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5G networks

NTT Docomo's 5G strategy takes shape with mixed reality deal

Japanese mobile carrier invests $280m in Magic Leap, highlighting race to lock in content partners

Japanese mobile carrier NTT Docomo plans to roll out commercial 5G services in the spring of 2020.

TOKYO -- NTT Docomo on Friday said it was investing $280 million in U.S. mixed reality headset maker Magic Leap, in a sign of how Japan's largest mobile carrier is racing to lock in content partners as the country enters the age of superfast internet.

Docomo, Japan's largest mobile carrier, obtained regulatory approval to roll out fifth-generation networks earlier this month and plans to launch commercial services in spring 2020. The investment into Magic Leap reveals its 5G strategy: taking a slice of the online subscriptions and services currently paid to content platforms like Netflix and Amazon.

"In the 5G era, unlimited data usage will be the norm," said Kazuhiro Yoshizawa, Docomo's CEO, during an earnings conference on Friday. "It will be difficult to increase fees by selling more data. Instead, rich services like mixed reality will be the new revenue driver."

Magic Leap makes augmented reality goggles that project computer-generated images in the real world, enabling users to interact with reality when playing video games or watching movies. Backed by high-profile investors like Google and Alibaba Group Holding, it began selling its first generation headset last year in some parts of the U.S.

As part of the investment, Docomo will be a major partner in Magic Leap's rollout in Japan. While a date for the sale of its goggles in the country has not been set, Docomo said it would be its exclusive distributor. It will also enable users to log onto Magic Leap's content platform through their Docomo ID. The Japanese company will also jointly develop content or facilitate deals with its local content partners.

The deal comes as uncertainties loom over the prospects of 5G. The technology has been hailed for offering speeds up to 100 times as fast as 4G. But skeptics say it is unclear whether users will be willing to pay more for faster data, when 4G already provides low latency for streaming movies and video games. Promoting high-end content like Magic Leap's mixed reality, which consumes more data, may provide the key to attracting users.

The transition is particularly dramatic for Docomo. It recently announced a new pricing scheme for existing data plans that will lower tariffs by as much as 40%, a move widely seen as a response to pressure from the Japanese government. The company is also facing competition from Rakuten, a Japanese e-commerce group that plans to offer 4G services from October and has also won an allocation of 5G spectrum. Meanwhile, Docomo has earmarked 795 billion yen ($7.1 billion) for the rollout of 5G, the largest amount among Japanese carriers.

These challenges are putting pressure on its bottom line. On Friday, the company said it expected net profit for the year ending March 2020 to fall 13% from a year earlier to 575 billion yen ($5.1 billion).

Docomo still faces challenges in building up a content platform business. The company has been diversifying its content offerings in 4G, but most have failed to gain widespread popularity. Some analysts say one challenge is attracting millennial users, who tend to be heavy data consumers -- the company currently has a stronghold among parents and the elderly.

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