Apple: Huge Upside Potential Post Docomo Deal

  • Apple announces that the iPad will be distributed on NTT Docomo’s network.
  • This will allow NTT Docomo to shift more of its revenue into data packages.
  • Apple may be able to convert 35-40% of NTT Docomo’s subscriber base, leading to significant topline growth.

Apple-NTT deal valuation

Apple (NASDAQ:AAPL) may have further upside following its latest deal with NTT Docomo (NYSE:DCM). The deal will make iPad available on NTT Docomo’s network. This is a great sign for Apple as tablet sales have been sluggish in the most recent quarter.

How this benefits NTT Docomo & Apple

NTT Docomo ARPU and MOU trend

Source: NTT Docomo

As you can tell, NTT Docomo probably needs this partnership with Apple more so than the other way around. The amount of revenue generated per voice plan has declined, as consumers tend to only use 117 minutes.  Over the top messaging services can fill in for smartphones, and it allows for tablets and other web capable devices to be perfectly capable alternatives for basic communication purposes.

Currently, Japan’s over-the-top messaging service is Line. Line currently has 280 million monthly active users, which indicates that the penetration rate is relatively high when compared to other OTT services in developed/emerging markets.

OTT messaging services

Source: KPCB

While, Voice ARPU has declined, packet ARPU (basically data plans) have been able to maintain pricing. So if anything, NTT Docomo is likely to rely more on data packages for revenue growth rather than pricing on minutes.

While OTT services can work as a replacement for calls and text messaging. You still need internet access to use these OTT services. The change in revenue mix is a trend investors will have to watch for in other telecoms outside of Japan. However, I believe that telecoms will be able to benefit from selling data plans for multiple web capable devices even if it cannibalizes the demand for minutes and text messaging.

NTT Docomo operating revenues

Source: NTT Docomo

Looking over the data, NTT Docomo declined 0.2% in its packet communications revenue. However, assuming NTT Docomo distributes the iPad it’s likely that this figure will improve considerably over the next couple of quarters.

US tablet sales

Source: Statista

Also, while Apple iPad sales are small when compared to total android tablet sales, iPad web traffic is significantly higher when compared to other devices. This indicates that any mobile carrier willing to partner and distribute the iPad will be able to earn additional revenue on data plans when compared to comparable Android tablets. This should give mobile carriers ample reason to distribute the iPad over other tablets.

Global tablet sales

Furthermore, Apple had 36% of global market share in 2013. While global share might not necessarily improve on a percentile basis, the annual shipment figure will increase significantly. Currently, NTT Docomo has 63 million subscribers.  Currently, the iPhone has 36.6% market share in Japan. Therefore, we can assume that over the next year Apple may be able to convert 30-40% of NTT Docomo’s subscribers into iPad buyers. This may boost iPad sales by an additional 22 million units.

AAPL product revenues and units sold

Source: Apple

Looking over the numbers, iPad sales totaled 16.35 million in the second quarter of its 2014 fiscal year. The potential contribution from selling iPads on NTT Docomo may reverse the weakening trends in unit sales.


As you can tell, an additional 22 million in iPad sales would have prevented weakening shipment figures. Also, the iPad is the most used device for data consumption, and will reverse NTT Docomo’s flattening data plan sales. Therefore, the partnership that was announced by Apple couldn’t have come at a more opportune time for both companies.

To see Apple’s latest stock price movement, click here (NASDAQ:AAPL)

Alex Cho Alex Cho   on Amigobulls :

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