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Morningstar | NTT DoCoMo Mulling Mobile Price Cuts

NTT DoCoMo is Japan's largest wireless telecom operator, and the firm has generally led the market in network features and upgrades. Its smaller wireless competitors, KDDI and SoftBank, took market share from NTT DoCoMo until 2016, but since then, NTT DoCoMo has reversed the trend and gained some market share, mainly from SoftBank. The Japanese telecom market has been a cozy oligopoly since new entrant, eMobile was taken over in 2011. However, this could be about to change through both a new entrant to the market and government pressure on existing operators. Rakuten has indicated its intention to launch a mobile service in Japan in 2019. We are not confident that it will be able to build a sustainable fourth operator business but could put some pressure on prices while it tries to build its customer base. In any case, over the past three to four years, the Japanese Government has made several comments about the profitability of the existing operators and the high prices they are charging relative to other international markets. At its second-quarter result briefing in October 2018, NTT DoCoMo announced it would introduce new rate plans in the June 2019 quarter which would give back up to JPY 400 billion to customers and cause earnings decline which the operator planned to recover by fiscal 2023. We believe this is being proposed largely to appease the government. Despite the forecast near-term earnings decline, NTT DoCoMo is targeting a JPY 110 per share dividend in fiscal 2018 and has committed to at least maintaining dividends at this level. It has also been actively buying back stock with excess cash over the past few years although we expect this buyback activity might have to be scaled back going forward with upcoming earnings declines and 5G capital expenditure.