NTT DoCoMo is in talks with Sumitomo Mitsui Financial Group and JCB about investing in their credit card businesses in a step forward for the cellular company's vision of integrating mobile communications with financial services.

Japan's largest mobile phone operator is looking to pay about Y100bn ($938m) for a 33.4 per cent stake in SMFG's 100 per cent-owned card business, Mitsui Sumitomo Card, Japan's number two credit card operator, and a smaller stake in JCB, the country's number one card provider.

DoCoMo is aiming to conclude a deal this month but negotiations have been complicated by the need to balance the interests of the two card companies, a person familiar with the situation said.

While DoCoMo is keen to take a considerable stake in both, the presence of several investors in JCB means the mobile operator's investment in that company is likely to remain less than 10 per cent, he said.

Masao Nakamura, DoCoMo president, has emphasised the need to diversify revenue streams away from mobile traffic to fee-based services and has identified financial services as an attractive source of future income.

The outlook for the company's core mobile communications business is gloomy, with a saturated market forcing operators to cut their rates. DoCoMo is forecasting a 5 per cent drop in revenues to Y4,820bn and a 25 per cent decline in operating profits to Y830bn for the year ended March 2005.

After losing more than Y900bn on overseas investments, DoCoMo has been looking for new ways of putting its more than Y800bn in cash to work.

However, analysts said the benefits of the proposed investments in the card companies were still not clear.

?If this is an investment to gain expertise in the financial business which DoCoMo will use later to provide financial services themselves, then it is meaningful,? said Hitoshi Hayakawa, telecoms analyst at Credit Suisse First Boston in Tokyo. But if DoCoMo was not going to take it further, ?my feeling about this deal is, so what?? he said.

Nathan Ramler at Macquarie Securities in Tokyo said: ?I am not convinced people would want a credit card in their phone.? Credit card fraud has become a growing problem in Japan.

For the credit card companies, a tie-up with DoCoMo offers a potentially huge, new customer base among the mobile group's 49m subscribers. DoCoMo said no decision had been made on an investment but added that it was keen to work with financial groups to expand its services.

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