Japan finalises high-speed network migration - Operators on track to switch-off older PDC networks within two years

In second-quarter 2008 the number of mobile connections based on Personal Digital Cellular (PDC) - Japan's proprietary second-generation mobile technology - fell below 10% for the first time. PDC connections peaked at 61.9 million five years ago (Q2, 2003) but have now dropped below the 10 million mark. We predict that PDC will account for less than 1% of total country connections by the second-half of 2009.

Japanese mobile operators were amongst the first in the world to migrate to higher-speed networks at the turn of the millennium. Launched in 2001, NTT DoCoMo's 'FOMA' network is considered the world's first major WCDMA deployment. Both KDDI and Softbank launched high-speed networks in the following years based on CDMA and WCDMA technology, respectively. Since then all three operators have continued to be at the forefront of mobile network evolution. In 2006, for example, KDDI became the first operator outside of the US to launch CDMA2000 1xEV-DO Rev A.

Today the operators are well advanced in migrating the customer base to the next generation of high-speed networks and plans are underway to shut down the older networks. Indeed, KDDI - which began its move away from PDC in the late 1990s when it moved to cdmaOne - has already done so, finally switching off its 'TU-KA' PDC- based network in March this year. Softbank says it will discontinue its PDC service by the end of March 2010. By the end of the second-quarter, Softbank had 3.8 million PDC connections, representing almost 20% of its total - a higher proportion than either of its two rivals.

Meanwhile, market-leader NTT DoCoMo announced last month that it will stop accepting applications for its PDC- based 'mova' service on November 30 this year. The operator did not put a date on when it would eventually switch-off the network but our data suggests that it could be as early as 2010; by the end of the second-quarter, less than 10% of its total connections - 5.2 million - were on its PDC network, and connections on the older technology are currently declining at around 64% a year.

This means that within two years, we predict that Japan will be the first mobile market in the world to have fully migrated its connections base to high-speed networks.

However, while this would usually be expected to result in an increase in data revenue and, ultimately, ARPU and profitability, the fierce price war currently underway between Japan's three main operators means the opposite is happening. Third-placed Softbank managed to outperform its larger rivals for over two years in terms of monthly subscriber additions but its lower pricing plan strategy has come at the expense of profitability. Nevertheless, its strategy has been mimicked by rivals, most notably NTT DoCoMo, which has concentrated on reducing its handset subsidy cost burden with some success.

The battleground has now moved to mobile broadband. KDDI has over 70% of its connections on CDMA2000 1xEV- DO and has had success with its range of 'EZ' branded data services, which includes mobile Internet, e-mail and music. NTT DoCoMo and KDDI are also registering triple-digit growth in WCDMA-HSPA. NTT DoCoMo has also emerged as one of the strongest proponents of LTE (which it refers to as 'Super 3G') and is planning a commercial launch of the new technology by 2010, making it one of the first in the world to do so. This week, the operator announced it had selected NEC as a LTE core network supplier.

Matt Ablott, Analyst, GSMA Intelligence:

As fierce competition in the Japanese market continues to drive down pricing and affect profitability, it may be some time before the three mobile operators begin to see the benefits of full migration to the high-speed networks. Mobile penetration in Japan is only around 80% and Softbank’s disruptive strategy is clearly aimed at maximising customer acquisitions rather than developing high- speed services. NTT DoCoMo and KDDI have both been forced to react to Softbank’s success by copying many of its tariffs and initiatives, but the customer base of both the larger operators appears more developed with a higher proportion of contract customers, generally higher ARPU and a greater number of high-speed network connections. This could prove crucial once the older networks are phased out and the market begins to focus on data services and mobile broadband.