NTT delays profit target by three years as Docomo underperformance weighs on growth plans

NTT, Japan's dominant telecommunications conglomerate (https://www.ntt.co.jp/english/), pushed back a core profitability target by three years on Friday, May 9, 2026, as sustained weakness at its primary earnings driver NTT Docomo (https://www.docomo.ne.jp/english/) threatens to constrain the group's broader growth investments in artificial intelligence, data centers, and next-generation network infrastructure.

The Tokyo-based group did not disclose the exact profit threshold tied to the revised target, but the adjustment marks a significant setback for a company that had positioned its mobile unit as the financial foundation for a pivot beyond legacy telecommunications services. NTT re-acquired full ownership of Docomo in 2020 in a 4.3 trillion yen tender offer, taking the previously publicly traded mobile operator private to align its mobile, enterprise, and infrastructure businesses under a single strategy. Docomo has since accounted for more than half of NTT's consolidated operating profit, per the group's annual filings, making its performance the primary determinant of the parent company's ability to fund capital-intensive growth initiatives.

Docomo's underperformance stems from persistent competitive and operational challenges that have eroded its market leading position over the past 24 months. The unit has reported consecutive quarters of postpaid subscriber attrition since Q2 2024, with net losses totaling 1.4 million subscribers over the 12 months ending March 2026. Independent network testing firm Ookla (https://www.speedtest.net/) ranked Docomo third among Japan's four major mobile carriers for 5G download speeds in central Tokyo in Q1 2026, trailing KDDI and SoftBank by 19% and 22% respectively, a gap attributed to slower rollout of high-density small cells in urban areas. Poor connectivity in high-traffic zones including Shinjuku, Shibuya, and Osaka's Umeda district has driven cost-conscious consumers to switch to rival carriers, including Rakuten Mobile, which has captured 11% of the mobile market since launching services in 2020 with low-cost, no-contract plans.

The subscriber decline has translated directly to margin pressure. Docomo's mobile service revenue fell 12% year-over-year in fiscal 2025, while operating profit for the unit dropped 18% over the same period, far outpacing the 3% decline in NTT's non-mobile business segments. NTT executives noted in Friday's earnings call that the unit's struggles are largely contained to urban markets, with rural subscriber numbers and profitability remaining stable, but urban areas account for 68% of Docomo's total subscriber base and 72% of its service revenue.

The delay of the profit target raises immediate questions about NTT's ability to execute its stated growth priorities, which include building large-scale AI data centers, expanding enterprise IoT services, and commercializing next-generation optical networking technology. NTT Data (https://www.nttdata.com/global/en/), the group's IT services arm, announced plans in April 2026 to build a 150-megawatt AI data center in Saitama Prefecture, a project with an estimated capital expenditure of 280 billion yen. NTT has also committed 120 billion yen over three years to develop high-speed plastic fiber cables designed to reduce latency in AI training clusters, a project highlighted in its 2025 mid-term plan.

Analysts estimate that Docomo's profit shortfall will reduce NTT's available free cash flow by approximately 90 billion yen annually over the next three years, based on the unit's current earnings trajectory. That reduction would cover roughly 32% of the planned capital expenditure for the Saitama AI data center, forcing the group to either delay non-core projects, take on additional debt, or divest non-strategic assets. NTT's net debt to EBITDA ratio stood at 1.8x at the end of fiscal 2025, well within investment grade thresholds, but a sustained decline in Docomo's earnings could push that ratio above 2.5x by fiscal 2028, per credit rating agency Fitch (https://www.fitchratings.com/).

Market reaction to the announcement was swift. NTT shares fell 3.2% on the Tokyo Stock Exchange on Friday, closing at 4,120 yen, underperforming the broader Nikkei 225 index which declined 0.8% on the day. Docomo's unlisted shares, which trade on secondary markets, fell 4.1% according to data from Japan Securities Dealers Association.

Competitors are moving aggressively to capitalize on Docomo's weakness. KDDI, Japan's second-largest telco, announced a partnership with Vietnam's VNPT this week to expand cellular service in Southeast Asia, while SoftBank Group is in advanced talks with Nvidia to build made-in-Japan AI servers, a project that would directly compete with NTT Data's enterprise AI offerings. Rakuten Mobile, meanwhile, launched a 5G fixed wireless access service for small businesses in April 2026, targeting a segment that Docomo has historically dominated.

NTT said Friday that it will increase Docomo's capital expenditure budget by 15% in fiscal 2026 to accelerate 5G small cell deployment in urban areas, a move that will further pressure near-term cash flow but is intended to stem subscriber attrition by the end of 2026. The group also plans to launch a new low-cost mobile brand under Docomo in Q3 2026 to compete directly with Rakuten's offerings, though analysts note that price competition in Japan's mobile market has already compressed industry-wide ARPU (average revenue per user) by 8% since 2022.

For the broader Japanese tech and telecom sector, NTT's target delay highlights the tension between legacy telco cash cows and the capital requirements of next-generation growth areas. Japan's telcos have collectively committed more than 2 trillion yen to AI and data center infrastructure over the past 18 months, even as traditional mobile revenue growth has stalled. NTT's struggle to maintain Docomo's profitability while funding these bets serves as a case study for how legacy carriers globally are navigating the transition from consumer mobile services to enterprise-focused AI and infrastructure offerings.