Industry Analysis of NTT Docomo: A Japan Perspective

NTT Docomo, Inc. is the predominant mobile phone operator in Japan. The name is officially an abbreviation of the phrase, “do communications over the mobile network”, and is also from a compound word dokomo, meaning “everywhere” in Japanese. The company is headquartered in Tokyo, Japan. 

The organizational structure is divided both functionally and regionally.  Within Japan there are 8 regional subsidiaries responsible for service provision in their territories.  Additional subsidiaries are located outside of Japan in other potential high growth markets.  These other subsidiaries are focused on building partnerships with foreign communications companies and conducting research and development. The functional groups, such as marketing, research and development, and mobile multimedia, are headquartered in the NTT Docomo headquarters building in Tokyo.

Industry Analysis Based on Porter’s Five Forces

1.  Competitive Rivalry

Currently, the mobile telephone industry in Japan is high as wireless communications has almost become a necessity. Plenty of real life examples could be given about telecommunication companies ending up making losses trying to cut prices lower than their competitors. International competitors like Vodafone AirTouch, British Telecom and AT&T is putting pressure on domestic companies to be competitively efficient.  The capital intensity required in the business has resulted in these companies owning large specific assets.  As a result, they are willing to fight fiercely to defend their investments from competitors.

2.  Threat of Substitutes

Within the wireless industry, there are two competing technologies and standards (W-CDMA and CDMA-2000) leading to a huge debate between the Americans and Europeans.  Docomo was the first in the world to introduce the first ever 3G network. Docomo also provides 4G LTE. Docomo’s first mover advantage as well as 3G and 4G LTE currently being the most popular technology in the mobile communication industry worldwide significantly eases the threat of substitutes on Docomo both domestically and internationally.

3.  Bargaining Power of Buyers

The consumers do have a lot of alternatives to switch to if they are not satisfied with the services they are getting.  Although companies are trying to lock-in customers with different strategies, small differences in price and services could cause customers to change providers. Hence, we can say that the bargaining power of buyers is high.

4.  Bargaining Power of Suppliers

Suppliers in this industry are handset manufacturers, infrastructure providers, and technology developers.  Recent international agreements between major cellular phone manufacturers and mobile service providers have also resulted in most handsets being compatible with different wireless services provided.  There are several competing wireless standards such as CDMA and GSM, which undermine the bargaining power of technology developers.  It is also noteworthy that wireless service providers cannot switch from one technology provider to another without incurring high costs in rebuilding infrastructure. Docomo backward integrated by investing heavily in R&D and developed its proprietary standard 2G (2^nd Generation) PDC and 3G W-CDMA to reduce reliance on technology providers.

5.  Threat of New Entrants

The threat of new entrants in this industry is moderate.  Currently, there are just a few important players.  New entrants are usually discouraged through ownership of patents and licenses, network externalities, excess capacity, specificity of assets and high exit costs. The main players in this industry own licenses to use the technologies for their networks.  Even with all the barriers mentioned, payoffs are high enough to attract new entrants. Based on our industry analysis, the wireless industry in Japan appears very profitable but increasing competition could erode profit margins in the near future.

References:

http://en.wikipedia.org/wiki/NTT_DoCoMo

web.mit.edu/course/15/15.249c/Docomo.doc