Assignment Questions: DOCOMO Case Q1.

How would you assess the profitability and attractiveness of the telecom industry in Japan at the time of the launch of i-mode? What would you conclude from a five force industry analysis?

The attractiveness of the wireless telecom industry at the time of the launch of the i-mode services can be gauged by analysing the industry forces at that time. The important forces active at the time and their analysis is as shown below: Threat of Substitutes: The major threat comes from fixed line telephones as substitutes. As we can observe from Exhibit1 data, number of subscribers for fixed line telephone is higher than mobile phones cause the mobile costs are higher than the fixed line costs, which means the customers can willingly switch to fixed landlines in case they want to leave mobile handsets. Although the switching costs like time required for landline installation, service and effort are high, but these can be negated by the cheaper unit costs. And also customers are way too loyal with the landline service than mobile phone service. As of 1999, Market Share of Landline: 60.38/ (60.38+38.25+7.12)*100 (exhibit 1) =57.1% Growth rate of Landline: 1.5% From the market share it can be gauged that the customers of the fixed landline were satisfied with the performance of the fixed landline and it was exhibiting slow and steady growth. Hence the threat of the substitute: fixed landline was high but threat from other substitute like Pager and internet communication wasnt high at the moment. Bargaining power of suppliers: Since, the suppliers are government supplying spectrum and also because spectrum is a rare natural asset, bargaining power of supplier is high. Due to strong factors like lobbying by corporate and other government regulations, the bargaining power of supplier of spectrum, the government would always remain strong. The other suppliers, which are the manufacturing partners, also have high bargaining power as the carrier operators dont have their own manufacturing operations and hence rely on these suppliers big time. Bargaining power of buyers: Many network providers (5 in number) give the buyers enough opportunity to switch between operators making their bargaining power high. The telecom business by the end of 1999, became a highly volume dependent business. Also, there was a huge decline in Average Revenue Per User (ARPU) of the customers which also

meant the operators had to fight on volumes. This definitely made the bargaining power if buyers high. Threat of new entrants: High capital expenditures meant the entrants had to have deep pockets before entering the industry. Deregulation of the industry was done at a fast pace which lead to a large number of foreign carriers, and competition increased many times. But as mentioned, the market was soon moving towards saturation due to maturity which could hence see lower new entrants in the future but for the time, the threat of new entrants could be considered high due to enormous growth opportunity.

Intensity of rivalry: The structure of competition - Docomo 57.53%, DDi 12.79%, IDO 8.14%, JPhone 14.41% Tuka 7.08%. Hence, implying higher rivalry since the competition structure is concentrated and not fragmented. The structure of industry costs - Industries with high fixed costs encourage competitors to fill unused capacity by price cutting. Degree of differentiation - Since the telecom services are standardized, the degree of differentiation is less thereby suggesting a higher rivalry intensity. Exit barriers - here barriers to leaving an industry are high then competitors tend to exhibit greater rivalry. Overall, analysing the industry forces, one can easily see the wireless telecom industry is not attractive at the time of the launch of the i-mode services.

Q2. How did DoCoMo create distinctive value at low cost? How did DoCoMo combine the strengths of the mobile phone and the PC-Internet? How did the value curve of DoCoMos i-mode differ from those of the mobile phone and the PC-Internet? Docomo created distinct value by the following strategic choices which they made: a) Active partnering with handset manufacturers and information providers lead them to create a win-win partnership network. They shared the technology and knowhow with partners to help them stay ahead of competition. b) DoComo adopted c-HTML for its new service, which is compact version of HTML. Using it, websites could modify their PC based websites into a new version to be displayed on the new DoComo service. c) For subscription only websites, DoComo collected fees as part of its monthly bill. It saved transaction cost and time to customer.

d) Deregulation has lead to entry of many equipment manufacturers. It resulted into high competition among them and low cost. Unlike mobile services, charges were based on amount of data transmitted, rather than time of usage. e) DoCoMo didnt purchase content providers but accredited official websites and mobile phones to be used with new service. Buying content providers could have imposed more fixed cost on DoCoMo. f) They had secondary sources of revenue like advertisements on i-mode. They could therefore provide services to customers at subsidized rates. Further the advertisement business attracted addition content providers to the network.

g) They had an established distribution network which they used to deliver i-mode phones and services at small marginal costs.

DoCoMo combined the strength of mobiles (Portability) and PC Internet (Information on web) in I Mode. DoCoMo collaborated with Sun Microsystems developing a new application that allowed Video games and financial services on I-mode. Moreover, i-mode was launched at a time when most telecom operators were focusing on technology races and price competition over voice based wireless devices. Regular mobile telephony had reached a high level of sophistication; but it offered few data based services such as e-mail, news and games and transaction capabilities. The i-mode succeeded in bringing together the keyfeatures of both these industries and hence created unique utility. By combining the key advantages of the two industries of cellphone and PC internet, the Docomo, with its i-mode service, created a totally different value curve for itself. For a small premium of 25% more than regular phones, the users could buy i-mode handsets. It gave the users access to i-mode network through a monthly rental and access to subscription sites by extra fees. The value curve of the i-mode docomo handsets would the best features of both mobiles and PC internet, although the price would be higher than the mobile phones due to extra fees. It has high ease of use; youth focus and customized service, making it the best value curve available at the time.

Q3. Where and how did i-mode create new buyer utilities? What is i-modes business model?

Q4. How did NTT DoCoMO make profits out of its i-mode services? Docomo made several strategic choices to help it create and capture value to make profits out of imode project. The strategic choice lead to important consequences which lead to more tangible results and created a value loop leading to more profits. The important choice of accreditation of official websites and phones to be used with the new service lead to high volumes of customers and which lead to more content which lead to more customers and this formed a virtuous circle.

The choice of autonomous team made of young employees and appointment of a new dynamic head of the team lead to more innovation which lead to a better product, leading to an increase in the WTP of the customers. The choice of using widely adopted technologies lead to easy flow and conversion of data which lead to more easy partnering with content providers and hence lower costs to them. Partnerships with Sun and Simian lead to lower development costs and faster launch time leading to more reliability, eventually leading to more volumes and higher profits.

All the choices and the consequences eventually lead to greater willingness topay for the customers and hence higher revenues and profits