Abstract

Rapidly Changing Market and Intense Competition

In the 2G era, the decision to adopt PDC technology, combined with Japanese mobile operators' dominance and engagement in data services, and the large size of the Japanese domestic market, gave Japan a mature but closed mobile communications market. Today, Japan's three leading mobile operators are faced with three main threats: Falling ARPU in a saturated market, the threat from new entrants, and the impact of MNP. At the same time, however, the development of new technologies and new applications has created three important new opportunities for Japanese operators: the mobile transactions market that is growing out of the introduction of e-wallet enabled mobile phones, mobile TV business opportunities deriving from digital terrestrial broadcasting, and the FMC sector created from the integration of fixed line and mobile services.

Business Model Differentiation

NTT DoCoMo, KDDI, and Vodafone / SoftBank all have their own competitiveness. As might be expected, faced with the rapid transformation in Japan's mobile communications market, the three operators have all adopted different strategies and business models.

Having been spun off from what was originally a state-owned incumbent with a monopoly on telecommunications service provision in Japan, NTT DoCoMo possesses a large subscriber base, with market share in excess of 50%. However, NTT DoCoMo has found it difficult to grow its subscriber base any further, and has had to face increasingly intense competition from rival operators. NTT DoCoMo's operational strategy has focused on maintaining the company's current market share, while at the same time working to develop new markets. Factors that have helped NTT DoCoMo to maintain market share include strong relationships with IC suppliers, and access to both application platform technology and innovative, cutting-edge technologies such as WiMAX. NTT DoCoMo has also been working to flesh out its product line, and has begun to introduce mobile phones manufactured by overseas vendors in an effort to reduce mobile phone production costs. Membership systems have been introduced for both individual subscribes and families, with the aim of strengthening subscriber loyalty. At the same time, NTT DoCoMo has been diversifying its operations and undertaking cross-industry investments to achieve horizontal integration, thereby developing new business opportunities. The DCMX mobile credit card brand integrates mobile communications with financial services and distribution, while mobile TV service integrates mobile communications with the media and advertising. These initiatives, along with NTT DoCoMo's investment in overseas mobile operators, have caused its competitors to incur increased costs as they try to match NTT DoCoMo's moves.

KDDI's business strategy emphasizes product differentiation and charge rate tariffs that give subscribers an attractive balance between quality and price. With this strategy, KDDI expects to push its market share up to over 30%, while at the same time maintain its profitability. As regards product differentiation, KDDI remains strong in entertainment content, with its LISMO and EZ-Book services. The high-fashion mobile phones developed under KDDI's unique au design project have also contributed to subscriber growth. In addition, KDDI has made effective use of the advantages conferred by its possession of both mobile and fixed line communications networks by upgrading its networks to IP architecture and achieving full integration of access technologies. KDDI has also introduced FMC solutions for both corporate customers and the consumer market.

Given Vodafone Japan's recent operational performance, the main priority for SoftBank after acquiring the company will be to grow its market share, while improving earnings for the SoftBank Group as a whole. To achieve these goals, SoftBank will have to leverage its Yahoo!'s strengths in product diversification and content management, while adopting cross-selling between Yahoo! members and Vodafone Japan subscribers, and by introducing new, full-browser mobile phones. The migration of SoftBank Group resources onto this online platform will also help Softbank to achieve its business goals. At the same time, recognizing that the consumer segment of the Japanese mobile communications market is becoming saturated, SoftBank is looking to develop new business opportunities in the corporate market and in overseas markets. Acquisition of Vodafone Japan will enable SoftBank to benefit from the company's extensive experience in providing solutions for corporate customers and in international operations. By integrating the resources of Japan Telecom and the other members of the SoftBank Group, SoftBank will be able to provide FMC solutions and develop new market opportunities.

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