678 • Case 11 • NTT DoCoMo: Can i-Mode go Global?
Currently, phones with mp3 functions are still in the testing
phase, but insiders say that the next generation of digital music
player hybrid phones could be out by 2008. Apple is aware
of the trend and trying to capitalize on iPod popularity by
teaming up with Motorola to develop an iPod phone. How-
ever, Verizon Wireless and Sprint, as well as many Japanese
carriers, are not willing to carry the phone. As Graeme Fer-
guson, director for global content development at Vodafone
Group PLC, points out, ‘‘It’s hard for people in any industry to
support something that cuts them out of potential future rev-
enue streams.’’ This may prove to be a major obstacle to the
success of an iPod phone. Especially in a cell phone saturated
market such as Japan, iPod will have to work even harder to
keep its dominance in the future digital music player market.
KDDI and NNT DoCoMo are both working on developing
phones that have hardware capable of significant music file
storage. In addition, many phones in Japan can now download
entire songs, as opposed to the traditional ‘‘chaku melo’’ that
contained only the first 30 seconds of a song.
FUTURE OF IPOD IN JAPAN
While iPod is selling by the millions, Apple’s global PC mar-
ket share actually shrank to less than 2 percent (1.87) in 2004,
largely due to large global competitors like Dell (18 per-
cent) and HP (16 percent). Apple has become increasingly
dependent on iPod’s continuing success both in the U.S. and
abroad.
䉬 䉬 䉬 䉬 䉬 䉬 䉬 䉬 䉬 䉬 䉬 䉬 䉬 䉬 䉬 䉬 䉬 䉬 䉬 䉬 䉬 䉬 䉬 䉬 䉬 䉬 䉬 䉬 䉬 䉬 䉬
C ASE 11
NTT DOCOMO: CAN I-MODE GO GLOBAL?
INTRODUCTION
What’s next for i-mode? After its huge success with i-mode in
Japan, DoCoMo tried to bring the i-mode model to the U.S.
and European markets, but could not succeed. Although it
has over a quarter of the Japanese population as subscribers,
it is once again facing tough price competition in the domestic
market. Recently, it has formed new alliances with cell phone
companies in the U.S. and Europe. Can it succeed this time?
In May 2005, NTT DoCoMo announced that its annual net
profit in FY2004 rose 15 percent year-on-year to 747.56 billion
yen resulting from sales of its stake in AT&T Wireless, while
revenue fell 4 percent year-on-year. This implies that the main
business operation of the company is at risk and net profit
reported in FY2004 is non-recurring and not sustainable.
Some critics think DoCoMo is too technology-oriented and
allows too much time for new services to become profitable.
In 2005, DoCoMo unveiled a number of discounts, including
family plans and flat-rate data communications charge for 3G
Amornrat Cheevavichawalkul, Christina Okumura, and Amit Kanaskar
of the University of Hawaii at Manoa prepared this case under the super-
vision of Professor Masaaki Kotabe, solely as the basis for class discussion.
The case is not intended to serve as endorsement, sources of primary data,
or illustration of effective or ineffective management (2005).
Although iPod and iPod mini are currently dominating
Japan’s music player market, it remains to be seen whether
this ‘‘little white hope’’ can sustain its popularity continue to
have a true ‘‘halo effect’’ in Japan. While iPod has become the
standard for digital music players in Japan, it could prove to
be just another fleeting, consumer fad. Particularly troubling
is the uncertainty of iTunes in Japan as well as the foreboding
possibility of high-tech music-enhanced cell phones that could
render the iPod obsolete in the Japanese market.
One of the main reasons Apple has been successful in
Japan is its ability to constantly evaluate its products from the
Japanese consumer point-of-view and continuously launch
new and improved versions of its products while keeping
a half step ahead of the trend as well as its competition.
Clearly, Apple must continue to do just this in order to pro-
long its iPod honeymoon. Ultimately, whether or not iPod
can sustain its success in Japan and keep Japan as a major
profit center for Apple is as unpredictable as the iPod craze
itself.
QUESTIONS
1. How has iPod’s marketing strategy played a key role in its
success in Japan?
2. Is iPod’s distribution channel strategy effective?
3. What challenges will the integrated cell phone/mp3 player
present for iPod?
services in order to maintain a customer base. This resulted
in a reduction in profit margin. Also, it was revealed that
earnings will drop 33 percent due to increased competition.
Moreover, the Japanese government plans to grant licenses
for mobile networks to at least two new companies in 2005
and will introduce a rule in 2006 that will make it easier for
users to switch service providers. The company has also faced
additional risk factors such as measures to open up Internet
platforms and segment platform functions such as authenti-
cation and payment collection where dominant carriers are
assumed to have market power. These factors also include
rules that require it to open i-mode service to all content
providers and Internet service providers. All these factors
indicate that DoCoMo has to rethink its strategy for global
expansion of i-mode and 3G services.
COMPANY OVERVIEW
In the late 1980s, after much pressure from the Ministry of
International Trade and Industry (MITI) and U.S. govern-
ment, Japan reformed its telecom regulatory structure to allow
the entry of foreign players into Japan’s market. Until then,
Nippon Telegraph and Telephone (NTT) ran a monopoly in
the telecom sector. In order to reduce its monopoly power, in
July 1992, NTT’s mobile communications business was spun-
off to create NTT Mobile Communications Network Inc. The
 Case 11 • NTT DoCoMo: Can i-Mode go Global? • 679

corporate name was officially changed to NTT DoCoMo, Inc. financial condition. In contrast, NTT DoCoMo established
in April 2000. its own shops, a retail operation that was managed jointly
With the entry of foreign players, the competition inten- with trading houses and other companies that exclusively
sified and DoCoMo experienced a drastic decline in sales sold DoCoMo terminals. The incentives for these stores were
from 1992 to 1994. The company felt that there was little dif- significantly lower than those of their competitors.
ferentiation between their products and the ones offered by In February 1999, NTT DoCoMo introduced i-mode, a
other wireless companies in Japan. Also, customer feedback wireless Internet service. In just three years it had 30 million
showed that the growth rate for voice services (1G-first gener- subscribers, (60 percent share of Japan’s mobile Internet mar-
ation technology) was gradually declining. DoCoMo realized ket). Two other rival services EZweb from KDDI and J-Sky
the need to shift to a higher technology in order to differen- from J-phone also did well. EZweb had over 9.3 million users,
tiate itself from its competitors and to sustain growth in the while J-Sky was able to get over 9.7 million subscribers in less
market. As a result of their focused initiatives and the growing than three years.
demand for wireless services in Japan during the mid 1990’s, In October 2001, DoCoMo launched the world’s first third-
DoCoMo emerged as the market leader in 1997. generation (3G) cellular service FOMA in Tokyo. Customers,
Today, NTT DoCoMo is one of the world’s leading wire- though, avoided DoCoMo’s 3G offering because of the high
less communications company with a network covering the price for the service, expensive handsets, and spotty cover-
entire country and more than 45 million customers. The com- age even in key locations like the Tokyo subway. KDDI
pany provides a variety of leading-edge wireless multimedia launched CDMA2002 1x, its 3G service in April 2001 and
services such as i-mode, a mobile Internet service, which gained more than one million subscribers in the first three
provides e-mail and Internet access via high-speed packet months. Although this service was slower than FOMA,
transmissions and FOMA, the world’s first 3G mobile com- KDDI’s upgrade was in sync with the technology standards
munications service based on W-CDMA technology, which worldwide and did not require the rebuilding of a whole sys-
offers visual communication services. tem, as required by FOMA. J-phone followed with its own 3G
DoCoMo has subsidiaries in Europe and North America, service in June 2002. Exhibit 1 shows the current status of 3G
and is expanding its global reach through strategic alliances subscriptions and the overall market competition in Japan.
with mobile and multimedia service providers in Asia-Pacific KDDI/AU has moved almost all its subscribers from 2G to
and Europe. NTT DoCoMo is listed on the Tokyo, London, 3G networks. DoCoMo plans to complete the conversion to
and New York stock exchanges. 3G/FOMA by 2006, while Vodaphone still has a very small
number of 3G subscribers. Both 3G voice and 3G data rates
MOBILE NETWORKS IN JAPAN
are considerably lower than 2G data rates, however the actual
The Japanese mobile market consists of three companies: NTT rates subscribers pay depends on the plan selected, quantity
DoCoMo, KDDI/AU and J-phone (Vodafone). Although of data transferred, contract length, and various discounts.
their market shares in 2003 were roughly 60 percent, 20 per- NTT DoCoMo’s 3G network’s brand name is FOMA and
cent, and 20 percent, respectively, the difference in financial it uses the wCDMA technology standard. Vodaphone also
conditions of NTT DoCoMo and its competitors was even uses the wCDMA standard, while KDDI/AU uses different
larger due to the difference in their strategies for sales and versions of the CDMA 2000-1x standard (CDMA2000-1x and
distribution of handsets in Japan. KDDI and J-phone worked CDMA2000 1xEV-DO) under the brand names: CDMA1x
through independent retailers and paid incentives on top of and CDMA1x-WIN for data download rates up to 2.4 Mbps.
the retail price for the sales of terminals. They focused more The Japanese communication industry has seen enormous
on the market share than on the profit, which weakened their changes. The use of mobile phones has evolved from voice

EXHIBIT 1
3G SUBSCRIPTIONS AND CURRENT COMPETITION IN THE JAPANESE MOBILE SERVICES MARKET

3G mobile subscriptions in Japan

100 million Competition in the Industry
AU/KDDI (cumulative number of subscribers basis)
K.K.
Japan K.K.
www.eurotechnology.com
3G subscription contracts

(CDMA2000-lx) –As of the end of March–

10 million
www.eurotechnology.com
Eurotechnology Japan

Vodafone
FOMA/DoCoMo 18.4%
(c)2004 Eurotechnology

1 million
(wCDMA) TU-KA
4.5%
100,000 DoCoMo
au
56.3%
Vodafone 20.8%
(c)2004

10,000
(wCDMA)

1,000
Jan l, Jan l, Jan l, Jan l, Jan l, Jan l, Source : Telecommunications Carriers Association
2001 2002 2003 2004 2005 2006

Source: www.eurotechnology.com. Source: NTT DocMo, Annual Report 2004.

680 • Case 11 • NTT DoCoMo: Can i-Mode go Global?
communication infrastructure to mobile phone applications
as IT infrastructure. The next likely step is further evolution
of mobile phones as a lifestyle infrastructure.
i-mode, DoCoMo’s Success Story
After its launch in 1999, i-mode became an instant success in
Japan, resulting in a phenomenal growth in DoCoMo’s sub-
scriber base. Company sources mainly attributed the success
of i-mode to its simple and efficient network access, its middle-
ware software, its innovative business model, and its unique
marketing strategies. NTT DoCoMo placed itself between
the users and content by making i-mode a closed and tightly
controlled network. Web pages and e-mails can only reach
an i-mode handset by c-HTML or i-HTML, NTT DoCoMo’s
patented protocols. i-mode users must connect to the Internet
through its gateways. Takeshi Natsuno, executive director of
the i-mode planning division of NTT DoCoMo summed it up:
‘‘The true mechanism of the great success is that the operator
has made a function of coordination of the total value chain.’’
According to analysts, the biggest advantage of i-mode was its
efficient execution of the wireless Internet ecosystem. Refer
to Exhibit 2 for i-mode’s collaboration concept.
DoCoMo had a national network for packet communi-
cations, and through i-mode, its researchers found the best
way to effectively utilize this network. NTT DoCoMo col-
lected monthly information charges on behalf of the i-Menu
content providers—so i-mode users can receive a single, con-
solidated bill for all their mobile phone activities, and the
content providers do not have to worry about billing cus-
tomers directly. This arrangement reduced the expenses and
risks for the content partners, which encouraged them to
EXHIBIT 2
i-MODE ECOSYSTEM
i-mode Collaboration Concept
Inter-Operability Inter-Operability
Platform
Vendors
Business Portal
Opportunity Functionality
Co-marketing Co-marketing
NTT
Handsets DoCoMo
Content
Volume Revenue
Handset Opportunity Collection
Vendors
Content / Handset Integration
This total value chain management is made prossible by a well-balanced
mobile multimedia ecosystem of partners is which the operator plays a
central coordination role.
constantly produce high-quality offerings that would attract
new subscribers and boost their profits. Clever marketing
was another key factor in i-mode’s success. Young Japanese
women determine which trends become successful and long-
lived in Japan, and DoCoMo initially designed its content
with features for young women like shopping sites, ring-tone
downloads, and easy email capability. By making sure that this
group adopted i-mode at an early stage helped DoCoMo to
extend their success in other Japanese user groups. DoCoMo
charged 300 yen for its i-mode service, which most users con-
sidered to be a minor cost. It also consciously chose not to
refer to the term Internet or Web in its promotional campaign
for i-mode during the first year of its launch. i-mode was posi-
tioned as a simple, usable and fun-to-use service, complement
to the voice function. DoCoMo also defined the features of
the phone (handset) it sold and manufacturers did not have
any influence in the retail price or the introduction of new
models.
Was i-mode a Cultural Phenomenon?
Western analysts often point out that the success of i-mode
was a result of several special characteristics and the environ-
ment in Japan: Japan is a pedestrian-centric country and the
penetration rate of PCs in Japan is low, so people have to use a
cell phone instead of a PC for Internet access. However, these
reasons are only partly true. People living in Tokyo mostly
ride trains but those who live outside of Tokyo drive; 50 per-
cent of Japanese households have two cars. Therefore, it’s not
the case that people only use i-mode during their commute.
They use i-mode in their spare time, such as waiting between
meetings. Also, even though PC penetration in Japan is far
Content
Providers
Source: www.nttdocomo.com.
 Case 11 • NTT DoCoMo: Can i-Mode go Global? • 681

lower than in the U.S., Japan is still among the top five nations
in terms of PC usage.
The i-mode phenomenon coincided with changing social
behavior, particularly among Japan’s urban youth. According
to Masahiro Yotsumoto, research director at the Dentsu Insti-
tute for Human studies, ‘‘Young people have a very different
attitude towards personal relationships. Instead of having one
good friend, they prefer to have 200 mobile friends.’’ Another
analyst, Nishioka, points out that sending a short message,
such as saying goodnight to a friend, is one of the most popu-
lar uses of i-mode. The lack of real privacy in small Japanese
houses has also helped to make mobile phones popular. ‘‘In
Japan, especially for young people, their home is their cell
phone,’’ says John Barber, former director of AOL Japan.
BATTLE FOR GLOBAL STANDARDS
In 1982, the Global System of Mobile Communication (GSM)
was established to initiate European Telecommunication stan-
dards. The European government passed a legislation making
it illegal to implement any other system. In contrast, the
absence of a mandated standard by the U.S. government
led to companies adopting different implementations, ranging
from CDMA to two versions of TDMA (GSM and IS-136).
GSM was an improved version of TDMA whereas CDMA
was a completely different technology. The CDMA inter-
face was much superior to GSM or TDMA for data transfer.
In Japan, all 3 Japanese operators deployed second genera-
tion (2G) technologies that were not compatible with GSM
(NTT DoCoMo and Vodafone used PDC whereas KDDI used
CDMAOne). Due to this, Japan was not able to offer GSM
roaming services to those coming from other countries. See
Exhibit 3 for the evolution of mobile telephony.
These 2G choices influenced the early choices of 3G techni-
cal specifications. Exhibit 4 shows the possible migration paths
from 2G to 3G. Although the two approaches CDMA2000 and
wCDMA (Wideband Code Division Multiple Access) were
recommended as a standard technology (for 3G) by IMT-2000
(International Mobile Telecommunications—2000), these
technologies were not perfectly compatible.
KDDI adopted the CDMA2000 standard for 3G, whereas
NTT DoCoMo adopted wCDMA (which it calls FOMA),
which they claim is the first bona fide 3G networks. In Europe,
many telecom companies invested heavily in 3G spectrum
licenses, which can only be used for wCDMA. In the U.S.,
Cingular has decided to use wCDMA for its 3G service,
whereas Verizon is using CDMA2000. This means that users
who need global roaming capabilities will still have to use
multi-technology phones.
INTERNATIONAL EXPANSION
To extend i-mode and 3G services outside Japan, DoCoMo
focused on acquiring stakes in various cellular countries
around the world. Commenting on this, Natsuno Takeshi,
Executive Director of DoCoMo said ‘‘DoCoMo alone is very
sure of the potential of 3G, because we have already experi-
enced the explosive success of the data business. Our overseas
business is to offer our know-how. We cannot give it away
free, but we can make a minority investment in interested

EXHIBIT 3
EVOLUTION OF MOBILE TELEPHONY
Mobile telephony has evolved through various generations: 1G, 2G, 2.5G, and 3G
1G—Analog Communication: The original analog cellular systems introduced in late
1970’s and early 1980’s are considered the first generation of mobile telephony. This was a
voice-based technology that used analog signaling.
2G—Digital Technology: Second generation mobile telephony was also essentially a
voice-based technology but it used digital signaling techniques. Though digital wireless
telephony provided clearer voice transmissions with little disturbance as compared to
analog technology, it was slower due to the circuit switch-on and off. GSM, TDMA and
CDMA were 2G technologies
2.5G—Packet Switching Technology: 2.5G was the interim solution for 2G networks to
have 3G functionality. It used General Packet Radio Service (GPRS), an interim
technology between Global System for Mobile (GSM, 2G) and Universal Mobile
Telecommunication Service (UMTS, 3G) technologies. 2.5G supported transmission of
voice as well as data. It enabled users to access the Internet and send e-mails and large
amounts of data.
3G—Advanced Packet Switching Technology: The third generation of mobile telephony
was designed for high-speed multimedia data with speeds ranging from 128 kbps to
several megabits per second. 3G was also expected to provide advanced global roaming. It
promised to increase the bandwidth and provide faster packet-switched data transfer rate.
DoCoMo was the pioneer of this generation.
4G—Software Defined Wireless Technology: 4G technology is still in the research phase.
It will be able to support interactive sessions like video conferencing, as data would be
transferred at much higher rates. The cost of data transfer would be comparatively less
and global mobility would be possible. The Japanese, Chinese, and South Korean
governments agreed to jointly develop 4G technology and allocate common spectrum for
4G cellular phones which are expected to be available around 2010. Source: Compiled from various
sources
682 • Case 11 • NTT DoCoMo: Can i-Mode go Global?

EXHIBIT 4
POSSIBLE MIGRATION PATHS FROM 2G TO 3G

IS-41 CORE NETWORK

cdm 3 One CDMA2000
IS-95B 1X EV-DO
cdm 3 One
IS-95A CDMA2000 1X
CDMA2000
TDMA 1X EV-DV

EDGE W-CDMA

GSM GPRS

GSM MPA CORE NETWORK

2G 2.5G 3G
Source: ITU Internet Reports 2002, Internet for a
Mobile Generation.

partners. I think it is a perfect strategy.’’ DoCoMo invested in Was it the Right Partnership?
foreign mobile providers who were aiming to deploy the next
It is questionable whether DoCoMo saw its business as a global
generation technology. In May 2000, it bought a 15 percent
business or rather a multi-local business. DoCoMo focused
stake in Dutch KPN mobile to set up Europe’s first i-mode
on acquisitions to expand its business without truly analyzing
service and in December 2000, completed the acquisition of a
the synergy effect from these deals. According to financial
16 percent stake in AT&T for $9.8 billion, planning to estab-
theory, mergers and acquisitions will generate economic gain
lish the first 3G network in the U.S. in 2003–2004. DoCoMo
only if there is a synergy effect or if two firms are worth more
also invested in Hutchison in Hongkong, KG Telecom in Tai-
together than apart. An analyst from Dresdner Kleinwort
wan, and Tele Sudeste in Brazil. In exchange, these carriers
Wasserstein, pointed out that there was no additional gain for
agreed to roll out i-mode and DoCoMo’s version of 3G mobile
DoCoMo by acquiring stake in AT&T Wireless. However,
technology. Through these investments, DoCoMo improved
some analysts also say that DoCoMo was a latecomer in the
its access to Asia as well as the European and American mar-
U.S. market and partnerships with most carriers were fore-
kets. Its network of international investments was intended to
closed to it. DoCoMo selected AT&T wireless largely because
leverage DoCoMo’s know-how from the advanced Japanese
of AT&T’s national footprint and because AT&T agreed to
market. It planned to offer i-mode-type services based on 2.5G
deploy i-mode and implement DoCoMo’s wCDMA standard
to be followed by 3G products and services, which would be
by the end of 2003.
well developed in Japan by that time. DoCoMo was aiming
Furthermore, despite regulatory changes, economics of the
to establish its wCDMA technology as the de-facto world-
mobile industry has remained primarily national in nature and
wide standard for 3G mobile phones. However, its global
it is better to be a market leader in one country rather than a
aspirations soon ended due to the downturn in the global
follower in many countries. In general, a broader geographic
telecommunications market.
scope and higher subscribers than that of other companies
FURTHER PROBLEM’S IN GLOBAL EXPANSION is the true benefit for the leader. Although DoCoMo was
the leader in Japan, this was not true for Europe or North
In fiscal year 2001, DoCoMo was forced to write off almost
America.
1 trillion yen due to the decline in the value of its investments
To be successful in international market by way of merger
in various foreign wireless companies. The gross impairment
and acquisition synergies, DoCoMo should have been more
charges were 664.5 billion yen for AT&T Wireless Service,
serious about gaining management control. Although it accu-
Inc., 320.5 billion yen for KPN Mobile N.V., 36.5 billion yen
mulated direct or indirect shares in nine mobile operators
for KG Telecommunications Co., Ltd., and 56.4 billion yen for
during the telecom bubble period, it was the major player
Hutchison 3G UK Holdings Ltd. In mid 2002, it was reported
only in KPN Mobile in Netherlands and Hutchison in Hong
that DoCoMo was facing problems in convincing its partner
Kong, which were minority geographic markets. The rest
wireless companies to adopt its technology. These companies
of the investments were not successful for being a mar-
were reluctant to spend huge amounts upgrading their net-
ket leader. AT&T Wireless was the No. 3 player in the
works, as they feared DoCoMo’s products and services might
U.S., KG Telecom was No. 4 in Taiwan, and Hutchison
not attract customers in their countries. They had already
was No. 5 in U.K. Since DoCoMo was the minority share-
spent billions of dollars in acquiring 3G licenses and did not
holder, it had very little or no management control. DoCoMo
have the financing to set up and operate 3G networks. As a
argued that the objective of global business expansion was
result, a number of leading telecom companies in Europe and
to generate royalties from its i-mode business model for
the U.S. decided to delay their 3G roll out plans, which were
mobile Internet services in joint ventures with newly acquired
initially projected for 2002 and early 2003.

partners and to increase the adoption of DoCoMo’s 3G
mobile technology standard. In Japan, DoCoMo was able
to dominate the entire value chain by specifying standards
for handset manufacturers and regulating the content from
content providers. Did it evaluate all the success factors for
its i-mode service in Japan before expanding to overseas
markets?
Was the U.S. Ready for i-mode?
At the time of the acquisition of AT&T, Japan and Europe
had already begun migrating to the 3G networks whereas in
the U.S. there were many full second-generation network cov-
erages and some 2.5G providers. Although the limited 2.5G
data transmission speed did not support advanced multimedia
services, it provided the basic content that satisfied customers.
This was, however, not sufficient to be marketed as i-mode
under DoCoMo’s standards.
The preferred protocol for mobile information services in
the U.S. was wireless application protocol (WAP), which
allowed users to connect to the Internet and advanced
telephony services. It required the use of wireless markup
language (WML) to create content (Internet sites). WAP is
an open standard, not controlled by a single vendor. But
its widespread adoption was uncertain due to its technical
limitations. In contrast, DoCoMo used its own protocol for
i-mode in combination with its proprietary c-HTML language.
Switching to i-mode would thus be more expensive.
Although most carriers had introduced mobile Inter-
net access based on the WAP protocol, similar capabilities
were also offered by providers of mobile e-mail services,
such as Blackberry, and of wireless personal digital assis-
tants (PDA’s). The distinction between cellular phones and
PDA’s were beginning to blur as new cellular handsets incor-
porated PDA functionality and wireless PDA’s were voice
enabled.
Furthermore, the U.S. market was different from the
Japanese market in terms of fragmentation and a widely
dispersed population. The intense competition in the U.S.
market had led to flat rate calling plans, so there was little
incentive for mobile carriers to increase network usage. In
addition, U.S. prices were often set too high to encourage
frequent use of additional services.
What Happened in the UK?
Although DoCoMo’s technology was far superior to WAP,
which European operators had been successfully marketing
to their customers, very few users signed up for i-mode.
Mobile Internet services were not as popular in Europe as
they were in Asia and after studying the UK market, 3UK
decided against deploying i-mode. The local operators in
Europe were also facing problems in launching i-mode com-
patible technology in place of the standard WAP technology.
In May 2004, DoCoMo announced that it had terminated
its investment in Hutchison 3G UK holdings, which oper-
ates 3UK. Some other reasons that contributed to the failure
were the launching of i-mode service during a recession, poor
quality of i-mode enabled handsets, and the opportunity for
WAP to bounce back. Many consumers considered i-mode
as an interim technology that would soon be superseded
by 3G. As John Tysoe, mobile-industry analyst at WestLB
Panmure in London pointed out, ‘‘It will be tough to persuade
Case 11 • NTT DoCoMo: Can i-Mode go Global? • 683
people to get an i-mode handset when so much has been said
about 3G.’’
Investors wanted DoCoMo to rethink its overseas adven-
tures.
FINANCIAL HIGHLIGHTS: DoCoMo
Overall Operating Result
In fiscal year 2003, total operating revenue of the company
increased by 4.97 percent to 5,048 billion yen while operat-
ing income increased by 4.36 percent. Net income increased
from 212.49 billion yen in FY2002 to 650.01 billion yen in
FY2003, representing a 206 percent increase. This surge in
net income was attributable to the reduction in write-downs
of investment in affiliates and equity in net losses of affiliates,
and the gain from sales of AT&T securities. The percentage of
operating expenses to sales reduced slightly from 78.5 percent
in FY2002 to 78 percent in FY2003 as a result of a decrease
in sales commissions. In FY2003, the cost of providing ser-
vices increased by 0.8 percent YOY. However, cost/revenue
percentage decreased from 16.32 percent to 15.97 percent in
FY2003 as a result of economies of scale from the increase in
cellular traffic volume. DoCoMo reported an operating loss
in FY2001 of 116 billion yen despite an increase in operat-
ing revenue from FY2000. This was attributable to the loss
in equity of affiliates, which reflected the poor performance
of international investments. AT&T reported operating loss
and impairment of goodwill totaling 664.5 billion yen. At the
same time, there were impairment charges of 320.5 billion yen
to the investment in KPN Mobile N.V., 36.5 billion yen for
KG Telecommunications Co., Ltd, and 56.4 billion yen for
Hutchison 3G UK holdings Ltd.
Financial Position
In FY2003, the company’s assets increased by 3.67 percent
to 6,262 million yen. DoCoMo has invested more in wireless
telecommunication expenses, building a structure to support
the increase in subscribers, R&D for fourth generation (4G)
services and for servers for Internet-related services, and 3G
FOMA infrastructure. While cash for business expansion is
still needed, DoCoMo depended less on debt. Debt to asset
ratio decreased gradually every year from 45.74 percent in
FY2001 to 40.84 percent in FY2003. Decrease in the depen-
dence on debt will enable DoCoMo to sustain its business
growth in the long run.
Return on Equity
DoCoMo’s ROE increased from 6.11 percent in FY2002 to
17.84 percent in FY2003 because of the increase in net profit
margin and higher asset turnover ratio (to measure how the
company efficiently generates sales from its asset). As stated
above, the increase in net profit margin in FY2003 came
from the reduction in loss and impairment of investments
in affiliates. Operating margin, which represented the per-
formance of its main business, however, decrease from 22.0
percent to 21.8 percent. Asset turnover increased slightly from
0.79 times to 0.82 times in FY2003. In sum, the increase in
ROE did not result from increase in profit margin of its main
business but from the decrease in the loss of investment in
affiliates and higher efficiency in generating sales from its
assets.
684 • Case 11 • NTT DoCoMo: Can i-Mode go Global?

EXHIBIT 5
FINANCIAL HIGHLIGHTS
Million of Yen Million of US dolars
2000 2001 2002 2003 2004 2004 ROCE
Operating results
Operating Revenues 3,718,694 4,686,004 4,659,254 4,809,088 5,048,065 48,456 23.50%
23.00%
Wireless services 2,978,881 3,590,134 4,153,459 4,350,861 4,487,912 43,079 22.50%
Equipment sales 739,813 1,095,870 505,795 458,227 560,153 5,377 22.00%
21.50%
Operating Income 509,178 778,620 1,000,887 1,056,719 1,102,918 10,587 21.00%
Net Income (loss) 256,564 401,755 (116,191) 212,491 650,007 6,239 20.50%
20.00%
19.50%
19.00%
Basic Data per Share 18.50%
Basic and diluted earnings (loss) 26,792 8,350 (2,315) 4,254 13,099 125.73 18.00%
Dividends decared and paid 200 200 1,000 9.60 2000 2001 2002 2003 2004

Financial Position
Total Assets 3,613,124 6,016,505 6,067,225 6,058,007 6,262,266 60,110
Total debt 1,636,966 2,697,918 2,775,342 2,582,493 2,557,571 24,549 Net Income (Loss) and ROE
Total shareholders' equity 1,976,158 3,318,587 3,291,883 3,475,514 3,704,695 35,561
800,000 20.00%
Cash Flows 2000 2001 2002 2003 2004 600,000 15.00%

Mil lio n Yen

Cash flows from operating activities 1,048,188 839,312 1,341,088 1,584,610 1,710,243 16,416 400,000 10.00%
Cash flows from investing activities 999,264 2,744,215 1,125,093 871,430 847,309 8,133
200,000 5.00%
Free cash flow 85,929 (1,936,713) 215,995 713,180 862,934 8,283
- 0.00%
Other Financial Data (200,000) 2000 2001 200 2 2003 2004 -5.00%
EBITDA 999,579 1,158,029 1,680,596 1,836,264 1,858,920 17,843 Net Income (loss)
Capital expenditures 876,058 1,443,168 1,032,256 853,956 805,482 7,732 ROE

Financial Ratios 2000 2001 2002 2003 2004

Operating margin 14.70% 16.60% 21.50% 22.00% 21.80% Operating Revenue s an d Income be for e
EBITDA margin 31.10% 30.50% 36.10% 38.20% 36.80% Inco me Taxes
6,000,000
ROE 13.51% 15.13% -3.54% 6.11% 17.84%

Million Yen
5,000,000
ROCE 19.80% 20.70% 21.10% 22.10% 22.90% 4,000,000
Asset turnover 1.071 0.973 0.771 0.793 0.819 3,000,000
Net profit margin 6.90% 8.57% -2.49% 4.42% 12.88% 2,000,000
1,000,000
Equity ratio 54.69% 55.16% 54.26% 57.37% 59.16% -
Asset/Equity ratio 1.83 1.81 1.84 174
. 1.69 (1,000,000) 2000 2001 2002 2003 2004
Debt ratio 45.31% 44.84% 45.74% 42.63% 40.84% Operating Revenues Operating Income Net Income (loss)

EBITDA & EBITDA margin Cash flow

Debt ratio
47.00% 2,000,000 50.00%
46.00% 2,000,000
45.00% 1,500,000 40.00% 1,000,000
44.00%
Yen

30.00% -
Yen

43.00%
Yen

1,000,000 2000 2001 2002 2003 2004

42.00% 20.00% (1,000,000)
41.00% 500,000 (2,000,000)
40.00% 10.00%
39.00% - 0.00% (3,000,000)
38.00% Cash flows fromoperating activities
20002001200220032004
2000 2001 2002 2003 2004 EBITDA Free cash flow
EBITDA margin Capital expenditures

Source: www.nttdocomo.com

Source: www.nttdocomo.com.

CURRENT EXPANSION STRATEGIES O2 will launch services based on i-mode technology but under
its own brand.
Expansion Strategy in U.S
Expansion Strategy in Japan
DoCoMo and Cingular Wireless are negotiating to introduce
i-mode and 3G services to Cingular’s customers in the U.S. In April 2005, DoCoMo acquired a 34 percent stake in Sum-
They aim to reach an accord in 2005. DoCoMo also announced itomo Mitsui Financial Group’s credit card unit to enter
that it will soon set up a $100 million venture fund in the U.S. into credit card business aiming to diversify its business,
to invest in start-up companies that develop advanced mobile as core mobile communications business is gloomy with a
communication technologies. After the company failed in its saturated market. Moreover, this integration of telephone
overseas investments, it decided that smaller investments in and credit card will enable subscribers to settle payments
promising venture companies would be a better option. Invest- through their mobile handsets. According to president Naka-
ment in stakes of U.S. ventures will also shorten DoCoMo’s mura, ‘‘DoCoMo could no longer hope to expand revenue
own development cycle, lower R&D costs, and widen its by depending on growth in subscribers and traffic usage.’’ He
opportunities. expected a 25 percent drop in operating profits and 4.5 percent
decline in revenue this year. DoCoMo plans to reduce costs
Expansion Strategy in the UK to deal with the expected decline in revenue, particularly in
In November 2004, DoCoMo signed an agreement with mm02 distributor subsidies. Recently DoCoMo announced that it
plc under which the European mobile operator will provide will stop rolling out 2G handsets and focus on expanding its
i-mode services to its 22 million customers in the UK, Ger- 3G handset lineup further by adding new models. DoCoMo is
many, and Ireland. O2 U.K and O2 Ireland will exclusively use facing tough competition in the 3G services market in Japan
i-mode brand and technology in their markets. In Germany, as only 25 percent of its overall customers have subscribed

to FOMA. In contrast, KDDI, its nearest rival provides 3G
services to 92 percent of its customers.
DoCoMo’s i-mode Clone Grows Quietly in France
Meanwhile, France’s Bouygues Telecom successfully dupli-
cated DoCoMo’s development and marketing strategies. It
seems that the availability of better handsets like those in
Japan, a well-defined and controlled portal strategy, and a
marketing focus that led to i-mode’s success in Japan, if
properly cloned, could be successful. Bouygues achieved a
milestone of 500,000 customers within 12 months of launching
the i-mode service in France. As of April 2005, it had 1.1
million i-mode subscribers.
䉬 䉬 䉬 䉬 䉬 䉬 䉬 䉬 䉬 䉬 䉬 䉬 䉬 䉬 䉬 䉬 䉬 䉬 䉬 䉬 䉬 䉬 䉬 䉬 䉬 䉬 䉬 䉬 䉬 䉬 䉬
C ASE 12
THE FUTURE OF NOKIA
Jorma Ollila sat at his desk looking out over the skyline of
Keilalahti in Espoo, Finland. As Chief Executive Officer, he
held a fond sense of security when he was here at the global
headquarters of Nokia, Inc. But recently, that feeling had
slowly begun to change, as more and more of Jorma’s time
was focused on developing elements of Nokia’s global plan.
For years, that plan had been simple—utilize company facil-
ities to manufacture large quantities of Nokia phones that
were known for their style and quality. But suddenly, things
weren’t so simple anymore. Competitors had begun using
low-cost manufacturers and the tastes of the global cell phone
market both shifted and split. From a design and function per-
spective, global consumption had increasingly moved towards
the new ‘‘clamshell’’ design and converging features, while at
the same time, clear purchase distinctions could now be made
between new and existing markets.
It was obvious that Nokia’s business model is in need of
an overhaul. What is not clear to Jorma is just how much of
an overhaul would be needed and how he would go about
accomplishing it.
HISTORY OF NOKIA
Nokia’s history can be traced back to 1865, with the founding
of a forest industry enterprise in southwestern Finland. Engi-
neer Fredrik Idestam established a mill to manufacture pulp
and paper on the Nokia River. A little more than a century
after Nokia was founded, in 1967, Nokia merged with Finnish
Rubber Works (established in 1898) and Finnish Cable Works
(established in 1912) to the form what is now known as the
Nokia Corporation.
Nokia made several acquisitions in the 1980s to increase
its position in the telecommunications and consumer elec-
tronics markets. Among other companies, Nokia acquired
Scandinavia’s largest maker of color televisions, Salora, and
This case was prepared by Katja Fischer, Charlie Huynh, Marisa Kos-
sakowski, and Thomas R. Schuler of the Fox School of Business and
Management at Temple University under the supervision of Professor
Masaaki Kotabe for class discussion rather than to illustrate either effective
or ineffective management of a situation described (2004).
Case 12 • The Future of Nokia • 685
DISCUSSION QUESTIONS
1. What were the major factors that led to the success of
i-mode in Japan?
2. Do you support DoCoMo’s global strategies in 2001?
Why/Why not?
3. Why are there signs of success in the Europe?
4. Given the current scenario, do you think DoCoMo should
focus on Asia or continue with its global expansion in U.S.
and Europe?
5. DoCoMo is diversifying into credit card business. How
effective do you think is this strategy?
the Swedish electronics and computer company, Luxor, in
1984. Four years later, Nokia bought the data systems division
of Sweden’s Ericsson, which made it the largest information
technology company in Scandinavia. This was the first step in
becoming a major player in the European market for infor-
mation technology. Over time, Nokia has expanded into tires,
power transmissions, radio, telecom, electronics and computer
technology.
In 1998, Nokia bought a number of small companies that
develop e-commerce and telephony technologies to expand
its drive into mobile Internet capability. Nokia also made
several acquisitions to reinforce its Internet protocol network
business. In 2001, Nokia added Internet security appliances
to its product line-up with the acquisition of Ramp Net-
works.
NOKIA’S MOVE TO MOBILITY
Kari Kairamo, who became CEO in 1977, saw Nokia’s future
in technology, even though he came from the forestry side
of the business. Under him, the company launched its first
mobile phones in the 1980s and introduced its first NMT
portable phone in 1987. (NMT was the network that preceded
GSM.) The current CEO of Nokia, Jorma Ollila, took over the
mobile phone business in 1990, and in 1992, Nokia introduced
its first GSM hand-portable phone. In 1994, he decided to
focus on mobile phones and telecommunications as the core
of the business and divested its non-core operations.
Mobile phones at that time were considered very expensive
business tools. However, Ollila predicted that as they became
cheaper and lighter, they might become a must-have item
among consumers. In 1996, Nokia introduced the world’s first
all-in-one communications device, the Nokia 9000 Commu-
nicator. Since 1997, Nokia has been focusing on the mobile
Internet as it moves towards a ‘‘mobile information society.’’
In 2001, Nokia began working with other phone makers and
service providers to develop a global standard for 3G soft-
ware, so named because it is the third generation of mobile
technology. In 2002, Nokia announced its first phone with a
built-in camera.