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Apple (NASDAQ: AAPL ) investors focus heavily on growth opportunities in China; but what about another neighboring Asian country? Is Apple overlooking iPhone growth potential in Japan?
Two top dogs
Japan's largest wireless carrier NTT DoCoMo (NYSE: DCM ) has now expressed interest in carrying the iPhone, after the company has been losing subscribers to rivals that do offer Apple's device. President Katoru Kato said that carrying the iPhone is a possibility if the two companies can arrive at mutually-beneficial terms. That sounds pretty similar to what China Mobile (NYSE: CHL ) , the largest carrier in China, has been saying.
Both carriers are top dogs in their respective countries, but there's one enormous difference: their subscriber bases. China Mobile's subscriber base is nearly twelve times as large at 707 million, compared to NTT DoCoMo's 60 million. Japan's smartphone market is also far more mature than China's, so there's less growth potential, in general. The population is also much smaller, with 127.4 million compared to China's 1.3 billion.
Are we there yet?
NTT DoCoMo's total subscriber base isn't growing as fast, and stood at 60.8 million at the end of November. Instead, the carrier has been working to shift subscribers from its 3G W-CDMA "FOMA" network to its 4G LTE "Xi" network. It no longer has 2G "mova" subscribers.
It's in the midst of transitioning to 4G, while China Mobile is still working on moving to 3G (currently 12% penetration).
The biggest subscriber loss we've ever posted
Last month, NTT DoCoMo said it posted its biggest monthly subscriber loss in November, with 40,800 subscribers saying "sayonara" to the carrier. During the month, rivals KDDI and SoftBank added to their ranks by 228,800 and 301,900, respectively. Losing 40,800 subscribers may not sound like a lot, since it's effectively a rounding error in a subscriber base of 60.8 million, but that's not the type of record the carrier wants to keep breaking.
NTT DoCoMo specifically attributed its shortfall to the launch of the iPhone 5 in Japan, which was among the first round of countries to receive the device in September. That also echoes what's happening to China Mobile, which has been steadily losing 3G subscriber market share to its own smaller rivals, in part because it doesn't offer the iPhone (yet).
Domo arigato, Mr. Cook
Ultimately, NTT DoCoMo needs Apple more than Apple needs NTT DoCoMo. Subscriber losses will weigh more on NTT DoCoMo's business, while Japan is relatively less important than other geographical operating segments to Apple.
While direct sales to Japan nearly doubled last fiscal year, to $10.6 billion, the country only comprised 7% of total sales, up from 5% in fiscal 2011. Of the 18.2 million Macs that Apple sold last year, only 666,000, or 4%, went to Japan. Of course, the Mac isn't as large a part of the business anymore, but Apple doesn't disclose geographical data for the iPhone or iPad.
Also, keep in mind that these figures slightly underestimate results for Japan, because they're only for direct sales, and the retail operating segment is reported separately. Apple operates seven Apple Stores in Japan.
Can NTT DoCoMo get what NTT DoCoMo wants?
Apple is known for imposing volume requirements on carrier partners. For example, Sprint Nextel, which SoftBank is in the process of acquiring a majority stake in, is about a quarter of the way through its four-year, $15.5 billion iPhone purchase commitment. NTT DoCoMo's Kato isn't worried about hitting those targets if the iPhone can comprise 20% to 30% of its smartphone sales.
Unlike China Mobile, there shouldn't be any technical compatibility issues with the iPhone. NTT DoCoMo operates its LTE network on the same frequency band as SoftBank, LTE Band 1 (2100 MHz). Its 3G network is also built on the relatively standard W-CDMA protocol, unlike China Mobile's unique TD-SCDMA network.
The two companies are only in preliminary talks, so it might take a while before NTT DoCoMo can get its hands on the iPhone; but it sure wants it.
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