NTT Goes on an Adventure With Tata in India

NTT DoCoMo Inc. (NYSE: DCM) recently announced financial results for its third quarter, ended December 31, 2008. Its revenue continues to slide — by another 4 percent in yen terms during the nine months through December. This is slightly worse than the -1.2 percent contraction that the overall Japanese market experienced during calendar 2008, according to our recently released Japan Country intelligence Report. Over the next five years, we expect the Japanese domestic market to grow at a 1.1 percent CAGR, in line with inflation. As the incumbent, NTT will grow slower than newer entrants such as SoftBank Corp. , which has been gaining subscribers at the expense of both NTT and KDDI Corp. — and of overall margins.

In this context, it is no surprise that NTT is looking outside its domestic market for growth. The Tokyo-based operator initially focused on developed markets such as South Korea, Singapore, and Hong Kong, as well as Malaysia, where it could more easily apply its expertise in 3G and related services and applications. Growth in these markets is slowing, however, particularly in light of the current economic crisis (see Capex in Asia-Pacific: Driven by 3G in China, Spending to Rise Despite Global Downturn). Next month (March 2009), NTT expects to finalize the purchase of a 26 percent equity stake in Tata Teleservices Ltd. in India for US$2.7 billion, giving Tata a valuation of US$10.4 billion, or US$326 per subscriber. This follows on the heels of similar investments in Bangladeshi mobile operator Aktel (September 2008) and in Philippine player Smart Communications Inc. (2006).

To read the rest of this commentary from Pyramid Research , click here.

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