NTT DoCoMo and Japan

1
NTT DoCoMo and Japans Wireless Industry

• 15.249C Japan/Korea
• Anu Bhave
• Haakon Brown
• Will Chu
• Jose De Oteyza
• Mario Lewis
• Wendy Miller
• Luis Pintado
• March 15, 2001

2
Agenda

• Introduction
• NTT DoCoMo
• Company Overview
• Organizational Overview
• Product Service Overview
• Industry Overview
• Strategy Overview
• Current Challenges
• Questions to Ask
• Conclusions

3
Company Overview

• Major Lines of Business
• Mobile voice, PDC cellular phones 34,218,000
  subscribers (12/31/00)
• Mobile data, i-mode 20,468,000 subscribers
  (3/11/01)
• Ancient History
• 1987
• Mobile telephone service offered by NTT
• 1991
• Provisional parent company established
• Subsidiaries established in 8 regions
• 1992
• Renamed NTT Mobile Communications Network, Inc.
• Takes over all of NTT's mobile operations

4
Company Overview (contd)

• Current Facts and Figures
• Japans largest mobile communications firm
• 2nd largest firm worldwide (behind Vodafone
  AirTouch)
• 57 market share but penetration rate flat
• 1.75 churn rate (extremely low)
• i-mode service
• introduced in 1999
• and is hugely
• successful
• i-mode on pace to
• pass AOL and
• become the
• worlds largest ISP

20,468,000 total users Avg new subscriber rate
750,000/month 25,000/day 1,000/hr
5
Company Overview (contd)

• Financial and Operational Highlights
• 67 owned by NTT
• IPO 1998 traded on NYSE, ticker NTDMY (ADR)
• Market Capitalization 160 billion, P/E 65
  (March 2001)
• 15,000 employees
• 2000 Revenues 32 billion
• 96 of revenue from mobile phone service
• Over the past three years EBITDA grew at 22
• EBITDA to sales ratio of 38
• Comparables Vodafone Airtouch (33) and ATT
  Wireless (16)

6
Organizational Overview

• Typical Japanese company?
• Intricate relationship with subs

• Heavy organizational structure

7
Product Service Overview

• i-mode (information-mode)
• Mobile voice and data services
• 99 coverage within Japan (8 regions)
• Monthly fee data usage charge
• 25 i-mode compatible phones (OEM)
• Advanced phones (256-color displays)

• E-mail (1 to 10/message)
• Aggregated transaction services
• Information portal
• Internet access

8
Industry Overview

• General Characteristics of the Industry
• Rapid deregulation in each country
• Increasing mergers and acquisitions
• Entry of various global players into local
  markets
• Five Force Analysis
• Illustrates drivers of profitability
• Provides insights into industry dynamics
• Helps identify key success factors for NTT DoCoMo

9
Industry Overview (contd)

• Intensity of Competition High
• Emergence of international players
• Fight fiercely to defend their large specific
  assets
• Difficult to differentiate
• Supplier Power Moderate
• Handset Manufacturers Low (Philips, Sony)
• Infrastructure Providers High (Motorola,
  Ericsson)
• Technology Developers Moderate (Qualcomm)
• Buyer Power Low
• Very fragmented
• But low switching costs

10
Industry Overview (contd)

• Threat of Substitution Low
• Any kind of communication method
• Barrier to Entry Moderate to High
• Ownership of wireless spectrum licenses
• Excess network capacity
• Deters new investment
• Allows for reseller type new entrants (Virgin)
• Profitable industry, but increasing competition
  can erode profit margins in the near future
• Currently DoCoMo is well positioned - dominant
  status, ownership of key technologies

11
Strategy Overview (Resources)

• Core Competencies
• Strong management team (Sloan MBAs in executive
  positions)
• Marketing skills
• Investments in RD and Technology
• Relationships with manufacturers
• Relationships with content and service providers
• Resources
• Economies of scale
• Financial resources
• Brand recognition

12
Strategy Overview (Execution)

• Internationalization
• "Friendly" alliances to enter new markets
• Partnerships Joint Ventures
• Global Strategy
• Sliver global strategy
• Expansion of technology (set W-CDMA technology
  standard)
• "Friendly" alliances and acquisitions
• 42.3 AOL Japan (40.3 owned by AOL)
• 20 KG Telecom (Taiwan)
• 20 Hutchinson 3G (U.K.)
• 19 Hutchinson Telecom
• (Hong Kong)

• 16 ATT Wireless (U.S.A.)
• 15 KPN Mobile (Europe)
• 3.6 Telefonica Celular (Brazil)

13
Current Challenges

• Major player in the global telecom market
• Increased rivalry in wireless industry
• Investing in telecom infrastructure
• Young and inexperienced player
• Implementing an aggressive global strategy

14
Questions to Ask

• What are the management skills required to make
  the leap from a leading domestic player to a
  major global player?
• Have you thought about seeking a major partner or
  acquisition to help make the transition to a
  global player?
• What are your growth targets over the next 5
  years in terms of revenues, subscribers and
  market share?
• How do intend to finance the build out of
  worldwide mobile communications infrastructure?