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How to Spend $15 Billion on Mobile Telephony Worldwide…and Regret It

How to Spend $15 Billion on Mobile Telephony Worldwide…and Regret It

DoCoMo, which started the world's first W-CDMA service in October, has pursued a strategy of taking minority investments in overseas carriers to build a family of mobile phone companies throughout the world using the same 3G mobile phone technology. So far, it has not been a resounding financial success.

Japan's largest mobile phone company, NTT DoCoMo, will post an extraordinary loss of about $2.5 billion in the first half of this year to reflect a revaluation of its investment in KPN Mobile, the Dutch mobile phone operator. The write-down, which was widely expected, comes just over a year after DoCoMo agreed to take a 15% stake in KPN Mobile, and amounts to about 37% of DoCoMo's forecast full-year pretax profits.

The admission that DoCoMo overpaid for KPN Mobile was welcomed by investors concerned about the gap between the price DoCoMo has paid for its various overseas investments and their perceived present value. But it came as an embarrassment to a company that has spent more than $15 billion in overseas investments.

Write-down Needed on AT&T Wireless Stake, Analyst Warns
"It would help their share price if they would get all of their write-downs out of the way [so that] people can focus on the fundamentals rather than the overseas investments," says Mark Berman, telecoms analyst at Credit Suisse First Boston in Tokyo. DoCoMo should have revalued its $8-billion investment in AT&T Wireless as well, Berman adds.

DoCoMo has justified its strategy of taking minority investments in overseas operators on the grounds that it will be raising the value of these companies (and its investment) by transferring the i-mode mobile data technology and business expertise that has underpinned its huge success in Japan. The investments were also seen as important to encourage an early start of third-generation (3G) mobile phone services outside Japan, where DoCoMo became the first operator in the world to introduce wideband CDMA 3G services in October. But the value of its investments has fallen sharply before any concrete benefits have emerged.

SKT Deal Founders
The W-CDMA standard, and DoCoMo fears that Korea's largest mobile operator, SK Telecom (SKT), may not be fully committed to it, lay behind the breakdown of talks between the two parties. DoCoMo was to take a minority investment in SKT, and had been in talks for about two years over taking a stake of about 15% in the Korean operator. DoCoMo's other investments in foreign carriers have been contingent upon their offering W-CDMA services at an early stage.

DoCoMo's keenness to form an early partnership with SKT was due to the high volume of travel between Japan and South Korea and the forthcoming World Cup soccer series, which will be hosted jointly by the two countries.

Keiji Tachikawa, DoCoMo chief executive, has admitted that DoCoMo's plans in Asia have been disrupted by the absence of specific 3G plans in many Asian countries. Although it has a license to offer one, SKT may not start a W-CDMA service for some years, and may possibly even scrap it, since it is already offering advanced mobile phone services using CDMA2000 1x, a competing technology, and plans to offer related HDR services next year.

Korea Shelves W-CDMA Plans for Now
With all the negative news about W-CDMA, Korean operators may decide to stick to CDMA 1x, says Jeff Kahng, telecoms analyst at Credit Suisse First Boston in Seoul. "W-CDMA in Korea will be hampered by the success of 1x," he says. SKT is unlikely to switch to W-CDMA until it obtains reasonable returns on its current investments.

Despite the KPN Mobile write-off, Tachikawa may once again turn his attention to Europe, where interest has also been shown by France, Italy and Spain, and where Germany is aiming to become the first country in the world to offer the i-mode service outside of Japan.

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