A year ago we published our views on the impact of new competition in Japan's mobile market. Then we rated SoftBank as the principal disruptive force, with Vodafone the hardest hit. Vodafone soon after exited the market, with SoftBank acquiring Vodafone KK for $15.5 billion in March 2006 and gaining control of a subscriber base of 15 million. We believe SoftBank, after a couple of false starts, will have a sustained impact on the Japanese mobile market, eclipsing the other new entrants to the market.
In announcing the purchase of Vodafone KK, SoftBank CEO Masayoshi Son appeared to rule out using the aggressive pricing he used in the DSL market to staunch the subscriber losses at his new mobile acquisition. This was in part attributed to the 1.45 trillion yen ($12.34 billion) in loans used for the purchase. However, these assumptions have not deflected an onslaught of marketing from Son and SoftBank: on the eve of the introduction of mobile number portability in last October, Son announced a 'price war', but IT problems and confusion around SoftBank Mobile tariffs saw KDDI taking the early gains.
While there has been some negative publicity (and a rap on the knuckles from the Japanese Advertising Standards Authority) around the small print relating to SoftBank's Gold Plan, the carrier has moved quickly to respond to consumer concerns. It completely changed the structure of the Gold Plan two weeks after launch, and then followed up with an even simpler White Plan, costing 980 yen or $8.
The plan has already proved a success, adding over 100,000 customers in two weeks in January, compared to 97,000 for the whole of December 2006.
The next two years promise to be fascinating years in the development of Japanese mobile. Below are our predictions for the market.
- The principal opportunities for new operators remain in service areas outside the mainstream consumer market. This remains the preoccupation of the big three - NTT DoCoMo, KDDI and SoftBank Mobile.
- KDDI and SoftBank will increasingly focus on convergent services - NTT will still be encumbered by stringent regulation. However, KDDI's CDMA technology migration strategy begins to look increasingly isolated - WiMAX will do little to alleviate this, although Qualcomm's new UMB may prove beneficial.
- NTT DoCoMo will attempt to regain technology leadership by ploughing investment into Super 3G. In doing so, it runs the risk of repeating its mistake with FOMA, and launching an essentially proprietary technology: its market timeline is not replicated by any other operator in the 3GPP or the NGMN operator alliance, and we are sceptical of any significant overseas revenue opportunities to be derived from this first-mover advantage.
- SoftBank Mobile will continue to struggle to integrate its diverse content assets into a coherent mobile service suite. In the meantime, it continues to experiment in voice and data pricing, applying more techniques from overseas markets. Pressure on revenues is exaggerated by high marketing and development costs as it continues to upgrade its handset portfolio. Positives are a dynamic management team, willing to experiment with new ideas and technologies.
- eMobile launches with limited data services in March 07. It sees early success among existing PHS data access customers in the Tokyo and Kansai areas (a market of approximately 3.2 million). However, coverage is patchy and service take-up slow. It resorts to VoIP services over mobile in 2008, prompting further pressure on prices in the mass market.