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Business trends

Video-binging smartphone users boost profits at KDDI and Docomo

Data plan fees likely to offset promotional costs at Japan's mobile carriers

The two major carriers earned higher profits on bigger data plans and the bundling of fiber-optic service in contracts, but competition with budget rivals and future 5G investments remain concerns.   © Reuters

TOKYO -- NTT Docomo and KDDI anticipate continued profit growth this fiscal year as subscribers spend on larger data plans to watch more videos on their smartphones and add fiber-optic services to their contracts. 

Both companies are planning to increase promotional expenses to combat rival budget carriers, but KDDI expects to earn more than 1 trillion yen ($9.14 billion) in operating profit in the year that began April 1, up nearly 10% on the year and marking the first time it will reach that milestone number, while Docomo is seen lifting its operating profit slightly to around 980 billion yen.  

Docomo's operating revenue, equivalent to sales, probably will increase slightly to 4.75 trillion yen as it shifts from U.S. to international  accounting standards this fiscal year. Seeking to build customer loyalty, the company launched a program in May that rewards subscribers more the longer their contracts. Docomo still has customers who are switching from traditional cellphones to smartphones, and this is helping to absorb such costs as customer reward points. 

At KDDI, customers are increasingly upgrading their data plans. Its three-year plan through fiscal 2018 calls for 7% average annual growth in operating profit from 832.5 billion yen in fiscal 2015. The company is on track to achieve the goal with the 1 trillion yen-plus projection.

Yet KDDI would not be the first Japanese mobile carrier to top the 1 trillion yen mark for operating profit, as SoftBank Group hit that mark back in fiscal 2013. SoftBank's operating profit grew to 1.14 trillion yen for the first three quarters of last fiscal year, driven by returns from its 10 trillion yen investment fund, and the figure probably rose even further for the full year. The company is expected to earn a similar level of profit for fiscal 2018. 

But these heavyweights can expect greater expenses next fiscal year as they begin 5G investments. They are also bracing for the October 2019 entry of online retail giant Rakuten, which will bring its own infrastructure to the sector. The three big existing players must take steps this fiscal year to ensure their future competitiveness.

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