Softbank's disruptive pricing transforms Japan's mobile market - Aggressive pricing stealing thunder from DoCoMo, KDDI

When Softbank Group acquired Vodafone's Japanese business in 2006 ('Vodafone KK'), the operator was languishing a distant third behind KDDI and market-leader NTT DoCoMo. Rebranded as 'Softbank Mobile' in October 2006, the company has since introduced a series of radical and aggressively-priced subscriber tariffs that have enabled it to steal significant market share from its two larger competitors. NTT DoCoMo has been the hardest hit and is likely to see its market-share of connections soon dip below 50% for the first time in a decade.

As further proof of Softbank's rising profile, the operator also scored a major coup last month by securing the rights to become the first distributor of Apple's iPhone in Japan, reportedly at the expense of NTT DoCoMo. Softbank announced this week it will launch the new 3G iPhone in Japan on July 11.

GSMA Intelligence sees Softbank commanding an 18% market share at the end of first-quarter 2008 with around 18.6 million connections. However, its progress over the last 18 months is best demonstrated by its leadership in Japanese net additions. According to the company's fiscal 2007 financial results (year-ending March 31 2008), Softbank almost quadrupled its number of net additions year-on-year, rising from 700,000 in fiscal 2006 to 2.7 million in fiscal 2007. Over the same period, NTT DoCoMo saw net additions drop from 1.5 million to 780,000, while KDDI dropped from 2.8 million to 2.2 million. GSMA Intelligence found that Softbank has captured at least 40% of net additions in the last four quarters (Q2:07 to Q1:08) and is currently growing at more than double the rate of its competitors in terms of connections (with the exception of eMobile, the WCDMA-HSPA mobile broadband specialist launched in May 2007).

It is unusual for a third-placed operator to transform a mature market so significantly in such a short space of time. Softbank's success in growing its customer base is linked to its introduction, in January 2007, of a new tariff called 'White Plan.' The tariff offers free domestic calling between Softbank customers at peak times for a set fee; similar White Plan tariffs were subsequently launched for families, students and businesses, which offered further discounts for on-net calling among groups of Softbank subscribers. As of March 20 2008, Softbank said it had around 12 million customers on White Plan tariffs - about two-thirds of its total customer base. The company has also expanded the pricing concept into its other business lines, including coporate fixed-line and converged services ('White Line 24') and consumer fixed-line, broadband and VoIP ('White Call 24').

A downside of Softbank's aggressive pricing has been the gradual decline of its ARPU over the last two years. ARPU dropped from ¥5,590 (US$53.08) in second-quarter 2006 to ¥4,310 (US$40.83) in first-quarter 2008 as it grew its number of customers on discounted tariffs. However, this decline is entirely attributed to voice revenue; Softbank's data ARPU steadily increased from ¥1,350 (US$12.82) to ¥1,600 (US$15.19) over the same period.

Softbank has also had success in migrating its customers over to WCDMA and WCDMA-HSPA networks. As of first- quarter 2008, the operator had around 14 million high-speed connections, accounting for around 75% of total connections. In the year earlier period (Q1:07), it had 8 million high-speed connections, just over 50% of the total.

Joss Gillet, Senior Analyst, GSMA Intelligence:

Two years ago, Vodafone KK posted a 69.4% fall in consolidated net profit in its fiscal-year 2005 as a result of falling revenues and increased sales costs. Following the acquisition by Softbank Mobile, the company has managed to turn the operator around and is today, for the 13th month in a row, stealing the thunder from NTT DoCoMo and KDDI. Softbank Mobile has simplified its offers, capitalised on its rich services portfolio, and expanded its handset portfolio. Its performance has also been helped by the introduction of number portability in late 2006.” “NTT DoCoMo and KDDI have been forced to react to the price war triggered by Softbank. Both are focusing on fighting churn by improving customer loyalty programmes and increasing their customer base through new offers such as packet flat rate services and fixed-mobile convergence. Both operators have also recently expanded their handset portfolio. KDDI, which closed its Tu-KA services in March, is focusing on migrating its customer base to 'au' services. 65% of its 'au' users are on CDMA2000 1X EV-DO by end of March 2008, of which 74% have signed- up to a packet flat rate plan. KDDI is also strongly focusing on the Enterprise market to increase revenues. NTT DoCoMo is focusing on building brand loyalty and launching new discount services.