NTT DoCoMo Inc. is at a crossroads.
Japan’s leading mobile-phone company, facing pressure to adopt a new business model in the maturing domestic market, is considering introducing a flat-rate system to data communications so that users can use e-mail and Internet services as much as they want without worrying about connection fees.
Rival KDDI Corp., whose au mobile service leads DoCoMo in terms of subscriber growth, adopted a flat-rate system in November.
“It’s a counteroffensive to au’s moves,” said Shinji Moriyuki, analyst with Daiwa Institute of Research. “And I think it has a positive marketing effect.”
The plan by DoCoMo, which has a 57 percent domestic subscriber share, also has huge implications for the mobile industry, said Yasumasa Goda of Merrill Lynch Japan Securities Co.
“The more important point is the fact that DoCoMo has taken the first big step toward moving away from its i-mode business model, which depends on growth through data-traffic increases,” Goda wrote in a recent report. “This is historically significant for Japan’s mobile telecom business.”
DoCoMo had been reluctant to introduce a flat-rate charge, maintaining that the current traffic system is not capable of an increase in data traffic, which is expected to happen if users do not have to worry about bills.
But DoCoMo Chief Executive Keiji Tachikawa told a news conference last week, “Once someone has started it, we have to do the same,” referring to KDDI’s au service.
The au service allows users of its high-speed mobile phone data system CDMA 1X WIN to select a fixed fee of 4,200 yen per month for e-mail and Internet access.
DoCoMo said that while it has not set a price or date for the introduction of the service, the service is expected to be in operation this summer.
The flat-rate system would not greatly impact DoCoMo’s revenue.
Kazuyo Katsuma of J.P. Morgan Securities Asia Pte. said the system could actually boost its earnings.
“Most of the 15 percent of data users that spend over 4,000 yen per month are already on semiflat-rate plans with 3G service,” she wrote in a report last month, referring to discounts for heavy users. Her report assumes a flat-rate of around 4,000 yen.
“Conversely, most of the other 85 percent of users pay less than 2,000 yen per month for data services,” she said.
She said the fixed rate would probably attract light users and price-sensitive consumers, pushing up total revenue.
The flat-rate charge would effectively spell an end to the traditional business model for mobile data communications. This shift is necessary, because traffic growth is expected to eventually plateau.
Under the traditional model for voice and data communications, wireless telecom operators have generated revenue by charging for the volume of communication traffic that goes through the system. Under the new paradigm, fees are no longer based on traffic volume.
Daiwa Institute’s Moriyuki said that if users no longer have to worry about how much they spend on data communications, they will likely flock to services that they would not have otherwise tried under the metered-charge regime. Such services include downloading and watching TV programs, which au already offers via its EZ Channel service.
DoCoMo will have opportunities to make money from advertising, he said.
The hunt for new revenue sources has already begun.
DoCoMo recently set up a join venture with Sony Corp. to market mobile phone handsets embedded with the FeliCa smart wallet, which also serves as a train pass.
The new business will provide DoCoMo with ample opportunity to generate service fees because it involves a variety of cash transactions.
“I think DoCoMo is at the turning point in its business model now,” Tetsuro Tsusaka of Deutsche Securities said.