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Stock Strategist

A Different Way to Play the Wireless Internet Market

DoCoMo leads Japan into a 4G wireless world.


These days it's impossible to watch television or listen to the radio without hearing or seeing an ad from one wireless carrier or another claiming to have the fastest network. While mobile Internet access has become much more common in the United States in the past couple of years, it has been around for more than a decade in Japan. Since  NTT DoCoMo (DCM) introduced i-mode in 1999, the Japanese have rapidly embraced wireless data services. Despite all the recent hype surrounding so-called 4G networks in the U.S., it's interesting to note that around half the country has yet to adopt a 3G device. In Japan, by contrast, that figure stands at about 97% of the population--with customers typically paying more per month for the privilege to boot. With its history of gobbling up new technologies, Japan is likely to provide a very hospitable environment in which to generate returns of future network investment.

As in the U.S., DoCoMo has begun rolling out 4G technology, choosing the LTE standard that both AT&T (T) and Verizon Wireless  (VZ) have embraced. When DoCoMo first introduced 3G services, new subscribers significantly increased usage and average revenue per user (ARPU) jumped significantly. Unfortunately, the firm is facing a major headwind this time around. As with most of the rest of the world, wireless voice revenues are declining in Japan as operators follow the U.S. pattern of offering bundles of minutes for a set price rather than charging by the minute. While bundles initially gave ARPUs a boost, the prospect of future usage-based ARPU growth is minimal and competition has pressured prices as well.

Allan C. Nichols does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.