Succeeding in Japan at the second try, learning from initial failure:
We see a pattern here: after failing spectacularly trying to build a mobile phone business in Japan for almost 20 years without success, Nokia is now winning the second time round.
It can be hard for foreign companies to build a business in Japan, and many fail. Interestingly, there is a long list of famous companies that succeed on their second attempt after initial failure, this list includes:
IKEA: failed first time in 1974, succeeds now
DAIMLER: failed spectacularly first time with Mitsubishi Motors, now successful with Mitsubishi Fuso trucks – read the time line here
NOKIA: failed first time after trying for 20 years (1989-2008) to sell mobile phones in Japan, now successful with mobile phone base stations and network infrastructure
Our analysis of Japan’s mobile phone base station market shows, that Nokia became No. 1 in Japan’s base station market with the acquisition of Motorola’s base station division. Acquisition of Panasonic System Networks will expand Nokia’s NSN to expand market leadership in Japan’s mobile phone base station market.
I believe without success in Japan’s mobile phone base station market, there is a big chance Nokia as a company, or at least Nokia’s NSN division would not exist any more at all today.
With a market share of 26%, approx. US$ 700 annual sales in Japan, Nokia is No. 1 market leader in Japan followed by Ericsson on 2nd position. With the acquisition of Panasonic’s base station division, Nokia should be able to expand its market share beyond 26%+9% = 35% and expand its leadership, especially via Panasonic’s deep relationship with Docomo.
Because Docomo with its very deep pockets, is traditionally the first globally to develop and bring to market the most advanced radio technologies, a deeper relationship with Docomo will also help Nokia to develop and bring to market new communication and radio technologies. Thus I believe the impact on Nokia will be far more than an increase of the market share in Japan from 26% to 35%.
Panasonic System Networks
Panasonic System Network’s market share is estimated at around 9% of Japan’s mobile phone base station market, while international sales are essentially non-existent. Thus Panasonic System Network’s global market share is negligible, giving Panasonic little possibility for the scale necessary to operate a stable profitable longterm base station business.
Japan’s mobile phone handset makers and base station makers have for many years focused on serving Japan’s internal market only, and in particular have focused on Japan’s No. 1 mobile phone operators NTT Docomo. This gave Japan’s mobile phone base station makers a temporary home advantage, however with the value shift from hardware to software, they lack scale, and are subsequently uncompetitive globally. More about Japan’s Galapagos effect here.
Over the last 15 years since 1998, Panasonic has shown no growth in revenues, and average net losses of YEN 85 billion (US$ 0.85 billion) per year, as typical for most of Japan’s top 8 electronics companies and as we analyze in detail in our report on Japan’s Electronics Industries.
Panasonic is on 5th rank with about 9% market share in Japan’s mobile phone base station markets, and has little chance and not the capital to scale its base station and mobile phone businesses globally. For Panasonic in it’s current very limited financial situation, focus on core business areas is very prudent.
The context: EU investments in Japan
While Japanese investments in Europe are booming, recently European investments in Japan have been stagnating after Vodafone’s withdrawal from Japan, and there are very few new European investments in Japan. Could it be that Nokia’s investment in Japan starts a new trend of renewed European investments in Japan?
Understand Japan’s telecommunications markets
Report on Japan’s telecommunications industry
(approx. 270 pages, pdf file)
Ericsson held the Mobile Business Innovation Forum in the Roppongi Hills Tower in Tokyo on October 31 and November 1, 2013 delivering a great overview of the push and pull of the mobile communications industry: technology push, M2M and user pull, as well as how the mobile operators between technology and users can best make customers happy and at the same time monetize their investments, while “Over The Top” (OTT) new comers (Google, YouTube, Amazon.com, Facebook, Twitter and others) seek to disrupt the good old telecommunications world.
Here some key take-aways, read more below:
About 50% of global smartphone, mobile phone and mobile broadband subscriptions are in Asia-Pacific, making Asia-Pacific the most important region in the world, and Japan one of the most important LTE markets.
Switch from voice to data is a differentiator: forerunner telcos see rapid growth (10-12% CAGR) for both revenues and EBITDA over the period 2008-2013, while average telcos see stagnation. The key for telcos is to be a forerunner, rather than an average stagnating telco.
Many products such as XBOX or Apple’s SIRI are linked via networks to a data center. Networks and data centers are disruptive innovation for games and many other sectors. Maybe cars as well.
Open source is coming to software defined networks (SDN), the OpenDayLight community develops software for software defined networks.
Software defined networks create virtualized networks, SDN support “network slices” for different applications. API’s open SDNs to users.
Manufacturers and other industries have rationalized a long time ago, telcos have not yet rationalized, creating big opportunities.
LTE Markets – 5 out of 10 top LTE markets globally are in Asia-Pacific, and the top 3 are in Asia-Pacific (however this table shows the percentage penetration, does not reflect market size. In terms of market size, Japan is doubtlessly No.1:
Mobile communications will dwarf the PC-world. By 2018 we will expect to have:
PCS and tablets: 260 million in APAC (31%) vs 850 million globally
smartphone subscriptions: 2.2 billion in APAC (49%) vs 4.5 billion globally
mobile broadband subscriptions: 3.5 billion in APAC (50%) vs 7 billion globally
mobile phone subscriptions: 4.5 billion in APAC (50%) vs 9 billion globally
Katsuya Watanabe (Charley K Watanabe): ICT Growth Strategy for Japan
Deputy Director-General, Information & Communications Bureau, Ministry of Internal Affairs and Communications (MIC), Japan
Government of Japan – IT Strategic Headquarters: The new internet world had a relatively slow start in Japan. In January 2001 the e-Japan Strategy was formed with the target for Japan to become the world’s most advanced IT nation by 2005, and the IT Strategic Headquarters where formed. In January 2006 the New IT Reform Strategy followed, and in July 2009, the i-Japan Strategy 2015.
The Ministry of Internal Affairs and Communications (MIC) formulated the u-Japan Policy in December 2004, followed by the x-ICT Vision in July 2008.
With the change of Government in September 2009, the New Strategy in Information and Communications Technology formulated.
With the advent of Prime Minister Abe’s Government in December 2012, in June 2013, the new IT Strategy was formulated: “The world’s most advanced IT nation creation”, by the Council on ICT Strategy and Policy for Growth, which was set up in February 2013.
The Ministry focuses on the following trends: Big Data, Sensor Networks, Cloud Computing, and smart phones.
Mission: to be the most active country in the world.
Creating new value-added industries
Solving social problems
Improving and strengthening common ICT infrastructure
Issues: economic growth, employment, information transmission capacity, development of cities, super-aging society, resource problems, open innovation, cybersecurity, utilization of personal data
Prioritized projects are:
Creating new value-added industries:
broadcast and contents
Solving social problems:
Medical, nursing, health care
Mr Watanabe introduced several industry-academia-government collaboration projects addressing these priority issues. The economic effects by 2020 of creating new industries stimulated by these government programs are estimated as follows:
super-aging society sector: 23 trillion yen (US$ 230 billion)
Managing Director of Smart-Life Business Division, NTT-DOCOMO
NTT-DOCOMO aims to be the customer’s partner for smart-life.
In the transition from traditional feature phones to smartphones including tablets, NTT-DOCOMO sees a new potential market emerging: video, shopping, books, services and contents are booming.
The center of the mobile eco-system (and value creation) is shifting to higher layers.
NTT-DOCOMO seeks effective utilization of its business assets:
Postpaid subscriptions (99.7% postpaid)
VAS sales at mobile shops: DOCOMO has 2,400 carrier DOCOMO branded shops
Handset control: DOCOMO sells handsets with value added services (VAS)
DOCOMO seeks to create new markets in 8 business areas:
The basic concept is to bring smart life into reality, and to become a smart life partner. To improve customer satisfaction and to improve corporate value.
DOCOMO is in the process to transition from the traditional i-Mode and i-Menu services on feature phones, to d-market and d-menu for the multi-OS environment (with Google/Android, Tizen, iOS and other OS).
Revenues from new business of DOCOMO increased from US$ 4 billion (FY2011), to US$ 6 billion (FY2012) and is expected to increase to US$ 11 billion by FY2015.
Masashi Satomura: “ITS, Cooperative system”
Chief Engineer Dept 3, Honda R&D
About 300 parties participate in Japan’s ITS programs, lead by the ITS Promotion in the Cabinet office of Japan.
Major cooperative projects are:
ASV-5 (V2V, V2P) by the Ministry for Land and Infrastructure and Transport MLIT
Joint research (V21) by MLIT and NILIM
DSSS/Green wave (V21) by the Nation Police Agency
Key issues are:
sustainable business model
Key targets are to achieve fatality rates below 2500 by 2018, and to reduce traffic congestions to one-half by 2020 compared to 2010.
Honda develops autonomous driving with the aim to realize “the joy of mobility” with safety and freedom.
The vision: As Japan aiming for the safest transportation in the world, we hope to deploy cooperation system in collaboration with government and car OEMs, in four phases. Phase 1: basic services Phase 2: advanced services Phase 3: integrated services Phase 4: autonomous services
A perfect storm:
Network coverage and quality is good enough
Business models make data affordable
App-centric services become mainstream
Smartphone penetration is reaching critical mass
however, for mobile operators there is a HUGE difference between the frontrunner’s revenue and EBITDA growth compared with stagnant revenue/EBITDA for average operators. Key for mobile operators is to be strongly growing frontrunner – not a stagnating average operator.
To move from an average no-growth operator to a fast-growing frontrunner, a mindshift is needed from:
problem focus to opportunity focus
maximizing old revenues to innovating new revenues
connectivity as a commodity (“dumb pipe”) to connectivity as differentiator
from tech silos to tech synergies
Ericsson uses six growth codes:
“Streetwise metrics”, experience centric KPIs
“Show casing”: quality led marketing
Redefine subscription: “unboxing”
Open-ended innovation: “ecosystematic
Visionary collaboration: “co-partnering”
Visionary investing: “gap minding”
Yung-Ha Ji: How to migrate to future ICT network
Head of Network Strategy Department, KT Corporation
In the IDI/ICT Global Development index ranking, S-Korea ranks 1st globally for broadband, while the Scandinavian countries rank 2nd, 3rd, 4th and 5th, and Japan ranks 8th, followed by UK on place 9.
kt will cover 99% of S-Korea’s population with LTE network based on 20MHz Bandwidth in the 1.8GHz band. With the BenchBee speed test, download speeds of 44 Mbps are achieved with a Category 4 LTE-A phone.
kt saw explosive growth of data traffic: 350 times increase over the 4 years from January 2009 to September 2013. Monthly data usage is 2.2Gb for LTE and 1.2Gb for 3G phones. Total data traffic is about 20,000 TeraBit/Month in September 2013.
kt has the world-first LTE network using virtualization cloud technology.
kt introduced a series of services including Web-enabled IPTV, Giga-Internet FTTH premium services, olleh TV mobile, LTE broadcast, “Total Advertising Open Community” (TAOC) – using targeting of advertisements to differentiate from OTT operators.
Example of an innovative service: if you click an advertisement and watch an ad, you are rewarded with increased transmission speed.
Akira Yamaguchi: Mobile payment systems in Japan
Exec Officer Retail finance and credit cards, Orient Corporation
Jacob Navok: Games over the network
Director of Business Development, Square-Enix
Games are the ultimate application! Worldwide game industry revenues are US$77.4 billion in 2013, adding all segments from retail hardware to software and services.
Hardware used to be the driver in the past, but today the network drives everything, and networks bring disruption to game design, business models (“free-to-play” is a marketing model – not a business model). Business models include: micro transactions, subscriptions, advertisements and digital pricing.
Marketing disruption include: “free-to-play”, cross-promotional networks, and app-stores.
Video had a dramatic impact on networks, but games have not.
Interactive media bring the next revolution: SONY acquired Gaikai (US$ 400 million), and Microsoft announced Xbox Cloud services (US$ 700 million).
Server side rendering and developer innovation will create game demand on many devices.
Speed is key!
Reporter and Producer, CLICK, BBC
Dan Simmons showed how smart phones are a second screen accompanying movies, PCs and TV. 60-80% of Americans use a second screen, and 46% use a smart phone.
Eyeballs move to iPads… the question is: who owns the second screen!
CBS made US$ 10 million off advertising, but advertising ads during superball on the internet – not on TV!
TV is about raising emotions, and feedback at the moment, immediate feedback is incredibly valuable. A 2nd screen can give a 360 degrees view.
Dan mentioned the APP-movie, where visitors to the movie theatre downloaded an App to their smartphone and received message to their App during the movie. The messages need to be frame-accurate, and today’s networks are not good enough to ensure frame-accuracy. People with smartphones and using the App knew who the murderer was at 65 minutes into the movie, while visitors without smartphone and App had to wait until 80 minutes into the movie before they know who the murderer was. Initially it was thought that this could be a problem, but it turned out to be a positive part of the enjoyment for the audience. A further attraction was, that visitors could keep the App on their smartphone, and the movie owner could reach viewers long after the performance was over, and they had long left the movie theatre, keep the contact, and potentially create follow-on business.
Internet traffic is shifting to mobile: 13% of global internet traffic is on mobile.
Innovation and technology evolution
Ulf Ewaldsson: “Transforming networks
We see cities as organisms.
simplicity and automation
continued traffic growth
from nodes to systems
blurring of IT and telecom
Concept of “Network slices”:
Network performance needs depend on industry, beyond just smartphones.
A matrix of industry needs covering the following industries: cars, processing, utilities, transport, media, and NSPS, healthcare etc. Which have different needs for: throughput, latency, QoS, volumes, coverage, capacity, security and location.
A common network platform includes dynamic and secure “network slices” with different specifications for different industries and applications.
Three new products:
Ericsson Radio Dot System
SDN on a chip: SNP 4000
Cloud on a blade: Ericsson Cloud System
Technology in-depth sessions
Network Slices: Service Provider (SP) Software Defined Networks (SDN), Network Functions Virtualization (NFV) and Cloud
Head of Technology Strategies, Ericsson
Service Provider based Software Defined Networks (SP SDN) are on the way to deployment. The path to deployment includes: technology, business model development and operations. Currently we are still midway in the technology development phase, business model development is in the early phase, and we are just before operations and deployment.
Network functions are virtualized in the DC/cloud infrastructure. Functional layers of the network are virtualized, and networks become open to developers.
Networks are elastic and we have “network slices” for different applications.
Ericsson is leading participant/founder in the open source “OpenDaylight” LINUX community, the first release of the Hydrogen Code was on September 13, 2013. OpenDayLight is an open source community developing software-defined networking (SDN).
Connecting the dots in the Networked Society
Head of Strategy & Portfolio, BU Networks, Ericsson
Business cases and clear rationale why technology is introduced is necessary.
We need to redefine how network performance is defined: “app coverage” defines network performance not in terms of technical data alone, but in terms of usability of each app. App coverage for video will be different than for voice, or low intensity data applications.
70% of usage is indoors, therefore we need indoor coverage, and Ericsson does not believe in Femto-technology, and introduces the Radio Dot System. Launch will be in 2H 2014 for 3G and 4G and for WiFi later. Up to 4 channels per unit.
Component based architecture: AIR = antenna integrated unit SSR = Edge router
Monetizing the network assets
Head of Strategy and Business Intelligence, BU Support Solutions, Ericsson
Business Transformation – Ericsson Consulting and System Integration (SI)
Head of SI Core, IP & Media, Ericsson
Manufacturing and other industries have rationalized decades ago. Telcos are not yet rationalized.
OSS/BSS need to be good and fast to make money.
A revolution will happen in the broadcast space when processes are being rationalized.
In Australia, Telstra spent US$ 1.1 billion for a billing system.
As another example, a Tier-1 European telco operator had 62 different billing systems.
time to market,
from network centric to customer centric,
Next generation networks, mobile broadband and cloud computing
Roles in new business models and eco-systems
Ericsson Global Services division grew from SEK 29 billion and 8000 people in 2003 to SEK 97 billion and 60,000 people in 2012.
Eurotechnology’s CEO was invited to attend Ericsson’s Strategy & Technology Summit in Tokyo on November 15, 2006.
Ericsson’s CEO, Carl-Henric Svanberg, Ericsson CSO – Chief of Strategy, Japan-CEO Rory Buckley and other Ericsson top management presented Ericsson’s strategy and vision. About 100 investors and investment bank analysts were invited to attend.
I was given the opportunity to share the lunch table with CEO Carl-Henric Svanberg and had a fascinating discussion (some of his comments flowed into our company’s project report to the European Union on benchmarking Japan’s vs EU’s fixed and mobile telecommunications and broadband sectors).
With some of the largest and most advanced mobile investments, Japan’s mobile market is one of the most important markets globally for Ericsson. Recently Ericsson won major contracts from SoftBank and eMobile.
The SonyEricsson mobile phone design team gave a very impressive presentation of their work at the Swedish Embassy yesterday.
Here is Art Director Mr Kawagoi, who created the famous SonyEricsson logo, explaining the messages contained in his creation:
Here Swedish Managers of the SonyEricsson Creative Design Center from Lund/Sweden:
My conclusion: expect a lot more great designs out of SonyEricsson. Also, there is every indication it’s a very successful Japan-Swedish cooperation.
[images in this post are taken with a DoCoMo/Sharp SH900i 3G/FOMA camera-phone in 2Megapixel setting, and sent through the air via DoCoMo’s FOMA network. Images are reproduced here in much less than the original 1224 x 1632 pixel size, which would not fit on most PC screens.]