Abstract

FMC Efforts Continuing to Focus on Corporate Customers

In the Western European market, German telecom Viag Interkom (since renamed O2 Germany) had launched an FMC service for residential subscribers entitled Genion as long ago as 1999, which encouraged leading operators such as Vodafone, T-Mobile, and Orange to follow suit. By comparison with the European operators, Japanese mobile operators' FMC offerings still lag a considerable distance behind.

This situation is attributable less to any technological or other deficiencies than to the lack of intense competition in the Japanese mobile communications market, in which NTT DoCoMo, KDDI and SoftBank have all enjoyed stable market share for some time. The three leading operators have been reluctant to promote FMC services or fixed-rate charge plans out of concerns that this might erode their revenue and profits.

The big three have therefore been very cautious in introducing FMC, and have tended to confine their FMC initiatives to the corporate market, which is less saturated than the consumer market. To some extent, the promotion of FMC by the mobile operators is a defensive reaction to the fixed-line operators' aggressive development of FMC services.

The companies that have been most aggressive in pushing FMC have in fact been the cable TV providers -the players in the most fiercely competitive segment of the Japanese communications market. Cable TV provider JCOM introduced triple play service -combining digital TV, fixed-line telephony, and Internet access -in 2003. In April 2006, JCOM joined forces with PHS operator Willcom to establish mobile operator JCOM Mobile, establishing JCOM as an MSO (Multiple System Operator) with a fully-fledged quadruple play service offering.

It can be anticipated that, as the trend towards FMC continues, the relatively stable competitive balance that has existed in the Japanese mobile communication up to now may be disrupted. Currently, both SoftBank and new entrant eMobile are in a relatively weak position in both the fixed-line and mobile communications markets; for both of these companies, it makes sense to develop innovative FMC solutions for residential users that will help them to grow market share. The development of new FMC services by these companies will be a major focus of attention in the Japanese communications market over the next few years.

Cross-Industry Integration

Besides FMC, another major issue affecting the development of the Japanese communications industry is the blurring of the boundaries between communications and broadcasting. The trends are attributed to several factors, such as the digitalization of broadcasting content, the adoption of broadband Internet access and fiber-optic network technology in the communications industry, and the continuing increase in Internet usage. Companies in the communications and broadcasting industries are starting to tear down the barriers that have separated the two industries in the past as they explore new models for providing consumers with the content services that they need.

The trend towards convergence not only between mobile and fixed-line telephony but also between communications and broadcasting will create both opportunities and challenges for mobile network operators, ISPs (Internet Service Provider), television and radio broadcasting companies, content providers, and advertising agencies. Japan's communications operators are already starting to provide new services such as VOD (Video On Demand), either independently or through cross-industry alliances.

Besides JCOM, which offers VOD as part of its quadruple play package, mobile operators KDDI and SoftBank and ISPs K-Cat, STNet, and K-Opti Com have also rolled out VOD services.

KDDI has made FMBC (Fixed, Mobile and Broadcasting Convergence) the core element in its business strategy. KDDI's plan is to use its Mobile-Centrex technology to provide customized services for au mobile phone subscribers, enabling consumers to access a wide range of multimedia content and services through their mobile phone handsets.

Overall, it seems certain that convergence between mobile communications, fixed-line telephony, and broadcasting will be a major focus of competition over the next few years.

FMC Driving M&A in the Japanese Communications Industry

Given the trend towards convergence between fixed-line, mobile communications, and broadcasting, the boundaries between fixed-line operators, mobile operators, and broadcasters are starting to blur. Mobile operators see FMC as their springboard into the fixed-line market; at the same time, it offers the fixed-line operators -which have been losing ground steadily to the mobile operators -a new lease of life. In the end, the winners will be those companies that are able to achieve competitive advantage in technology integration and develop innovative combinations of transmission and networking technology.

In a market environment where penetration rates are already very high and price competition is intense, fixed-line and mobile operators that want to increase their ARPU will need to develop new service offerings -such as Triple Play or Quadruple Play services. Such services will leverage new transmission technology to give consumers a brand-new user experience. 

To achieve convergence, operators can develop new services themselves, form cross-industry alliances, or acquire technology and capabilities through acquisitions. The barriers between different industries have already started to break down, with KDDI and SoftBank acquiring fixed-line operators PoweredCom and Japan Telecom respectively, leading online retailer Rakuten's purchasing a stake in broadcaster TBS, and NTT DoCoMo and KDDI forming alliances with advertising agencies. Gradually, a new competitive environment is starting to take shape.

Appendix

Research Scope

This study focuses on the FMS strategies and related initiatives of the three leading Japanese mobile communications operators: NTT DoCoMo, KDDI, and SoftBank. For the purposes of this report, communications operators are classified into mobile operators, fixed-line operators, and cable TV operators.

List of Companies