Demand and Supply | law of demand and supply Demand is related to consumption. It represents the process through which a consumer obtains goods…
Case study, In May 2002, NTT DoCoMo (DoCoMo) Inc., Japan’s largest mobile phone company,
announced a net loss of ¥ 116.19 billion1 and a goodwill write-off of ¥ 624.6 billion for the fiscal ending March 2002. Though the company registered an increase in operating revenues from ¥ 4,669.37 billion in 2000-01 to ¥ 5167.14 billion, the revenue growth was stated to be well below its company expectations.
Company sources attributed this to the general decline in Average Revenue Per User (ARPU) for voice services and slower growth in new cellular subscribers across the country (Refer Exhibit I for DoCoMo’s financials and ARPU data).
DoCoMo’s announcement did not come as a major surprise to industry observers, as media reports, had been forecasting losses for the company since early 2002 itself.
What was noteworthy about this development, however, was the fact that the company
was largely believed to be performing exceptionally well in the recent past.
The fact that DoCoMo had roped in as many subscribers as the leading
US-based media company AOL, but much faster,
was often cited as a proof of Japan finally waking up to the challenges of the ‘new’ economy.
Analysts claimed that DoCoMo was paying the price for its aggressive overseas
expansion drive during 1999-2002, in the form of these losses.
DoCoMo had to take a huge write-off in its books on account of a decline
in the value of its foreign investments and the slump in the
global telecommunications market in 2001.
While some analysts felt that DoCoMo should revamp its global strategy,
a few others said that the company should take measures to increase ARPU.
In the words of Hironobu Sawake, an analyst at JP Morgan (leading global financial services firm), “The question is whether we can see a rise in profitability.”
DoCoMo announced that its commitment towards globalization was intact. The company also brushed off analysts’ view that the focus should be on increasing the ARPU.
Instead, it announced that it would focus more on 3G (Refer Exhibit II for a note on 3G) initiatives (developing and launching more innovative and new 3G technology products).
While DoCoMo was still lauded for its well designed and executed strategic and marketing game plan that had helped it build a huge subscriber base over the years.
These developments had raised many doubts about its future prospects and its ability to turn itself around.
Click the POPUP to Download The Case Study