DDI posts loss, in part attributed to CDMA promotional costs; look toward end of article for CDMA sub sign-ups, 541,000 by end of March.
<<DDI Posts 20% Drop in FY98 Profit on Promotion Costs
By Junko Fujita at Bloomberg News
May 17, 1999
DDI Corp., Japan's third-largest telecommunications company, posted a decline in profit for the year ended March 31 and forecast an even bigger drop this year because of the costs of promoting its latest cellular phone system.
DDI, a mobile, domestic and international phone services provider, said group profit from operations before taxes, or current profit, fell 20% to 50.9 billion yen ($413 million) from 63.6 billion yen the previous year. Sales rose 5.8 percent to 1.247 trillion yen from 1.178 trillion yen the previous year.
The company, Japan's No. 2 cellular phone operator with a 13 percent market share, said its cdmaOne cellular phone service, introduced last July, will continue to be saddled with promotional costs, pushing earnings down.
"We will build a base for our cdmaOne business this year so that we can increase sales after next year," said Yusai Okuyama, DDI chairman. He added that DDI expects to spend more to boost the number of cdmaOne subscribers by 2 million this year, to 2.54 million by the end of March 2000.
Earnings from DDI's bread-and-butter domestic long-distance business aren't likely to increase much, if at all, because the company is locked in price wars with rivals, analysts said.
DDI is left to try and build profits at its PHS business. PHS mobile phones are cheaper to buy and use but have less range and reliability than cellular phones. As the gap between PHS and cellular phone prices has narrowed, more users have switched to cellular. DDI does not offer cell services in the Tokyo area; users there who switch to cellular must subscribe with one of its rivals.
Still, DDI said its PHS business contributed 1 billion yen in profit in the year ended March 31, compared to an 18.1 billion yen loss the previous year. As recently as February, the company had forecast a 1 billion yen loss. The company said it will not withdraw from PHS, as its strategy is to provide a variety of service options for mobile telephone users.
DDI's group net profit more than doubled to 17 billion yen, or 7,501 yen per share, for the year ended March 31, compared with 8.3 billion yen, or 3,807 yen per share, a year earlier, because it didn't have to pay tax on income from its PHS units, as they lost money last year.
The company also posted a revised figure for its current profit for the year ending March 1998 so that it would reflect the same accounting methods used to calculate current profit in the year ended March 1999. The company, along with many other major Japanese corporations, introduced new accounting standards this year to more closely correspond with international practices.
DDI over the past year managed to stem the decline in its PHS subscriber base by focusing on its superior data transmission capability. The service has become popular with subscribers who use their mobile phone to transmit e-mail or access the Internet.
The number of subscribers rose to 3.48 million in April, up 0.6% from March. Its shares surged 6.9% on May 12, the day it announced the rise.
DDI, though, expects its PHS businesses to lose 15 billion yen this fiscal year, even though increasing the number of users by 500,000 to 3.95 million.
Okuyama attributed the forecast loss to promotional costs and a predicted decline in average monthly usage - to 6,700 yen from 7,700 yen in the first half of last year.
The following year, however, DDI expects its PHS units to earn a 10 billion yen profit, following the introduction of more powerful PHS handsets able to transmit more data and moving pictures, Okuyama said.
DDI expects 4.25 million PHS subscriber in the year starting April 2000, and 4.4 million the following year.
The increase in PHS subscribers may not continue, analysts said, because cellular phones will probably improve their data transmission capacity and lure customers back from PHS.
NTT DoCoMo and DDI's own cell phone unit are developing services focusing on data transmission such as e-mail and Internet access.
While DDI tries to main its PHS subscriber base inside the Tokyo and central Japan areas, it's focusing on CDMA outside those regions. CDMA, or code division multiple access, promises superior sound quality and larger data transmission capacity than the "personal digital cellular" standard developed by NTT Mobile Communications Network Inc., Japan's dominant cellular phone operator better known as NTT DoCoMo.
DDI, which offers CDMA and PDC services, said it has signed up 541,400 cdmaOne subscribers as of March.
IDO Corp., a Toyota Motor Corp. affiliate and Japan's fourth- largest cellular phone provider, started cdmaOne service in April in Tokyo and other parts of central Japan where DDI isn't operating. The company has allied to share frequencies with DDI so that both companies' phones function in each other's areas.
The alliance gives DDI one advantage over rivals such as NTT DoCoMo, which cannot its subscribers nationwide calling using a single mobile phone.
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