Japan’s two biggest carriers have given the wireless market reason for cheer. Telecom behemoth NTT DoCoMo Inc. (NYSE: DCM) announced it has finally returned to profit; and archrival KDDI Corp. saw profits quadruple for the fiscal year ended March 2003.

DoCoMo’s consolidated net profit totaled ¥212.5 billion (US$1.8 billion), reversing a net loss of ¥116.2 billion ($999 million) a year earlier. Sales edged up 3 percent to ¥4.8 trillion ($41 billion).

Meanwhile KDDI, Japan’s second largest telecom operator, posted a group net profit of ¥57.4 billion ($493 million), more than quadruple the ¥13 billion ($111 million) result for the year-ago period.

Looking ahead to March 2004, DoCoMo has forecast a tripling of its net profit of ¥618 billion ($5.29 billion), while KDDI predicts a net profit of ¥71 billion ($600 million).

Of particular significance to market pessimists, however, is the positive performance of both carriers’ 3G networks. Following a shaky start to the launch of its 3G FOMA (Freedom of Mobile multimedia Access) service DoCoMo has beaten its subscriber target of 320,000 users by end of March 2003 -- albeit only slightly -- with a total of 329,000. This is up sharply from 89,000 a year ago.

In light of this success, the carrier has set itself the considerable challenge of attracting 1.46 million subscribers by March 31, 2004 -- a task the company is confident it can achieve. “The popularization and expansion of FOMA are the most important challenges facing DoCoMo, requiring a company-wide effort,” Keiji Tachikawa, president and CEO, told analysts in a conference call. “I don’t think this is an aggressive target. It translates into only 100,000 net user growth each month. That’s a rather conservative one.”

Such figures are dwarfed though by KDDI’s success with the rollout of its own next-gen high-speed service, which has already attracted a customer base of 6.8 million. The operator is aiming to boost this figure to 12.7 million by March 2004.

KDDI’s 3G network is based on CDMA2000 1xRTT technology, a packet-based extension to CDMAOne networks that can theoretically support data rates of 144 kbit/s. Such an extension does not require a complete overhaul of a carrier’s existing CDMA network (CDMA2000 1xRTT networks are backwards compatible with older CDMAOne technology), allowing a more cost-effective path to the rollout of 3G services (see the air interfaces page of A Wireless Taxonomy for further definitions of these technologies).
In contrast, DoCoMo’s FOMA service is based on the W-CDMA (Wideband Code Division Multiple Access) air interface standard, which requires new infrastructure to be rolled out in order to crank data transfer rates up to a maximum of 2 Mbit/s [ed. note: if the wind’s blowing in the right direction]. DoCoMo has experienced problems rolling out the complex network and providing a plentiful supply of new handsets (see FOMA Phones Are Flawed and DoCoMo Warns on Handsets).

“As the initial issues with W-CDMA are ironed out, the advantage KDDI’s CDMA1x network has had will erode,” says Paolo Pescatore, senior research analyst at IDC. “The targets both operators have set seem to be quite achievable. If you compare the users they have at the moment with their projected targets, there is no reason why they shouldn’t meet them.”

— Justin Springham, Senior Editor, Europe, Unstrung