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9 August 2021

Despite network innovation, Japanese MNOs are hit by old-school price wars

By Wireless Watch Staff

An innovative architecture may help a new operator to make headway in a mature mobile market, but it does not guarantee commercial success.

In its first quarter, Rakuten recorded a $230m loss on its mobile organization, even though the whole group reported sales of $3.5bn. The company admitted it had had to increase its RAN budget by $2bn after underestimating how many 4G base stations it needed for full coverage of Japan. That error will increase overall capex on the 4G/5G end-to-end network to about $9bn and has already forced Rakuten to raise new funds through a share offering.

More concerningly, it has only attracted about 4m mobile customers as of the end of June, in a population of 126m, and despite offering very low cost, or even free, introductory tariffs. Financial analysts at New Street Research estimate the MNO needs 20m subscribers to break even.

However, the established Japanese MNOs – NTT Docomo, KDDI and Softbank – are feeling the pressure from a new competitor, even one that is making far slower commercial than technical progress. For its first fiscal quarter, Softbank reported flat earnings as it struggles with price wars, largely sparked off by Rakuten’s entry and its aggressive tariff cutting.

Softbank’s CEO Junichi Miyakawa said the company took a ¥10bn ($91.8m) hit on its revenues in the quarter because of enforced price cutting and warned this would reach ¥70bn for the full year. The MNO announced net income of ¥151bn ($1.39bn), slightly down from ¥152.1bn a year ago.

It did increase revenue by 16% year-on-year to ¥1.36 trillion as a result of consolidation with messaging provider Line and boosted by a recovery in handset sales. But the price wars kept mobile service revenue flat at ¥408bn.

Miyakawa predicted that the price competition would have an even bigger impact in the remaining three quarters, and that it was driving churn rates up too. However, he said Softbank had addressed that issue with the launch of a new value brand called LineMo, with a very low tariff of ¥900 ($8.30).

Total smartphone subs increased 7% sequentially to 26.2m, but with ARPU also depressed by the price wars – that figure was ¥100 in the quarter. Miyakawa said LineMo had been a bigger success with consumers than expected, but as still regarded internally as a “drastic step” to regain momentum from Rakuten.

Among Softbank’s other segments, the enterprise solutions group had “over-achieved” again, with operating income up 23% year-on-year and more than 70% of revenue from recurring cloud, security and other services.

Miyakawa acknowledged 5G take-up was being held back by the limited roll-out so far, with just 13,000 base stations deployed (less than 10% of the operator’s 4G footprint). SoftBank aims to reach 50,000 by next spring to cover 90% of the population, which will then drive 5G adoption, traffic and overall ARPU, although he is concerned about potential shortages of the flagship iPhones because of global semiconductor supply challenges.