SoftBank from 4th to 1st position within less than 12 months… SoftBank‘s turn-round of x-Vodafone-Japan, went faster than many expected. Within less than 12 months SoftBank went from last place to first place in customer sign-ups, overtaking even KDDI‘s super-popular AU.
Willcom recently suffers from SoftBank‘s revival, as well as from eMobile‘s flat rate data services.
Month-to-month net subscription growth/decline for Japan’s mobile phone operators during the period when mobile number portability (MNP) was introduced
In the last few days NTT, NTT-DoCoMo, KDDI and SoftBank announced their first half financial results. SoftBank and KDDI are the winners both for market share and for profits, while DoCoMo‘s results and market shares are sinking, and pulling the NTT-Group down at this time. Extrapolation indicates that DoCoMo‘s net profits may fall into the red about one year from now, drastic action is taken soon.
Net after-tax income of Japan’s top three mobile operators NTT-docomo, KDDI and SoftBank. Currently docomo’s net profits follows a downward trend, and risks to drop into the red, unless docomo takes drastic measures.
The thin lines show linear interpolations of quarterly net profit data. Our extrapolation seems to indicate that DoCoMo‘s net profit might fall into the red towards then end of calender year 2008 unless drastic action is taken. If current trends continue, SoftBank‘s net profits might exceed DoCoMo‘s mid-2008. We expect DoCoMo to take dramatic action before this happens.
The presentation is not available any longer on the FCCJ website however you can download our report about Japan’s telecom sector. An abbreviated version is shown below via SlideShare. If you need the full FCCJ presentation PowerPoints e.g. for prior art or other business, please contact us.
From the Announcement:
In his presentation, Dr. Fasol will explain the essentials of Japan’s mobile phone market, why and how it is so different to Europe’s. He will also talk about some of the reasons why it is so difficult for European companies to succeed and uncover opportunities and the keys to success for European companies in this important market.
Gerhard Fasol “Help – my mobile phone does not work!” – Why Japan’s mobile phone sector is so different from Europe’s, at the Finnish Chamber of Commerce in JapanGerhard Fasol “Help – my mobile phone does not work!” – Why Japan’s mobile phone sector is so different from Europe’s, at the Finnish Chamber of Commerce in JapanGerhard Fasol “Help – my mobile phone does not work!” – Why Japan’s mobile phone sector is so different from Europe’s, at the Finnish Chamber of Commerce in Japan
Today we released the 23rd edition of our JCOMM-Report – about 250 pages of overview and analysis of Japan’s telecom sector.
KDDI gains 524,000 subscribers in Oct & Nov 2006. DoCoMo for the first time ever since it was founded experienced a net loss of subscriptions.
Net gain/loss of Japan’s mobile operators at introduction of mobile number portability (MNP)
KDDI gains 600,000 new EZweb subscribers, Japanese operators earn much from mobile internet – subscription data show even better results for KDDI‘s EZweb.
gain/loss of subscriptions by Japanese mobile internet services during introduction of mobile number portability (MNP)
Mobile number portability was a major factor forcing Vodafone out of Japan
MNP is the first challenge for SoftBank Mobile – read how SoftBank approaches the MNP battle
Mobile number portability (MNP) was introduced in Japan on October 24, 2006. Mobile number portability means that Japanese cell-phone subscribers (excluding PHS subscribers) can move their subscriptions between DoCoMo, KDDI/AU and Softbank while keeping the same phone number. However, number portability does not mean email portability, or portability of purchased content which in Japan is normally subject to strict digital rights management and normally cannot be transfered from one subscription to another.
SoftBank went into the MNP battle with fireworks of campaigns
The “Zero YEN” campaign plays with the fire of a price war. As shown in the photograph below, from October 24, 2006, SoftBank stores prominently displayed “Zero Yen” prices for all handsets and many different services, creating the superficial impression that suddenly all SoftBank handsets and services are free of charge, which of course is not the case. This advertising trick led to an enquiry by Japan’s fair trade commission. The fair trade commission later admonished SoftBank saying that some aspects of the campaign were misleading – however the fair trade commission at the same time admonished all other cell phone operators and PHS operator WILLCOM for different types of misleading advertising. SoftBank came away quite lightly – however the photograph below shows, that the ZERO YEN signs were covered up (and are still visible below the hastily applied cover sheet of paper).
The “unexpected campaign”: Softbank introduced an “unexpected” Gold Plan, which offers essentially flat fee voice calls under certain conditions, but restricted in time and length, and also restricted to calls between SoftBank subscribers only. Since SoftBank only represents about 15% of Japan’s mobile phone market, it is much easier for SoftBank to offere flat on-network plans, than for DoCoMo, since for DoCoMo a much larger ratio of calls would fall under the on-network plan. DoCoMo and KDDI therefore did not respond with any flat voice on-network plans.
SoftBank’s computer systems were either overloaded, or broke down under the load of MNP, leading to irritated complaints by KDDI and DoCoMo, and some damage to the new SoftBank brand.
SoftBank Zero Yen campaign
This photograph shows SoftBank’s Zero Yen Campaign (left photograph). AFter a few days Japan’s Fair Trade Commission started to investigate SoftBank (and all other mobile operators) and admonished them for misleading advertising practices – as a consequences the original Zero Yen poster is covered up (right hand photograph):
Mobile number portability in Japan: SoftBank’s Zero YEN campaign
Preview – SoftBank today and 300 year vision report:
SoftBank acquired Vodafone KK for about US$ 15 billion, essentially with a very large loan. Thus SoftBank is under enormous pressure to succeed in Japan’s very competitive mobile phone market, where Number Portability was introduced on October 24, 2006.
Recent subscriber number statistics and our observations indicate that SoftBank looks likely to succeed in turning round the mobile phone company they acquired from Vodafone and renamed Softbank Mobile.
During the week of October 24, 2006, when number portability was introduced, Masayoshi Son introduced a firework of new pricing plans – on the surface these pricing plans all advertise “Zero Yen”, ie nominally the price of buying mobile phones from SoftBank appears to be ZERO.
Of course, with a consortium of lenders anxious to be repaid, SoftBank has no possibility of giving away mobile phones for free. In actual fact, our analysis shows that SoftBank at the end of the day actually increased prices slightly. SoftBank introduced a series of pricing plans, where customers essentially purchase the mobile phone handsets under an installment plan running over variable periods, but typically 48 months, with zero down payment at the time of initial purchase. So in fact, the terminals are not sold for ZERO YEN at all – this issue led to an investigation by Japan’s Fair Trade Commission.
As is usual practice in Japan, the Fair Trade Commission did not single out Softbank, but critized each one of the major mobile operators for different unfair advertising practices, and encouraged each mobile operator to be more accurate in advertising discount plans.
SoftBank got away lightly – the image below shows on the left hand side the initial ZERO YEN announcement, which a few days later was hidden by a more careful explanation… (the Zero Yen poster can still be seen shining through the paper above…)
SoftBank’s “zero yen campaign” offering mobile phones at the price of zero yen. Japan’s Fair Trade Office prohibited this campaign – and on the right hand side therefore the “0 yen” signs are covered up
SoftBank replaced Vodafone-Live! by Yahoo!-Keitai. SoftBank phones have a “Y!”-button which links to Yahoo!-keitai. Yahoo-Keitai! offers a list of official sites, new services (e.g. a new communicator service), and also access to free mobile internet sites through the YAHOO directory, as well as access to YAHOO services, such as YAHOO-auctions.
SoftBank replaces Vodafone-Life by Yahoo!-keitai as part of the acquisition of Vodafone-Japan
YAHOO!-keitai is a fresh start to revive the mobile internet service, previously known as Vodafone-Live!, and which had been losing market share to competitors i-Mode and EZweb for about 4 years. Previous to the Vodafone-Live! period, Jsky had been successful in gaining market share both from i-Mode and EZweb.
Market share in Japan’s mobile internet market: Vodafone-Life was continuously losing market share before it was acquired by SoftBank, while KDDI’s EZweb was winning market share over several years
Understand Softbank: our report: “SoftBank today and 300 year vision”
On September 29, 2006, a few days before the official name change from Vodafone KK to SoftBank Mobile, SoftBank opened the rebranded Shibuya flagship store:
Rebranding the flagship store in Shibuya from Vodafone to SoftBank after SoftBank acquired Vodafone KK and changed the name to SoftBank Mobile
Because of the crowded streets in Shibuya most of the building work was done during the night:
Rebranding the flagship store in Shibuya from Vodafone to SoftBank after SoftBank acquired Vodafone KK and changed the name to SoftBank Mobile
Vodafone Japan turn around under SoftBank – Interview for Red Herring
Helped RedHerring with an interview on the recent SoftBank accounting adjustment. The article is entitled “Softbank Falls on Lehman Cut” and appeared on the RedHerring website on August 28, 2006. Our company also recently advised a major global financial institution on related issues and risk issues.
Here a short summary of what I said
Essentially Vodafone-Japan is a company which has been going downhill in many ways for the last 4 years, they lost a lot of subscribers, and there has not been enough investment in equipment and staff, etc. For that reason and other reasons Vodafone sold the Japan operations this March to Softbank (read our report on SoftBank here).
Japan’s mobile market is really difficult, and there is tough competition. There is much trust in the entrepreneurial skill of Softbank Chairman and founder Masayoshi Son – only through his reputation and track record could Softbank attract US$ 15 billion in bank loans to acquire Vodafone Japan KK. Personally I have a very high opinion about Masayoshi Son’s abilities – and I think there is a high chance that he will succeed to turn round this company. Many people feel so, otherwise Son would not have been able to obtain the finance for the deal. Masayoshi Son has built not just one, but many successful companies, and he is maybe the strongest driving fource behind Japan’s internet revolution.
I think for the turnround to be successful will take quite some time, and probably the shares of Softbank will go up and down many times before the company is turned round. I am not a share holder of Softbank, but my thought would be that this is really an investment for the longterm, unless you are playing on shortterm fluctuations which some investors also do. But then you have to understand exactly what you are doing and live with the risk.
Regarding the revaluation of the plant (mainly base stations, antennas, backhaul, computer systems etc) of the company, I am not an accountant so I cannot comment on the accounting issues and regulatory issues here.
However keep in mind that Vodafone has last year written off about US$ 50 billion mainly for the Mannesmann acquisition. Softbank has not written off anything as far as I understand it, they converted plant into good will which as far as I know increases the period of write off from 10 to 20 years. But was I said, I am not an accountant.
SoftBank did not lose a moment to start turning Vodafone KK around, within a few days Vodafone’s former headquarters were moved to SoftBank’s headquarters in Shiodome, and most Vodafone expatriates were sent back to Europe. If you are interested to know why Vodafone decided to sell Japan operations to SoftBank and quit Japan, you can read many details here.
Yesterday (August 26, 2006) SoftBank opened the new Roppongi flagship store. SoftBank’s white/silver/grey colorscheme replaces Vodafone’s bright red:
Rebranding Vodafone KK’s former Roppongi flagship store to the SoftBank brand, after acquisition of Vodafone KK by SoftBankRebranding Vodafone KK’s former Roppongi flagship store to the SoftBank brand, after acquisition of Vodafone KK by SoftBank
Understand Softbank: our report: “SoftBank today and 300 year vision”
Japan is a couple of years ahead of Europe and US in mobile communications by most measures
What are GOOGLE and YAHOO doing in Japan’s mobile sector?
GOOGLE started mobile operations in Japan by partnering with KDDI (Japan’s No. 2 mobile operator with about 25 million mobile subscribers) to develop mobile search.
YAHOO-Japan made a large step forward when SoftBank acquired Vodafone’s Japan operations in March this year
Following the acquisition of Vodafone-Japan, SoftBank quickly turns round the company
Today, August 26, 2006, SoftBank (read our report on SoftBank here) opened the remodeled and rebranded Roppongi flagship store. The SoftBank Roppongi store is designed in light colors using a color scheme including mainly white, silver and grey, replacing Vodafone’s red. While Vodafone focussed on cost-cutting in Japan, SoftBank is now investing heavily, creating new stores and hiring store managers and assistants to revive and expand the chain of SoftBank stores.
“Flagship” stores are a concept which Vodafone introduced into Japan’s mobile industry – before Vodafone’s entrance to Japan, DoCoMo, J-Phone and KDDI/AU did not have specific flagship stores. Vodafone opened a flagship store in Shibuya, and shortly afterwards KDDI opened the KDDI Designing Studio in response. Because Vodafone’s initial Shibuya flagship store is in the middle of Shibuya’s entertainment district, the Roppongi-store, which was newly acquired by Vodafone, took a flagship role.
Vodafone recently decided to terminate business in Japan, and sold all Japan operations to SoftBank – Vodafone’s investment in Japan was the largest investment ever by any European company in Japan, about 7 times larger than Renault’s initial investment in Nissan…
This picture shows the flagship store in the new SoftBank dress, which opened on August 26, 2006
SoftBank transforms former Vodafone Roppongi flagship store
This picture shows the flagship Roppongi store before (left hand picture) and after (right hand picture) the brand change from Vodafone to SoftBank. The SoftBank branded store opened on August 26, 2006:
Vodafone’s former Roppongi flagship store rebranded as SoftBank store after SoftBank acquired Vodafone-Japan
An elegant color scheme based on silver/white/grey replaces Vodafone’s red:
odafone’s x-Roppongi flagship store rebranded as SoftBank store after SoftBank acquired Vodafone Japan
SoftBank’s white/grey/silver color scheme replaces Vodafone’s previous bright red dress – the “YAHOO-Cafe” (there is no coffee…) represents SoftBank’s strong cooperation with YAHOO-Japan – SoftBank is largest shareholder of YAHOO-Japan:
SoftBank Roppongi storeSoftBank Roppongi store
SoftBank’s 705SH mobile phone by SHARP includes a YAHOO-Button for direct access to YAHOO-Japan mobile content and services.
Yahoo! button on SoftBank phones
SoftBank’s flagship store includes a YAHOO spot – at the moment the YAHOO-spot is an empty place holder. The YAHOO-Spot is labelled YAHOO-Cafe – but there is no coffee…
Yahoo! Cafe inside the SoftBank store
SoftBank’s phones are presented on surfboards:
SoftBank mobile phone display
Understand Softbank – our report: “SoftBank today and 300 year vision”
There is a lot of discussions about whether Steve jobs is going to announce an iPhone or iPod-Phone at the Apple Computer Developer’s Conference in SF – according to the headline report on Saturday May 13th, 2006 in Nihon Keizai Shinbun ( the world’s largest business daily ) it’s already known since May this year that Apple and SoftBank are developing such a joint mobile phone with iPod and iTunes functions.
On March 17 SoftBank announced the full acquisition of Vodafone’s Japan subsidiary – the former J-Phone – jointly with YAHOO-Japan as a co-investor – so with about 15 million mobile subscribers in the world’s most advanced mobile market (Japan), SoftBank/Apple will have the firepower to make such a phone a success, provided it’s tuned to Japanese consumers’ needs and dreams – my guess is that it probably will be.
By pure coincidence, the Apple/SoftBank headlines appeared one or two days after DoCoMo and Microsoft announced a music cooperation.
Apple/SoftBank iPod mobile phones coupled to iTunes could have quite a lot of impact on Japan’s music industry: about 20% of Japan’s music sales are to mobile phones. Of all music downloads in Japan about 6% are fixed line internet downloads, and 94% are music downloads to mobile phones: internet music downloads are almost neglibile in comparison to mobile phone music downloads.
Therefore even if iTunes has a huge market share in the fixed line internet world, iTunes cannot have much impact in Japan overall if limited to fixed line internet downloads. iTunes downloads to mobile phones will change the business models of Japan’s music industry – at the moment music downloads to mobile phones cost a lot more than iTunes downloads. An iPod/iTunes music store could reshape the mobile music market in Japan.
In my 20 years of business and work between US/Japan and EU/Japan, I am often surprised how Western executives underestimate economic size and strength of Japan and it’s companies – here is another example: BusinessWeek writes about the SoftBank/iPod phone, and writes that former Apple executives says that Apple’s CEO Steve Jobs wouldn’t normally tie up with a “small fry” like SoftBank…
BusinessWeek took note of my letter and published corrections on May 21, 2006, which you can find
Softbank + Softbank-Mobile (former Vodafone KK) combined have substantially higher revenues than Apple Computer for financial years 2005 and 2006 – so clearly Softbank is no ‘small fry’ at all compared to Apple Computer
Revenues of SoftBank + SoftBank Mobile (x-Vodafone KK) were on the order of YEN 2500 Billion (US$ 22 Billion) for the financial year that ended March 31, 2006. Revenues of Apple Computer were US$ 13.9 Billion for the year ended Sept 24, 2005. – So in terms of revenue the new SoftBank Group (including the recently acquired x-Vodafone KK) is almost twice as large as Apple Computer.
SoftBank a small fry? Apple vs SoftBank market capitalization
On May 19, 2006, market cap of SoftBank and SoftBank Mobile combined was about 20% less than Apple’s market cap
Market capitalization of Apple Computer was US$ 54.9 Billion on May 19, 2006. Market capitalization of SoftBank (US$ 28 Billion) plus SoftBank Mobile Corp (US$ 15 Billion) was on the order of US$ 43 Billion.
BusinessWeek took note of my letter and published a correction on May 21, 2006, which you can find
When the iPhone was actually introduced to Japan by SoftBank in 2008, Mr Tetsuzo Matsumoto, CTO and Board Member of SoftBank-Mobile and myself were invited by the Foreign Correspondents Club to hold a Press Conference to comment on the iPhone introduction to Japan – you can find the records here.
Vodafone quits business in Japan having sold all operations to SoftBank
Photographs below show the world famous Vodafone board on Tokyo-Shibuya’s Hachiko-square being replaced by the SoftBank advertisement from June 14, 2006.
SoftBank acquired Vodafone-Japan and rebranded to SoftBank mobile on June 14, 2006
Cheese phones anyone?… Vodafone “cheese phone” and “car tire phone” posters replaced by SoftBank posters on Tokyo’s Yamanote Line
Vodafone had difficulties to manage the relationships with Japanese mobile phone manufacturers, and as a consequence Vodafone’s pipeline of new mobile phone models dried up, while competitors KDDI and Docomo of course continued to introduce seasonal spring, summer, autumn and winter collections of attractive 3G phones which many special functions such as location services, GPS, color screens, autofocus cameras – functions which at that time were only available in Japan and nowhere else globally.
Since Vodafone had few attractive phones, Vodafone switched to covering old models with cheese, mint ice cream and car tire plastic covers to give them a new outside make-up. Of course this course contributed to the exodus of subscribers from Vodafone to competing customers, which eventually led to the sale of Vodafone-Japan to SoftBank, which turned around the former Vodafone-Japan company within a few months.
Swiss Emmentaler cheese covered phone for Japan???
Rebranding advertisement boards along Tokyo’s Yamanote ring line. Noteworthy are the cheese, cow, car tire and ice cream bar shaped mobile phone covers, which Vodafone offered because it was short of new phone models, and which did not help to improve Vodafone’s brand in Japan – cheese phones anyone?
Understand Softbank: our report: “SoftBank today and 300 year vision”
Speed of the essence: SoftBank loses no time to turn around Vodafone-Japan
Vodafone’s withdrawal also shows, that the values of cross-cultural management skills are often underestimated
by Gerhard Fasol
SoftBank rebrands Vodafone Japan: Saturday June 10, 2006 was the first time we saw SoftBank replacing the Vodafone brand in Japan – bringing a formal end to Europe’s largest ever investment in Japan.
Vodafone’s withdrawal from Japan is a turning point in more ways than one and has wider implications for Europe (read below).
Rebranding from Vodafone to SoftBank after SoftBank acquired Vodafone Japan
Upper image shows the world-famous Vodafone board on Shibuya’s hachiko square, which has appeared in many movies and TV shows. It will soon be replaced.
Lower image shows one of the first SoftBank advertisements in Tokyo’s busiest commuter railstation Shinjuku showing Sharp’s mobile-TV handset.
Implications for Europe of Vodafone’s withdrawal from Japan
As a European myself, I am looking at the wider implications for Europe of Vodafone’s withdrawal from Japan – and our company was recently awarded a contract by the European Union Government on exactly these issues – as well as others.
Vodafone’s investment was by far the largest European investment in Japan. What is maybe less well known is that Vodafone was dispatching a relatively large stream of managers between several continents (Europe, Australia etc) and Japan. Several times when visiting the KDDI Designing Center for example I could meet young German Vodafone managers who had just arrived for a management position at Vodafone-Japan, and who were studying the mobile phone handsets in KDDI’s showroom. These expatriates all left within a few weeks of SoftBank taking control of the company.
As a result of these interactions, Vodafone could bring J-Phone’s J-Sky mobile internet service to Europe, which was adapted for European conditions and rebranded “Vodafone Live!”. There would be no “Vodafone Live!” in Europe without Vodafone’s acquisition of J-Phone (including JSky). Vodafone also brought SHARP and Toshiba mobile handsets to Europe.
Apart from the immediate impact on Vodafone as a Corporation, we expect also a more general longterm impact from the strong reduction of Europe-Japan technology exchanges due to Vodafone’s withdrawal from Japan.
Vodafone’s withdrawal from Japan also shows how difficult it is for European telecom firms to succeed in Japan – and for Japanese firms in the telecom sector to succeed in Europe. Our company knows this first-hand from our work for NTT-Communications, and some other Japanese companies. – Read our presentation to Japanese industry associations here (in Japanese language).
Underestimating the importance of cross-cultural management skills and the associated perils
While large US corporations, including INTEL, General Motors, and Motorola have been forced by confrontation with Japan’s competition to completely reshape themselves, this has not yet happened to any large European corporation because of the larger perceived separation between EU and Japan.
SoftBank acquires Vodafone’s Japan operations, announces turnaround strategy
SoftBank turnaround for Vodafone-Japan: Focus on customer service and increased investments
by Gerhard Fasol
SoftBank has acquired Vodafone-Japan (Vodafone KK) and will change the name to SoftBank Mobile.
SoftBank‘s alliance with APPLE to develop iPod-mobile phones is the latest in a string of actions to take the former J-Phone back onto the growth track before Vodafone acquired it. One day after announcing the acquisition, SoftBank announced a target of 26 million subscribers (compared to today’s 15 million).
SoftBank turnaround: five point strategy to turn around Vodafone-Japan
A few days after acquiring Vodafone-Japan, SoftBank announced a five point SoftBank turnaround program for Vodafone Japan, which is now well on-track:
1. Continued use of mail addresses:
SoftBank has learnt from Vodafone that it does not pay to force 15 million subscribers and all their friends and acquaintances to change email addresses …
2. Strengthen the shops and customer service:
SoftBank is reversing Vodafone’s store strategy – SoftBank has started to recruit full-time regular employees for it’s stores, and plans to sell APPLE products and iPod phones in the stores.
3. Rebranding – Change to an easy-to-understand and familiar company name:
The brand “Vodafone” will be replaced by SoftBank Mobile.
4. Stepping up capital investment:
On Friday April 21, 2006, SoftBank announced the decision to increase the investments to YEN 250 billion to increase the number of 3G base stations from 20,000 to 30,000. This is a reversal of Vodafone’s initial strategy to dramatically cut investments in Japan during it’s ownership of J-Phone/Vodafone KK (for graphics of investment data by Japan’s operators see our blog)
5. Synergies with SoftBank BB, Japan Telecom and YAHOO:
Softbank now reunites the former Japan Telecom – which Softbank has acquired in two steps from Vodafone. First Vodafone acquired the fixed line operations via Ripplewood and now the former mobile subsidiary of Japan Telecom from Vodafone. Synergies between YAHOO-Japan and SoftBank’s new mobile operations are particularly interesting and promising – think mobile auctions… now SoftBank is moving further into eBay’s territory in Japan, or what is eBay’s territory anywhere else in the world, except in Japan.
According the headline report in Nihon Keizai Shinbun (the world’s largest business daily) on Saturday May 13th, Apple’s CEO Steve Jobs and SoftBank’s Chairman Masayoshi Son met recently, and are developing a joint mobile phone with iPod and iTunes functions.
On March 17 SoftBank announced the full acquisition of Vodafone’s Japan subsidiary – the former J-Phone. Thus SoftBank has acquired a 20% piece of the global Vodafone-Group, propelling SoftBank into the global top-league of telecom players. Within a few days SoftBank announced a string of actions to bring the former J-Phone back onto it’s former growth track. Read below – and read a detailed analysis of the APPLE/SoftBank cooperation in today’s May 15 version of our Mobile Music report.
Is it pure coincidence that DoCoMo and Microsoft announced a music cooperation just one or two days before the APPLE/SoftBank iPod cooperation made headlines?
Apple/SoftBank iPod mobile phones have the potential to:
revolutionize Japan’s mobile phone market
accelerate the shift of the music industry’s business model from CDROM sales to mobile music for mobile phones
make APPLE a global mobile phone handset brand in the NOKIA league
put pressure on DoCoMo which has been falling behind in the mobile music sector
enable Vodafone to offer Softbank/APPLE/Vodafone/iPod phones globally via Vodafone’s recently announced Softbank joint venture for handset development
Implications of an Apple/SoftBank iPod mobile phone
Revolutionize Japan’s music business landscape: about 20% of Japan’s music sales are to mobile phones, while internet music downloads are almost neglibile in comparison. Therefore iTunes cannot have much impact in Japan if limited to internet downloads. iTunes downloads to mobile phones will change the business models of Japan’s music industry.
SoftBank could leapfrog DoCoMo which is already about 1-2 years behind KDDI/AU in the mobile music arena.
iTunes pricing is far below established mobile phone music prices in Japan
Pressure on DoCoMo and KDDI/AU: Success of an iTunes/SoftBank mobile phone will put strong pressure on DoCoMo and KDDI/AU: a “must have” iPod mobile phone can be a huge advantage for SoftBank when number portability arrives this autumn.
Global impact: Success of an APPLE/SoftBank phone could put APPLE on track towards a global mobile phone brand competing with the NOKIA’s of this world
Impact on Apple: APPLE could leverage it’s design power, it’s user interface principles, and brand power into BOTH the mobile phone space (globally), and the mobile music distribution space
Impact on global mobile phone business landscape: APPLE could become the challenger in the global mobile phone handset landscape
Briefing at the European Union Embassy following Vodafone’s failure in Japan
and what Europe can do to catch up?
by Gerhard Fasol
Today (March 23, 2006) I was invited to brief the Technology Attaches of the Embassies of the 25 European Union countries here in Tokyo about the topic “Why Japan is several years ahead of Europe in telecoms and broadband?”, about Japan’s telecommunications sector (both fixed net and wireless) in a one hour presentation + discussion, following Vodafone’s failure in Japan, and sale of Vodafone-Japan to SoftBank.
I had offered several alternative topics and the conference of EU Technology Attaches selected the most provocative title I had offered:
Why Japan is several years ahead of Europe in telecommunications and what Europe can do to catch up
Vodafone KK’s Chairman and former NTT-DoCoMo Vice-President Tsuda, who had worked 34 years at NTT and DoCoMo (and who resigned from his Vodafone-Japan CEO position a few weeks after being head-hunted), said in a recent interview with Bloomberg that “Japan is way ahead in 3G”. – therefore, although this title is clearly provocative, it’s clearly worthwhile examining this question. With the sale of Vodafone KK to SoftBank last week, the timing of this briefing was particularly interesting. My presentation discussed the following questions:
Softbank acquires Vodafone Japan in an approx. US$ 15 billion deal – worth an estimated US$ 83 billion ten years later
SoftBank and Yahoo-Japan acquired 97.7% of outstanding shares of Vodafone Japan (Vodafone KK) in Japan’s largest M&A transaction (the remaining 2.3% are owned by other investors). In a Leveraged Buy-Out (LBO) a consortium of banks extended US$ 9.5 to 10.4 Billion in loans.
Citibank was the lead in this transaction on SoftBank side, but because of the size of this transaction, essentially all major players in Japan’s financial industry were involved – including our company, which advised one of the loan risk assurance companies on aspects of the risks of this transaction.
SoftBank acquires Vodafone KK (= Vodafone Japan) – outline of the transaction
Ten Years later (2016) we estimate that Vodafone-Japan would have been worth approx. US$ 83 billion
We estimate that ten years later, had Vodafone-Japan been successful, would have been worth an estimated US$ 83 billion, a value lost to Vodafone as opportunity cost, and the reward to SoftBank fur the successful turnaround.
For details of our analysis of the value of this company ten years later read:
SoftBank’s aim: grow to 26 million mobile subscribers and become No. 2 in Japan
SoftBank announced the plan to return to J-Phone’s growth curve and to aim for 26 million subscribers, which would place the resulting mobile operator on place 2 in Japan.
After acquisition of J-Phone by Vodafone, growth stopped.
Japan’s new telecom landscape
Three major players emerge after a sequence of consolidation and restructuring: NTT, KDDI and Softbank/YAHOO. The following figure outlines Japan’s telecom sector in 2006:
Outline of Japan’s telecom sector in 2006 and M&A transactions source: https://www.eurotechnology.com/store/jcomm/
When Vodafone acquired Japan Telecom in a series of transactions, Japan Telecom was a full service fixed and mobile (= J-phone) telecom operator servicing private and corporate customers, competing neck-to-neck with KDDI Corporation (TYO:9433) for the second place in Japan’s telecom sector.
KDDI Corporation (TYO:9433) today (10 August 2016) has a market cap of YEN 8450 billion (= US$ 83 billion), and at the time when Vodafone acquired Japan Telecom, was very similar to KDDI.
It can therefore easily be argued that if Japan Telecom had been managed equally well as KDDI, then there is no reason to believe that Japan Telecom today would not have a market cap of at least US$ 83 billion as well.
And according to the BBC, Vodafone announced in February/March 2006, that Vodafone would write off (write down the value of Vodafone assets) £28bn (= approx. US$ 50 billion).
Vodafone Japan fail: Learn from Vodafone’s experience in Japan for your own business
Vodafone Japan failed not for one single reason but for hundreds of reasons, which can be grouped into soft factors (mainly lack of understanding Japan and Japan’s telecom markets and it’s true size) and hard factors (mainly far too low investment) – read more details in our SoftBank-report:
Soft factors:
Japan knowledge at HQ, and knowledge at HQ about the specifics of Japan’s telecom sector (or lack thereof).
choice of management structure (there were attempts to correct the management structure, however too little and too late).
attitude displayed both privately e.g. within the Japanese industry sector and publicly via marketing messages and advertising
choice of executives and lower ranking managers and their knowledge and experience in Japan’s telecom sector (or lack thereof)
lack of sufficient know-how and experience to manage a large Japanese company, and particular the chain of retail stores
lack of management and execution know-how in Japan: tried three (3!!) times to introduce / roll-out 3G services in Japan, and failed every time to attract sufficient subscribers. As a result Vodafone Japan was far behind in 3G introduction. Only after sale to SoftBank, did SoftBank succeed in implementing the transition to 3G
far too low budgets for infrastructure investment resulting in much lower coverage and network quality compared to competitors NTT-DoCoMo and KDDI/au and TuKa, Willcom and others. As a consequence of far too low investment budgets, Vodafone failed three times to introduce 3G services in Japan. (3G services were not successfully introduced until after the acquisition by Softbank, and after conversion of Vodafone KK to Softbank-Mobile).
mobile phone handsets were inferior to the handsets offered by competitors NTT-DoCoMo and KDDI, and TuKa
and many more
Vodafone Japan? Why did it fail and sell to SoftBank? – Detailed answer
Find a long answer in this blog post below, in our other blog posts, and in some detail including statistics and financial data in our Softbank Report.
On Friday March 17, 2006, Vodafone and Softbank announced that Vodafone sells Vodafone KK (the totality of all Vodafone operations in Japan) to Softbank.
It has been reported that on Monday March 20, 2006, Softbank started to move all Vodafone KK staff, furniture and equipment from Vodafone KK’s former headquarters in the top floors of the Atago-Greenhills-Mori-Tower to Softbank headquarters in Shiodome (near Shinbashi). Also Softbank arranged very quickly that essentially all foreign expatriate managers left Vodafone KK – some stayed in Japan working for other IT companies, some returned to European Vodafone divisions, and some pursued telecom careers in USA, India, Bangladesh, or elsewhere.
By total coincidence, I had dinner with a high-level manager of Vodafone KK, of European nationality, at the indian restaurant Moti’s in Tokyo-Roppongi on exactly the same day, the Friday March 17, 2006 a few hours after the sale of Vodafone KK to Softbank was announced.
I asked him: “Which of the following is true:”
Vodafone never did any market research in Japan?
Vodafone did market research in Japan, but the quality was low?
Vodafone did market research in Japan, but nobody read it?
This Vodafone KK (Vodafone Japan) manager’s answer at the indian dinner was (3): market research was done about Japan’s mobile phone market, but the market research was not sufficiently taken into account in the business and strategy planning.
Fact is, that Vodafone KK (Vodafone Japan) took many major strategy and market decisions in Japan, which were not related to the realities of Japan’s market. Here one example. When “rebranding” (=changing the company / product / services names) from J-Phone to Vodafone, this “rebranding” campaign was centered on global roaming, i.e. Vodafone enabled Japanese customers to use Japanese J-Phone/Vodafone mobile phones in a very large number of countries outside Japan as well as inside Japan. This was at a time, when Japan’s mainstream mobile 2G phone system which both DoCoMo and J-Phone used was PDC, while much of the rest of the world, especially Europe used GSM. However, what Vodafone overlooked was, that at that time DoCoMo had about 30,000 roaming customers, out of approx. 50 million subscribers, i.e. only about 0.1% of Japanese mobile phone users used international roaming at that time. Thus Vodafone KK in Japan focused their main nation-wide poster and TV and other media campaign on about 0.1% of the Japanese market (and about 0.02% of Vodafone KK’s accessible market, given Vodafone KK’s approx. 20% market share) – less than a niche. (The reason we know how many roaming customers DoCoMo had at that time, is because one of Vodafone KK’s competitors in Japan engaged our company Eurotechnology Japan KK to analyze Japan’s roaming market, and help our client to develop strategy to better compete with Vodafone KK’s roaming products, which were aggressively marketed, and the core of Vodafone KK’s marketing focus).
Another example was Vodafone KK’s strategic focus on Japan’s prepaid market (find detailed statistics and market shares and analysis of Japan’s prepaid market in our JCOMM report). In 2006 there were about 2.6 million prepaid mobile phone customers in Japan, i.e. about 2.7% of the market, while DoCoMo had about 45,200 prepaid subscribers, i.e. about 0.09% of DoCoMo’s subscribers were prepaid customers. Since the prepaid market in Europe (especially Italy where about 1/2 of the market is prepaid) is extremely important and highly profitable, Vodafone decided on the strategy to focus strongly on the development and growth of Japan’s prepaid market. Almost at the same time however, a national campaign started in Japan linking unregistered and illegally traded prepaid mobile phones to crime, and a law was proposed in Japan’s parliament to outlaw any type of prepaid mobile phones. Thus Vodafone KK found itself on the one hand promoting and investing to develop prepaid mobile phone services in Japan, developing, purchasing (as was the business model in Japan at that time) and bringing to market special prepaid handsets, and organizing national media campaigns promoting Vodafone prepaid mobile phones, while at the same time on the other hand facing the possibility that Japan’s parliament would outlaw these same prepaid mobile phones, and a broad press and TV national discussion on how prepaid mobile phones are linked to crime. The end result was, that instead of outlawing prepaid mobile phones, it was decided to introduce far stricter registration requirements and ID requirements for mobile phones and especially for prepaid mobile phones, and the unauthorized/unregistered sale or transfer of prepaid mobile phones in Japan was made a crime. The end effect for Vodafone of course was a commercial failure of Vodafone’s prepaid mobile phone campaign, in addition to a general decrease of ARPU (average revenue per user).
Instead of focusing on its core business in Japan, Vodafone KK focused management resources, and other resources to try to influence political decisions concerning 2.7% of the market: Japan’s minute and decreasing prepaid market.
Vodafone had many other management issues in Japan, which included recruitment and personality and retain issues of top executives, many kinds of HR issues, management issues at the retail stores, handset planning issues, branding and brand management issues, localization issues and much more.
As a consequence of these and other factors, Vodafone KK’s market share continuously decreased, subscribers moved from Vodafone KK to DoCoMo and KDDI/au, and the financial performance of Vodafone KK deteriorated, in the end convincing Vodafone that the best option was to sell Vodafone’s Japan operations and terminate business activities in Japan.
Vodafone-Japan’s leadership was also chaotic. While normally sending a stream of European Vodafone executives without knowledge of Japan or Japanese language on very expensive expatriate packages for limited periods to Japan, at some stage Vodafone decided to headhunt one of Japan’s top mobile industry veterans, who had just lost a battle for Docomo’s CEO position. This Japanese mobile phone industry veteran after a few weeks asked to be transferred from his executive CEO of Vodafone-Japan position to the non-executive Chairman position and soon after left Vodafone-Japan – clearly it took him only a few weeks to understand the hopelessness of the situation.
You can find further details and statistics, financial performance and market share data during this period in our reports:
“Vodafone K.K.’s Tsuda, 津田志郎, seeks growth in Japan, not sale”
However, sale to SoftBank may be the way forward
About one year ago, in an interview with Bloomberg (“Vodafone KK’s Tsuda seeks growth in Japan, not sale“), I mentioned that a sale of Vodafone’s Japan operations to Softbank might be the way Vodafone will go in Japan. This seems to be happening now and negotiations to this effect were confirmed by both Softbank and Vodafone over the weekend.
The potential deal
Although a deal has not been closed yet, it is widely reported that a sale of Vodafone’s Japan operations to Softbank is very likely to be closed within a few weeks. What could this deal look like?
As reported by Bloomberg Vodafone KK’s capitalization at the point of delisting from the Tokyo Stock Exchange was around YEN 1.4 Trillion (= about US$ 12 Billion). Bloomberg mentions estimations by London based analysts who value Vodafone KK in the range US$ 14 to 16 Billion. Of course, if a deal is actually concluded, it might be a complex deal with several components, not just a simple cash price, and any cash value will not be determined by analysts in London, but on the negotiating table between Softbank and Vodafone, and the final deal could be more complex than a simple sale against cash payment.
In any case, this deal – if it happens – promises to become one of the largest M&A transactions ever in Japan sofar in terms of cash value. Vodafone is reported to prefer a cash deal, and Softbank has been reported to consider a leveraged buy-out (LBO) where Softbank will take debt against the to-be-acquired company.
It has also been reported that Softbank seems to be planning to change the name of the resulting company, so the “Vodafone” brand is not likely to survive in Japan.
What is Softbank likely to do with Vodafone’s Japan operations
An acquisition of Vodafone’s Japan operations will be the completion of Softbank‘s march to build a full-scale telecommunications group on a par with NTT and KDDI through a series of acquisitions plus internal growth.
Softbank in this new shape will become a much more serious competitor for NTT and KDDI, which both have succeeded to transform themselves from former monopolies into some of the world’s most advanced telecom operators.
In a sense Softbank is already where DoCoMo and KDDI are working very hard to get to: DoCoMo and KDDI are working hard to build content and transaction businesses (such as shopping, financial services, auctions and music), because pure traffic revenue (ARPU) is driven down by relentless competition.
Softbank is strongly linked to YAHOO-Japan, and YAHOO-Japan demonstrated it’s strength by driving eBay out of Japan – so Softbank is already where DoCoMo and KDDI want to go. All Softbank still needed was a wireless network, and with a Vodafone acquisition, Softbank will have a wireless network much faster than expected.
A Vodafone/Softbank deal will not be a good development for eAccess/eMobile, and eAccess/eMobile is reported to have submitted documents to Japan’s regulatory authorities regarding Softbank’s wireless license. It will be interesting how the regulating government ministry will decide on the regulatory aspects of any Softbank/Vodafone deal. In the past few years Japan’s government has been singularly focused on creating the conditions to make Japan the most advanced IT market in the world, so I think we can be confident to expect a wise decision – wise for Japan, not necessarily beneficial for particular mobile operators.
What made Vodafone change it’s mind about Japan?
As reported by Bloomberg, one year ago Vodafone had the clear intention to remain in Japan for the next 10, 20, 30 years. What made Vodafone change it’s mind?
As widely reported, Vodafone was loosing market share in Japan’s mobile phone market over the last several years.
With number portability being introduced in Japan from autumn 2006, and with three new operators entering the market during 2006-2007, the competitive environment will become much more severe than it is now, decreasing pure network profitability, while at the same time massive network investments are necessary.
Analysis of Vodafone-Japan’s subscriber numbers shows that early warning signs appeared already in 2002 – 2002 would have been the time for Vodafone to take decisive action to turn the business around in Japan.
The European Institute of Japanese Studies (EIJS Academy in Tokyo) of the Stockholm School of Economics will hold a seminar in Tokyo-Marunochi on Thursday, February 16, 2006:
Topic: “Why are Mobile Phones (Keitai) so hot in Japan? – and How European companies in all sectors can profit from Keitai”
Speaker: Gerhard Fasol
Gerhard Fasol “Why are keitai so hot in Japan?” Embassy of Sweden
Agenda:
Japan created the most passionate and most advanced mobile communications (keitai) market in the world. Recently, almost all innovations in mobile communications have been developed or brought to market first in Japan. Fasol’s talk will explain why this is, and how European companies in all fields, from retail to publishing can profit by building keitais into their business models.
Date: Thursday, February 16, 2006
Time:
6.15 – 7.00 p.m. Drink and Snack (served before the lecture)
7.00 – 9.00 p.m. Lecture and Discussion
Place:
Marubiru Conference Square, Room 2 (Tel: 03-3217-7111) 8th floor of Marubiru, 2-4-1 Marunouchi, Chiyoda-ku, Tokyo One-minute walk from JR Tokyo Station, Marunouchi South Exit
Fee: JPY2,000 per person, payable at the door Free for students, please bring your student ID Free for those who are from sponsoring companies
Advance registration required: Please sign up (via email) or fax to (FAX 03-3212-1530) for the attention of Ms. Futagawa (EIJS Tokyo Office.)
March is the month when new subscriptions peak in Japan. During March 2005 around one million new subscribers signed up for mobile services in Japan, the net gain (new subscriptions minus cancellations) was 930,500. New subscribers were shared as follows between carriers:
Vodafone announced a new method to calculate numbers. Without this new way of calculating, Vodafone’s loss would have been: -58,400
Net growth (loss) of subscribers per month for Japan’s mobile operators – Vodafone drops into the red, losing subscribers despite a new way of counting them
Net growth (loss) of mobile internet subscribers (i-Mode, EZweb and Vodafone Live!): since Vodafone renamed Jsky to Vodafone Live!, its rapidly losing market share
Vodafone recruits Shiro Tsuda, 津田志郎, the No. 1 founding employee of NTT’s mobile division
It appeared that Vodafone KK – with the help of a major headhunting firm – had staged a major success, when Vodafone KK headhunted Mr Shiro Tsuda as their Japan-CEO as of December 1, 2004. Mr Shiro Tsuda was the founding employee No. 1 of NTT’s mobile phone division, which later became NTT-docomo.
Shiro Tsuda quits a few months later
This temporary success turned into an embarrassment for Vodafone KK when a few months later, Mr Shiro Tsuda, resigned from his Vodafone KK-CEO position, became non-executive Chairman of Vodafone KK, and soon after left Vodafone altogether.
About one year after Vodafone-CEO Arun Sarun declared in February 2005 that Vodafone had the intention to remain in Japan for 10, 20, 30 years, on Friday March 17, 2006, Vodafone and Softbank announced that Vodafone sells Vodafone KK (the totality of all Vodafone operations in Japan) to Softbank, and terminated all operations in Japan.
Understand Softbank: our report: “SoftBank today and 300 year vision”
Softbank is rapidly becoming the third universal telco in Japan, targeting NTT’s most important income streams. KDDI of course is also targeting NTT’s fixed line income.
On November 2, 2004, NTT announced plans to compete: NTT will invest 5 Chou YEN (YEN 5000 Billion = US$ 45 Billion) over 6 years (2005-2010), i.e. about US$ 7.5 Billion/year. 60% of this investment will be for optical IP networks. NTT plans to build about 30 million FTTH lines.
Businessweek Editor David Rocks: “if you would meet Masayoshi Son, what would you ask him?
by Gerhard Fasol
Businessweek Editor David Rocks came three weeks to Japan to report on Japan’s telecommunications and technology sectors, arrived Friday and took me for dinner Friday night. A few days later David Rocks called me during my lunch break and asked me: “if you would meet Masayoshi Son, what would you ask him?” Turned out David was going to interview SoftBank Founder and CEO Masayoshi Son a about an hour later. I proposed three questions. Later David Rocks called me back, and told me Masayoshi Son’s answers, which are enclosed here as well.
My question: Are rumors true, that Masayoshi Son threatened to set himself on fire inside the Japanese Post- and Telecommunications Ministry, in case he is denied a telecommunications license he had applied for?
Masayoshi Son’s answer (as told to me by David Rocks): Yes, these rumors are true, however I did not take any fuel along with me inside the Ministry
My question: I wish Europe would have someone like Masayoshi Son to accelerate innovation in Europe’s telecommunications sector. Do you have plans to expand SoftBank to Europe?
Masayoshi Son’s answer (as told to me by David Rocks): No plans for Europe at this time.
My question: How can you finance your plans to grow your business? Who are your financial backers?
Masayoshi Son’s answer (as told to me by David Rocks): We have sufficient finance to grow SoftBank’s business.
The photograph of Masayoshi Son is used under Creative Commons license according to Wikipedia.
Copyright details are:
Description English: Masayoshi Son on July 11, 2008
Date 11 July 2008, 12:11:02
Source iPhone 3G Masayoshi Son Masaru Kamikura (http://www.flickr.com/photos/kamikura/2658524938/)
Author Masaru Kamikura (http://www.flickr.com/people/20119192@N00) from Japan
This file is licensed under the Creative Commons Attribution 2.0 Generic
(https://creativecommons.org/licenses/by/2.0/deed.en) license.
80% of KDDI/AU users are now converted to 3G, and KDDI/AU does not sell any 2G phones any more: only 3G and 3.5G (2.4Mbps data download).
Conversion to 3G in Japan: AU leads, DoCoMo and Vodafone follow. Vodafone’s 3G conversion has stalled because of lack or attractive handsets in Japan and too low investment in 3G base stations
Here is KDDI/AU‘s newest 3.5G phone – the W21SA, for 2.4Mbps data download:
FeliCa mobile payment wallet phones at the centre of attention
by Gerhard Fasol
Wireless, mobile phone industry trends years before they reach outside Japan
Every year the Wireless Japan sets global trends in wireless communications and mobile phones. Mobile phone industry professionals cannot afford to miss this trend setting show. It is here that Japanese carriers and handset makers introduce their latest products and show design studies and concept phones which set industry trends for the next months and years.
There were some surprises: In recent Wireless-Japan shows usually the KDDI/AU-design project prototypes were at the center of attention – this year I could not find any. For example, at Wireless-Japan-2002, KDDI/AU showed “Infobar” prototypes a full 16 months before market introduction. Did KDDI/AU decide to keep future design-project releases secret until they hit the market? Could well be so, given Japan’s increasingly ferocious mobile phone competition. Another surprise was Vodafone’s absence – Vodafone in recent years used to have the biggest show.
On the other hand this time most handset makers showed impressive concept phones, Matsushita/Panasonic under the heading “Beyond 3G”. The image shows NEC’s concept design study of a flexible multimedia phone: this phone has two screens which can be bent together, and used jointly as a larger screen.
Wireless Japan 2004 Highlights: “Beyond 3G”
Beyond 3G: SANYO 3.5G phone for 2.4Mbps data download (for KDDI/AU):
KDDI/AU 3G phone W21SASANYO show at Wireless Japan 2004
Wireless Japan 2004: NEC “tag” wrapping multimedia design concept phone:
Concept model phone by NEC at WirelessJapan-2004 exhibition
“Wireless Japan 2004” – much was expected: for example, it wasn’t surprising for anyone that DoCoMo’s i-Mode-FeliCa wallet-phones were center stage of the DoCoMo exhibit with lots of partners demoing wallet-phone applications.
NEC concept phoneNEC concept phone
Matsushita/Panasonic “Beyond 3G” design concepts:
Panasonic concept phone
DoCoMo UbiButton and UbiChip:
DoCoMo’s UbiButton and UbiChip
DoCoMo i-Mode-FeliCa wallet phones – for electronic cash:
the world’s first commercial wallet phone: P506iC – by DoCoMo and Panasonic
DoCoMo i-Mode-FeliCa wallet phones – as an electronic door key:
Mobile phone as a RFID key to lock and unlock doors
We have substantial documentation about the Wireless Japan 2004 exhibition, and most other year’s Wireless Japan exhibitions. If you need information or documentation for prior art or other investigations, please contact us.
Learn more: report on Japan’s telecom sector (269 pages, pdf file):
