ANALYSIS-KDDI meets marketing challenges in Japan's 3G race
industryclick.com
Reuters, Mar 28 2002
TOKYO, March 28 (Reuters) - Japan's number two mobile
carrier KDDI Corp has always boasted about its cost-effective
wireless technology but never been able to translate that into
substantial subscriber growth because of unsuccessful
marketing.
But Yuji Fujimoto, the general manager of KDDI's sales
planning department, says things are changing.
KDDI launched its third-generation (3G) mobile service
"CDMA2000 1x" on April 1 and Fujimoto believes the
company can win a chunk of market share.
"We've built great infrastructure with big capacity, but so far
that has only been good for our pride," he said. "Starting from
April, we want to change drastically the way we appeal to
customers...We plan to snatch a lot of users from our rivals."
Top mobile operator NTT DoCoMo Inc kicked off 3G services
in Japan last October and it plans to expand its service area
from April to cover 60 percent of Japan's population from the
current 22 percent.
DoCoMo's service, which offers a maximum speed of 384
kbps (kilobits per second), is expected to go nationwide by
2004.
KDDI's CDMA2000 1x, which delivers data at 144 kbps, plans
to cover 70 percent of the population at launch and 90
percent by the end of March 2003.
J-Phone, operated by Japan Telecom Co Ltd and Britain's
Vodafone Group Plc , is scheduled to join the 3G race in
June, although no details have been announced.
Analysts like KDDI's CDMA technology but are cautious as to
how much KDDI can gain from it in Japan's maturing mobile
market. "Over the next few months, particularly in April and
May, they can probably do fairly well because it is a
high-speed service that's available in a much wider area,"
said Kirk Boodry, telecoms analyst at Dresdner Kleinwort
Wasserstein.
"But the churn rates for all the carriers have come down
significantly," he added.
Analysts said customers were becoming reluctant to switch
companies because of complicated operating systems. Once
they master a system, increasingly they tend to stay with it.
COMPETITIVE TECHNOLOGY
KDDI uses the CDMA technology, which is different from the
W-CDMA (wideband code-division multiple access) standard
adopted by DoCoMo and J-Phone.
While W-CDMA requires hefty spending to build new
networks for 3G services, CDMA involves lower costs to
boost transmission speeds because existing networks can be
upgraded.
This allows KDDI to offer competitive communication fees,
rapid coverage expansion and smooth migration to 3G, with
users able to switch between 3G and 2G with one mobile
handset.
DoCoMo 3G users, on the other hand, have to carry two
handsets if they want to be connected everywhere in Japan
until a whole new network is completed..
The CDMA system also features GPS (global positioning
system), a service W-CDMA networks will not be able to
offer.
Docomo and J-Phone have chosen W-CDMA since many
European carriers are expected to adopt the standard, which
would allow them to offer wider global roaming services.
Fujimoto said the best way to sell KDDI's technology was to
offer email systems whereby users can send large files such
as still or moving pictures, or a map to show their location.
Hitoshi Hayakawa, a telecoms analyst at ING Barings, said
the technology should help KDDI tap new markets such as
automobile or corporate segments.
"It's not impossible for KDDI to grab 25 percent of new
sign-ups going forward," he said.
MIXED VIEWS
KDDI, which was created through a three-way merger in
October 2000, has long suffered from a lack of unified
strategies, juggling three different mobile arms, Tu-ka, au and
DDI Pocket.
KDDI has also been challenged by J-Phone, which has
successfully captured new subscribers by savvy marketing of
"sha-mail," a service where users can take still pictures and
email them using a handset with a tiny, built-in camera.
The 3G market has got off to a slow start and market leader
DoCoMo garnered only 55,700 3G users by February, way
below the 150,000 it had targetted by the end of March.
KDDI aims to boost the number of its subscribers to 17.9
million from the current 12 million in the next three years.
But analysts are split over whether that is feasible and their
ratings on KDDI shares also vary.
Yasumasa Goda, senior analyst at Merrill Lynch, rates the
stock a strong buy and has target price of 500,000 yen based
on KDDI's technological advantage and improving financial
health.
Goda says the stock can go as high as 550,000 yen and
expects a 2002/03 EV/EBITDA (enterprise value divided by
earnings before interest, tax, depreciation and amortisation)
of 10 or 11 times.
But Mark Berman, telecom analyst for Credit Suisse First
Boston Japan Ltd, has a more conservative view, projecting
KDDI's EV/EBITDA to be 6.1 times next business year, with a
target share price of 353,000 yen. That compares with 10.8
times for Japan Telecom and 10.1 times for DoCoMo next
year.
Shares in KDDI have risen 38 percent this month on
expectations that its three-year business plan, announced on
March 15, would improve the company's financial health.
The stock traded at 341,000 yen on Thursday, up 1.49
percent, compared with the Nikkei , which was up 0.22
percent. |
