From: Reuters
Published January 29, 2008 05:57 AM

Cost cutting boosts DoCoMo profit amid price war

By Taiga Uranaka

TOKYO (Reuters) - NTT DoCoMo Inc <9437.T> booked a 35 percent gain in quarterly profit as marketing costs dropped, but falling revenues showed the pain of a price war as Japan's biggest mobile phone operator lost ground to nimbler rivals.

DoCoMo has struggled to grab more customers as Japan's No. 3 operator, Softbank Corp <9984.T>, attracts users with discounts and an advertising blitz while KDDI Corp <9433.T>, the second-largest mobile firm, has wooed younger users in the saturated market with music downloads and the like.

DoCoMo, which has cut prices to compete, saw revenue drop 1.4 percent to 1.2 trillion yen ($11 billion) in the October-December quarter, and an analyst warned this was not sustainable.

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"While monthly net subscriber growth is on a recovery trend, it is generated by a decline in the cancellation rate, and we are not seeing signs of improvement in new sign-ups," Credit Suisse analyst Hitoshi Hayakawa said in a research note.

He warned DoCoMo may suffer increased cancellations after Softbank launched a new discount program for students.

DoCoMo has half of Japan's 100 million mobile phone users on its books but it has only increased that by less than 1 million in the past year, compared with 3.4 million net new users for KDDI and 2.1 million for Softbank.

DoCoMo, which commands just over half of Japan's 9 trillion yen mobile market, said operating profit rose to 217 billion yen ($2 billion) in the latest quarter.

"We plan to bolster our business with new handsets this spring," DoCoMo President Masao Nakamura told a new conference, adding his firm was on track for a forecast small profit gain.

Marketing costs slid from a year earlier, a time when DoCoMo spent heavily ahead of new rules that allow users to switch carriers but keep the same phone number.

It also introduced new pricing plans last year, cutting monthly basic fees but charging higher prices for phones.

The new plans have allowed the carrier to cut large commissions it pays handset distributors, boosting profitability.

The wireless carrier, majority owned by fixed-line giant Nippon Telegraph and Telephone Corp <9432.T>, forecast a full-year operating profit of 780 billion yen, up 0.8 percent from the previous year and slightly smaller than 781 billion yen in a poll of 18 analysts.

Last week, KDDI posted a 40 percent rise in quarterly operating profit after strong growth in its wireless business more than offset losses at its fixed-line operation. It also boosted its annual outlook above analysts' expectations.

Nakamura said the new pricing program and latest handsets have attracted more users than expected and he forecast a decline in the rate of churn, or cancellations, by customers.

As well, the firm announced a tie-up with Internet search giant Google Inc <GOOG.O> last week, hoping to attract new users and keep old ones by offering access to Google's Gmail e-mail and video Web site YouTube.

DoCoMo shares have fallen 12 percent so far this year, roughly in line with Japan's benchmark Nikkei average.

Prior to the announcement, DoCoMo shares closed up 1.2 percent at 163,000 yen. The Nikkei rose 3 percent.

($1=106.49 Yen)

(Editing by Lincoln Feast and Rodney Joyce)

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