Interview: DoCoMo sees little threat from new competitors

TOKYO (Reuters) - NTT DoCoMo Inc does not expect new mobile entrants to affect its business next year, but it said business conditions would be tough because of a new rule that will make it easier for customers to switch services.

Internet communications conglomerate Softbank Corp and two other companies received approval on Wednesday to start new mobile services, as part of a government aim to increase competition in Japan's 9 trillion yen (US$77 billion) mobile phone industry, which is dominated by three companies.

"From what we understand, the three companies will not be starting services until the very end of the next business year," Yoshiaki Ugaki, DoCoMo's chief financial officer, told Reuters in an interview on Thursday.

He said the company was more concerned about the impact of a new government rule expected to take effect in fall 2006 that will allow customers to take their phone numbers with them when switching services.

DoCoMo's rival KDDI Corp., Japan's number two operator, said last month it believed fewer customers were leaving its service because they were waiting until they could transfer their phone numbers.

Ugaki said DoCoMo hasn't seen such signs yet, but he acknowledged that business conditions would get tougher.

"We still aim to increase our operating profit in the next business year, but it's probably unrealistic to expect a big improvement," Ugaki said.

"Recovery will be gradual," he said, adding that the company will likely be hurt by recent service price cuts and initial costs to set up new businesses that are meant to ultimately drive revenue.

He said some cost-cutting measures could also take a little longer to take effect, while the large number of customer upgrades to its FOMA high-speed third-generation service that it expects to see will drive up handset subsidy costs.

"This year and next year will be the peak period in the migration of our customers to FOMA," Ugaki said.

DoCoMo had about 50 million customers, or about a 56 market share, at the end of October. Of those customers, 35 percent were on its 3G service.

Ugaki declined to comment on the market's expectation that DoCoMo will see a decline in operating profit in the next business year ending March 2007 despite an increase in revenue.

Analysts on average expect DoCoMo to report an operating profit of about 830 billion yen on revenues of about 4.84 trillion yen, according to a poll of 20 analysts by Reuters Estimates.

That compares to analysts' expectation for an operating profit this year of 842.9 billion yen on revenues of 4.82 trillion yen.

Ugaki said the company was considering various ways to strengthen its competitive position before the number portability rule takes effect in the second half of next year.

One possibility would be to change the way it pays subsidies to a system that is more focused on retaining existing customers rather than winning new customers. DoCoMo could narrow the gap in the subsidies it pays out to new and existing customers for phone purchases, he said.

Recent service price changes that reward long-time customers with a discount of up to 50 percent will lower DoCoMo's results by about 10 billion yen each in the current business year and the next business year, Ugaki said.

Shares of DoCoMo have risen 8.3 percent since April, underperforming the Tokyo stock market's communications sub-index, which gained 9.7 percent.

The company late last month reported a 2.4 percent rise in profit for the first six months of the business year and raised its forecast by 2.5 percent, helped by a solid increase in new customers.

Its parent Nippon Telegraph and Telephone Corp raised its full-year forecast by 10.5 percent on Wednesday, helped by DoCoMo's strong results as well as better-than-expected performance from its fixed-line businesses.

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