Japanese operator NTT Docomo has forecast a drop in profit in the coming years as it moves to lower mobile plan prices following government pressure. Announcing a new medium-term strategy alongside its fiscal H1 results, the company said price cuts of 20-40 percent are planned from fiscal Q1 2019 as part of a simplification of its plans and handset costs, while it also invests in improving customer service and launching 5G later in 2019.
In November already it's introducing a new entry-level plan to target the remaining customers without smartphones, with discounts of JPY 1,500 per month the first year. A complete overhaul of its plans, including separating the cost of service more clearly from handsets and related discounts, will be announced and launched in fiscal Q1 next year. Docomo said this should lead to savings of JPY 400 billion per year for customers.
Investments in 5G, customer service
The Japanese operator also plans to overhaul its customer service in the next year, reducing waiting times and improving responsiveness. The price cuts should be offset by growth in its 'smart life' and enterprise services, as well as the launch of 5G and a continued focus on its D point club membership scheme, helping revenues grow to JPY 5 trillion in fiscal 2021 from an estimated JPY 4.86 trillion in the current year to March 2019. However, the extra costs and weaker revenue growth will lead to a drop in operating profit, with the company not expecting to reach this year's estimated JPY 990 billion again before fiscal year 2023.
Docomo also increased its capex budget for this year as it accelerates preparations for the launch of 5G and implements more disaster-preparedness measures on its network. The company projects total spending of JPY 590 billion in the year to March, up by JPY 20 billion from its previous outlook. The total cost of 5G is estimated at JPY 1 trillion over the five years to FY 2023, with pre-commercial services scheduled to start in September 2019 in busy cities and a full launch from spring 2020.
Higher revenues this year
The outlook contrasts with the solid growth reported for fiscal H1. Docomo grew revenues by 4.1 percent to JPY 2.39 trillion, as expansion in fibre broadband and smart services helped offset weaker mobile service revenue. The company increased its full-year sales target by JPY 70 billion to JPY 4.86 trillion, compared to JPY 4.7 trillion last year.
Operating profit for the six months rose a stronger 9.0 percent to JPY 610.5 billion, supported by JPY 74 billion of cost savings achieved in the year to date, out of a targeted JPY 120 billion for the full year. Net profit improved 3.8 percent to JPY 407.1 billion, while adjusted free cash flow was down 4.2 percent to JPY 374.7 billion.
The company ended June with 77.05 million mobile subscribers, up 2 percent from a year earlier, while churn reduced to 0.54 percent from 0.64 percent a year ago. Smartphone customers increased 6 percent year-on-year to 39.21 million, and Hikari fibre customers were up 28 percent to 5.33 million. Mobile ARPU was stable in Q2 versus the previous three months at JPY 5,300 but down from JPY 5,360 a year ago.
