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Tuesday, March 21, 2006
Softbank may prove worthy rival
Innovation likely key to catching up with cell phone big boys
Softbank Corp.'s announcement last Friday it was buying Vodafone K.K., a Japanese unit of Vodafone Group PLC, may give the Internet company a competitive edge in the mobile phone industry.
Now analysts are closely watching whether Softbank can become successful enough to be a threat to Japan's two giants in the cell phone industry -- NTT DoCoMo Inc. and KDDI Corp., operator of the au service.
Yuichi Iwata, researcher at InfoCom Research Inc., a think tank specializing in the information and telecommunications industries, said Softbank needs to launch a new and unique service to become a strong competitor of the two existing firms.
"(Softbank President Masayoshi) Son did not clarify his vision in the news conference last week," Iwata said. "The key will be when and how Softbank will make that announcement. The earlier the better."
Currently, NTT DoCoMo has about 50 million users, while 25 million people are using KDDI's au service. With last week's agreement, Softbank will acquire Vodafone's 15 million users nationwide.
In terms of revenues for the business year that ended last March, NTT DoCoMo raked in 4.84 trillion yen while KDDI made 2.31 trillion yen from its mobile phone business. Vodafone posted 1.4 trillion yen in revenue.
DoCoMo's selling point is its strong mobile phone network throughout Japan with less reception black spots, while KDDI has successfully introduced new services for its au phones to attract more customers.
For example, KDDI's new LISMO service, which allows users to listen to music downloaded to their computer and then transferred to their au handsets, is proving popular.
It also launched a service that will provide users with directions to locations using the GPS satellite system.
Vodafone meanwhile attracted users with its low phone charges.
But Shinji Moriyuki, senior analyst at Daiwa Institute of Research, said Softbank is unlikely to rely on Vodafone's low-charge strategy.
If Softbank lowers the current rate, it will trigger intense price competition in the industry and Softbank will swiftly find itself in the red, he said.
"If Softbank had to start from scratch (without Vodafone's existing network), its one possible strategy could be to provide lower prices with limited services," such as providing services to users only in urban areas, since it would take time to build a nationwide network, said Moriyuki.
But now such a strategy appears unlikely, he said, adding that in the long term, such severe competition would hurt the finances of all three companies, depriving them of the ability to invest in new technology.
Industry watchers agree that winners in the industry will be determined by to what degree mobile phone operators are able to offer new services, ideas and new lifestyles via mobile phones.
Yutaka Shimbo, principal consultant at Japan Research Institute, said Softbank's tieup with Yahoo! Japan to provide content for data communications services will likely be the strong point of the company.
"NTT DoCoMo is focusing on state-of-the-art technology, investing in third-generation and fourth-generation mobile phone services" that will allow users to send and receive large chunks of data, including motion pictures, at a faster speed, Shimbo said. "But that may not be the trend in the future."
Shimbo said more and more Japanese users consider mobile phones to be something that reflects their lifestyle.
If Softbank can attract customers with unique services using Yahoo! Japan content, it would be an advantage for Softbank.
He added that Softbank has the potential to become a force to be reckoned with for the two cell phone giants.