TOKYO-NTT DoCoMo Inc. and America Online Inc. last week announced their long-expected business alliance. The combination of the largest mobile carrier in Japan and the largest Internet service provider in the world will give NTT DoCoMo a foothold to launch its popular i-mode services, as well as scheduled 3G (IMT-2000) services based on wideband CDMA technology in the U.S market.
In addition, AOL will get access to NTT DoCoMo’s leading mobile Internet network and services. As part of the contract, NTT DoCoMo will assume a 42.3-percent stake in AOL Japan at $95.9 million, becoming the largest shareholder of the Japanese business arm of AOL.
At a press conference here, Keiji Tachikawa, president of NTT DoCoMo, said the alliance is important for the Japanese carrier to promote mobile multimedia business throughout the world.
AOL Japan is a joint venture established in 1997 by AOL; Mitsui & Company Ltd., a major trading firm; and Nikkei Shimbun, an economic daily here. Due to the arrangement, AOL’s stake in AOL Japan will be reduced from the current 50 percent to 40.3 percent. Stakes of Mitsui and Nikkei will also be lowered to 13.2 percent and 4.17 percent. AOL Japan is scheduled to increase its capital by $102 million later this year, and DoCoMo plans to provide $53 million in additional investment.
By establishing solid financial relations between the two firms, the two companies plan to launch new services converging their services based on fixed-line networks and mobile networks.
NTT DoCoMo last week explained plans for a “net auction” service combining a wired Internet connection with an i-mode terminal to allow an auction participant to check a bidding status using an i-mode phone and wirelessly change bids. In addition, DoCoMo plans to launch advanced e-mail services that fully use AOL’s advanced mailing technology.
NTT DoCoMo, which has 12 million i-mode services subscribers, is the largest ISP for mobile Internet in the world. Upon the agreement with AOL, NTT DoCoMo users will be able to access abundant AOL content once they become subscribers. I-mode users currently do not subscribe to a fixed-line ISP because NTT DoCoMo itself is the ISP.
Moreover, upon the agreement, AOL users will be able to access the Internet through i-mode. Despite strong backing from AOL U.S., AOL Japan has failed to expand the number of subscribers here. As of Sept. 26, AOL Japan had 440,000 subscribers, much less than other major ISPs in Japan.
Since the end of 1999, NTT DoCoMo has been gearing up its overseas strategies. According to Tachikawa, DoCoMo has been exploring the world market to spread W-CDMA technology and to proliferate mobile multimedia services over W-CDMA networks worldwide.
The U.S. market is a major target for NTT DoCoMo’s overseas strategy. As part of its effort, NTT DoCoMo attempted to tie-up with VoiceStream, one of a few U.S. carriers that might employ W-CDMA technology for its 3G services based on its existing GSM networks. However, DoCoMo gave up the idea when Deutsche Telekom AG decided to purchase VoiceStream earlier this year.
A few weeks ago, some newspaper articles reported DoCoMo is talking with the SBC Communications Inc./BellSouth Corp. partnership about a business alliance. Tachikawa last week refused to give direct comment on the deal. He did say the deal surfaced because SBC/BellSouth is now using a system based on TDMA and they might use W-CDMA, an evolving standard for 3G.
At last Wednesday’s press conference, Tachikawa repeatedly said the carrier will continue to seek a business alliance with a U.S. carrier. “We need a network in the U.S. market in order to promote our mobile multimedia services,” he said.
NTT DoCoMo has successfully invaded the European and Asian markets. In Europe, DoCoMo last July acquired 15 percent of KPN Mobile in the Netherlands and 20 percent of Hutchison 3G UK Holdings. Through these two firms, NTT DoCoMo is going to launch i-mode-like services and a 3G business in Europe.
In Asia, NTT DoCoMo last December acquired 19 percent of Hutchison Telephone Co., a mobile business wing of Hutchison Whampoa. Although it is not confirmed, there is a persistent rumor that NTT DoCoMo is in talks with SK Telecom, a leading mobile carrier in South Korea. However, last week Tachikawa said the carrier would take a wait-and-see tactic in Asia until these markets recover from the currency crises of a few years ago. Regarding the Chinese market, he said the carrier will take action in the promising market after the nation joins the World Trade Organization and is opened to foreign countries.
The AOL/DoCoMo alliance might be a typical win-win alliance between the world’s largest ISP and the most successful mobile Internet carrier. However, there are some unclear points:
First, at the press conference, Tachikawa said NTT DoCoMo will explore the world market once it succeeds in the Japanese market. However, he failed to clearly say when the company will launch worldwide business efforts. Instead he said he believes the carrier will be able to be successful in Japan and will implement new services one by one in overseas markets without waiting until all the new services are confirmed successes.
Second, at the conference Tachikawa said AOL has abundant content by itself. But obviously DoCoMo is targeting to win additional video, film and motion picture content of Time Warner through the tie-up with AOL. Time Warner and AOL are attempting to merge.
Because the merger plans between AOL and Time Warner are currently under examination by both European and U.S. authorities, AOL avoided mentioning Time Warner.
Third, Tachikawa repeatedly said the carrier will set up joint ventures in the U.S. market, however at the conference, he did not mention the formation of a joint venture in the United States. Instead, he announced the establishment of a strategy committee consisting of senior executives, which Tachikawa described as a step toward formation of a joint venture.
Fourth, both firms announced they will launch new services converging fixed networks and mobile networks, but the concept is still quite vague.
Some i-mode content providers are already successfully providing their services through both a wired Internet site and the i-mode site.
At the press conference, DoCoMo showed two examples of the new converged services. The net auction services based on both i-mode and wired Internet access through which a bidder can check bidding status and change prices; and implementation of advanced e-mail services for AOL over i-mode.
The tie-up is an epoch, win-win deal giving a huge advantage for both NTT DoCoMo and AOL. NTT DoCoMo now assumes a foothold in the United States; AOL gets a gateway for expanding mobile business from a strong partner; and AOL might be able to defeat vendor-oriented Japanese ISPs such as @Nifty and Biglobe under its new leader.
Additional announcements from DoCoMo are expected. Tachikawa said the carrier needs more than one content provider partner and also a carrier partner in the United States.
