Posted by: Kenji Hall on October 23, 2006
Masayoshi Son, Softbank’s feisty CEO, has declared war on the wireless Establishment. On Oct. 23, Son said Softbank, the smallest of Japan’s three wireless providers, would undercut the rates of his bigger rivals, NTT DoCoMo and KDDI’s au. The strategy is just in time for the Oct. 24 start of a new rule that will let Japan’s 93 million cell phone users to switch carriers and keep their phone numbers (“number portability”). In the past, anyone who changed carriers couldn’t keep an old phone number—and had to pay steep initiation fees to sign up anew.
Son’s helping to ensure that those consumer-gouging practices don’t continue. And he’s clearly determined to start a pricing battle in the country’s $80 billion wireless market. This should come as no surprise to anyone who has heard of Son. After buying Japan Telecom, the country’s No. 3 fixed-line provider, in 2004, Son used a combination of savvy marketing and aggressive pricing to speed the spread of high-speed broadband service to homes and businesses. It’s thanks to his pluck that telco rates for Japanese consumers—who have some of the world’s highest rates—have come down considerably in recent years.
As the underdog, Son has nothing to lose. Softbank bought his way into the biz in March, by acquiring British telco Vodafone’s wireless unit in Japan for a cool $15 billion. That gave him an instant 15 million subscribers, or 16% market share vs. DoCoMo’s 56% and KDDI’s 28%. But he hasn’t been sitting idle. In the past few months, he’s built momentum by diversifying Softbank’s offering of handsets, something Vodafone failed to do. And he’s spent generously on an ad campaign that was long on branding but short on specifics. Yet he never let on that he might be thinking about a splashy price-cutting campaign (even though that’s what the industry was expecting).
Well, he certainly didn’t disappoint.
Under Son's newly announced plan, Softbank would charge around $25 a month, letting subscribers make calls and send email to other Sofbank users for free almost any time of the day. The challenge for the company will be to show that it's resolving some of the patchy reception problems former Vodafone users experienced.
Consumers--I'm no exception--will certainly cheer Softbank's move. According to CLSA, the average cell phone bill for DoCoMo and KDDI users ranges between $65 and $70. Heavy data and phone users, like me, can expect to pay more than $100. Though the chief execs of both DoCoMo and KDDI later denied that they were mulling their own price cuts in response to Softbank's announcement, they better start thinking about it or they might face a mass exodus.
The ones who might lose out in the scramble are Softbank's investors. Softbank's average revenues per customers, at around $50 now, declined steadily under Vodafone. That's certain to continue as the new pricing campaign kicks in--worrisome if you consider that the adoption of number portability in Taiwan and Korea didn't bring the upheaval that many had hoped for.
What's more, the company has already committed to repay creditors the money it used to buy the wireless biz in seven years. Son has said he can do that by using cash generated from the wireless unit alone. And at his news conference in Tokyo, he repeated the assurances. "The new pricing was carefully calculated to avoid any problems repaying the loans and the interest," he told journalists. Left unsaid was that Softbank is betting it can lure a sizeable chunk of its rivals' subscribers. One investor I spoke with is skeptical Softbank can pull off what it promises. Don't forget that just a few weeks ago, some analysts accused Softbank of using aggressive accounting to boost its quarterly earnings. So even if Softbank manages to persuade consumers to back the upstart, it will still have to do a lot more to convince investors.