NTT DoCoMo's growing content and payment services rescued the company in a tough quarter and will likely drive profit in the medium term, according to CEO Kazuhiro Yoshizawa.
The Japanese operator posted a slight 1.5% profit increase against a 5.3% fall in revenue in the three months to June 30.
But its Smart Life unit, which includes retail, fashion and payment services, grew revenue 29% year-on-year and profit 51%. It now accounts for 13.2% of DoCoMo's total business.
It posted strong growth numbers across the board in its payments business, with total value of transactions up 32% and the number of registered card users up 24%.
By contrast core telecom revenue shrank by nearly 5%, a result of the slide in handset sales and international roaming due to COVID-19.
But the virus also brought some positives. While device revenue plunged 78 billion yen (US$734 million) as consumers stayed away from retail stores, costs fell even further to ¥84 billion ($791 million).
The company enjoyed a boost from the higher demand for home entertainment as a result of COVID-19. The contribution from combined fixed-mobile packages lifted ARPU to ¥4,800 ($45.18), up slightly both on last year and on the previous quarter, ending three quarters of decline.
Yoshizawa told an earnings call Monday that for the full year the company anticipates a broadly similar result, with a modest 3% gain in operating profit despite a 1.7% decline in revenue.
He said the company was not expecting a return to a state of emergency invoked in response to the pandemic earlier this year.
"We are assuming economic activities will recover" following the lifting of the emergency declaration in May, he said. DoCoMo also believes the coronavirus "will gradually be placed under control" internationally.
The operator expects a continued decline in telecom revenue for the remainder of the year but is confident of higher earnings from non-telecom businesses and enterprise solutions, plus lower expenses as a result of the virus.
DoCoMo's 5G subscriber numbers are still low but showing signs of picking up.
The service, launched in March, reached just 150,000 subscribers at the end of June, but it has signed on another 90,000 in the past month. (See Japan 5G: NTT DoCoMo cuts in on SoftBank launch.)
Yoshizawa said the company expects 5G to start to reach mass market scale in the second half. It is maintaining its target of 2.4 million subscribers at the end of the financial year in March.
Over the medium term, "we hope that we don't see a downward trend" in mobile revenue, Yoshizawa said. But he believes the major drivers in the coming years will be Smart Life and other non-telecom services.
Finance and payments transactions were showing rapid growth, while content services were starting to take hold in the market and show an increase in active users, he said.
— Robert Clark, contributing editor, special to Light Reading