NTT DOCOMO, Inc. (DCM), a leading Japanese telecom operator plans to invest $179 million in a rights issue by India’s fifth largest telecom operator, Tata Teleservices.
NTT DOCOMO, Inc. is the mobile phone unit of the holding company Nippon Telegraph and Telephone Corporation (NTT). Nippon (through its subsidiaries) invested in a number of international telecom operators, both in fixed and wireless. Presently, DOCOMO, the wireless wing of its parent company Nippon, holds a 26% stake in Tata Teleservices, which it had bought in 2008 for $2.7 billion.
It is believed that the fund to be raised by Tata Teleservices through the rights issue will be utilized to improve its 3G network services. The company has already spent $1.3 billion last year to secure 3G spectrum licenses in 9 of India’s 22 telecom circles.
DoCoMo has already paid a certain amount to Tata Teleservices and will pay the remaining amount by May this year.
Nippon’s strategy is to maintain the leadership position in the domestic telecom market and capture selected international opportunities to drive long-term growth. Relative to the closest competitor in Japan, Nippon’s brand and large market share enable the company to aggressively handle competitive threats. Nippon is responding with marketing campaigns and price-effective service plans that are in synergy with modernized network features and bandwidth expansion. Advanced telephony services and higher transmission capabilities are parts of the capital intensive Fiber-to-the-Home initiatives that have been in development for several years.
Nippon’s major ownership in NTT DoCoMo further strengthens the overall company dynamics. DoCoMo implemented a new business strategy whereby it reduces subsidies on mobile handsets while offering customers lower-priced monthly plans and installment facilities. DoCoMo has launched its super-fast 4G Long-Term Evolution (LTE) network in Japan at the end of 2010. We believe the nationwide deployment of LTE will significantly boost DoCoMo’s financials going forward.
However, huge debts and severe earthquake in Japan may add further impediments to overall financial conditions over the near term.
We maintain our long-term Neutral recommendation on Nippon Telegraph and Telephone Corporation. Currently, Nippon Telegraph and Telephone Corporation holds a Zacks Rank # 3, implying a short-term Hold rating on the stock.
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