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
As in the U.S., DoCoMo has begun rolling out 4G technology, choosing the LTE standard that both AT&T
We don't expect as large a movement in ARPUs with the transition to 4G as DoCoMo witnessed with 3G as a result of the pressure on traditional voice revenue, but we do think the firm is positioned well relative to other carriers around the world. DoCoMo already derives 42% of its wireless service revenue from data charges, which are among the highest in the world. The average in the U.S. is about 35%. With the transition from voice revenue to data well under way at DoCoMo, the firm should see less drag going forward.
While DoCoMo has historically been the technology leader in Japan, that gap has closed as smaller carriers have worked to catch up over the past decade. One result of this parity is that Apple
We don't believe DoCoMo's share price reflects the strength of its business currently or the prospect of improved performance in the near term. In addition, as the largest wireless operator in Japan, DoCoMo provides a good proxy for exposure to the Japanese stock market, which has struggled for more than 20 years. The stock provides a nice 3% yield, significantly higher than Japanese government bonds. While the Japanese government faces one of the highest debt loads in the world--the OECD puts debt at about 200% of GDP--DoCoMo enjoys solid financial health, with a net cash position. DoCoMo also has minority positions in several emerging market countries, including a 26.5% stake in Tata Teleservices, the fourth-largest wireless operator in India. Finally, a DoCoMo investment also provides exposure to the Japanese yen, a currency that has benefited from the weakness in the euro and the dollar.
Allan C. Nichols is a stock analyst with Morningstar.
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