is better to not go directly for credit card functionality as DoCoMo has no core
competency in identifying customers to whom the credit facility is to be provided

Nonexclusive partnership can be better than

Thank You