NTT DoCoMo Inc, Japan's largest mobile-phone operator, plans to buy handsets in bulk for the first time to cut costs as incentives to retailers and success in luring users to cut-rate services threaten its profit goal.
The company will try to cut costs in its second half ending March 31 in a bid to maintain its target of ?830 billion (US$7.8 billion) in annual operating profit, Yoshiaki Ugaki, chief financial officer of Tokyo-based DoCoMo, said in a television interview. He declined to provide details.
The decision to buy handsets in bulk orders from manufacturers such as Sharp Corp and Fujitsu Ltd rather than periodically, as the company does now, marks the company's most recent effort to reduce costs in a mobile-phone market where growth is slowing. Japanese operators traditionally have more authority than handset makers to decide what types of handsets and services to offer.
DoCoMo last month signed up more new subscribers than closest rival KDDI for the first time in three months after raising incentives to handset retailers and as customers bought plans that included flat-rate fees and free e-mail between family members.
"We will cut procurement cost in the second half because revenue will fall due to discount services," Ugaki, 54, said.
"In the mid-term, we want to cut incentives too."
DoCoMo expects 28 million users, or 61 percent of its 46.9 million customers, will sign up for discounted services for families, more than the 59 percent they had forecast, Ugaki said.
The company raised its forecast for flat-rate subscribers to 2.5 million by the end of March 31, from 2 million.
Competition in the industry, which includes Vodafone K.K., the Japanese unit of Newbury, England-based Vodafone Group Plc, the world's largest mobile-phone operator, is forcing companies to offer more incentives to retailers to promote their handsets.
DoCoMo pays about ?40,000 per handset to manufacturers such as NEC Corp and Matsushita Electric Industrial Co, Japan's largest and third-largest handset makers, for units used with its old network service. It pays between ?50,000 and ?60,000 per handset used with the newest generation service.
"We've been asked by DoCoMo to cut prices of handsets and we've been working on it," said Masaya Iwakiri, spokesman for Panasonic Mobile Communications Co, a mobile-phone unit of Matsushita. "We have no plan to deliver handsets in bulk to DoCoMo."
For DoCoMo, buying handsets in large quantities from Matsushita and NEC carries a risk because it may result in higher inventories. The handsets made by the two firms account for more than half of DoCoMo's 30 best-selling mobile phones, according to a survey by Impress, a Japanese Internet and multimedia publishing company.