ANALYSIS-KDDI seen leaving troubles behind, charges ahead
By Eriko Amaha
TOKYO, March 29 (Reuters) - It has been a tough six months for Japan's DDI Corp <9433.T>, playing second fiddle to Nippon Telegraph and Telephone Corp <9432.T> despite hopes its three-way merger would rank it a serious threat to the industry behemoth.
But as DDI formally adopts the better-known KDDI stamp as its corporate name on April 1, analysts say it may be pulling itself together, on its way to curve out a bigger chunk of the world's second-largest telecoms market.
KDDI's pride, analysts say, is the cutting-edge technology developed and commercialised by U.S. partner Qualcomm Inc <QCOM.O> that allows KDDI to build third generation (3G) networks at relatively low costs.
That technology allows a switch over to the 3G system at a cost of one trillion yen ($8.18 billion) over the next five years, about half of what sector leader NTT DoCoMo Inc <9437.T> needs to spend, said Toshio Okihashi, head of KDDI's mobile communication strategic planning division.
Other new services are in the pipeline, such as High Data Rate (HDR), which allows data for mobile devices to be trasmitted at speeds of up to 2.4 megabits per second (Mbps).
Depending on when the service is launched, the HDR could give KDDI an edge over DoCoMo's 3G systems, where the rate is expected to be 64 kbps at the launch in May, with a likely upgrade to 2 Mbps, still slightly slower than the HDR.
Because these upgrades are achieved simply by modifying existing systems, Okihashi says the company would be able to provide HDR data services at competitive prices and hence expand its subscription base.
Mark Berman, a senior analyst at Credit Suisse First Boston, said the HDR could prove to be a big draw.
"That's the type of thing KDDI needs to do to get the wireless division rocking," he said.
Takayoshi Koike, a telecom analyst at Societe Generale, agreed.
"By the end of this year, demand for downloading applications onto mobile phones will take off and KDDI will likely have a chance to be a winner," Koike said.
LEAVING OLD TROUBLES BEHIND
At the onset, KDDI was plagued by divergent branding among units, while its crowded management of 53 executives was unable to achieve a consistent focus.
But since those early days, KDDI has focused on its strengths, aggressively marketing its mobile phone services, managing to nab about 17 percent of new signups in the last three months, compared with just three percent in October.
KDDI now has 14.5 million subscribers, accounting for 24 percent of the domestic mobile phone market.
"We think the company has finally come to grips with its problems, and that's a start," said Hironobu Sawake, a senior analyst at ING Baring Securities.
He said KDDI's profits likely bottomed in March 2000.
Underscoring that outlook, Dresdner Kleinwort Wasserstein Research said KDDI shares, which have fallen 38 percent since October, are oversold, and has kept its "Add" rating on the company.
MORE WORK AHEAD
Still, analysts say KDDI has more work to do.
For one, they say it needs to consolidate further its mobile phone business, which operates two different cellphone systems -- the Qualcomm and PDC -- a Japanese-developed system operated by its Tuka unit.
And KDDI is not free of trouble because it lags in the fixed-line services field where competition is heating up before the May launch of a system in which callers preregister their preferred local and long-distance carriers.
Toru Hosoi, a telecom analyst at Nikko Salomon Smith Barney, said KDDI may lose its dominance in international calling services where it has about a 60 percent share, and that its share in other long-distance services could become leaner.
Figures released by the Telecommunications Carrier Association showed 58 percent of applicants so far have chosen NTT Communications, a long-distance arm of dominant telecoms carrier Nippon Telegraph and Telephone Corp (NTT), as their preferred international carrier.
KDDI's long distance services, which accounted for more than half of its operating profit in the April-September half, are also challenged by newcomers such as one-year-old Fusion Communications, which plans to offer services over the Internet.
With such battles still to be fought, attention is now focusing on KDDI's five-year business plan, expected in May.
CSFB's Berman set KDDI's target share price at 560,000 yen, 33 percent above the midday level on Thursday, but that could change depending on the content of its business plan, he said.
KDDI's shares were trading down 4.55 percent at 420,000 yen, underperforming a three percent decline in the bellwether Nikkei stock average.
"To get a sustained rise in the shares, you might have to see a much more aggressive restructuring plan," he said. "There are a lot of steps to go through, a lot of medicine to swallow."
00:20 03-29-01 |
