Monday, January 16, 2006

Informa Telecoms and Media:New 3G licensees offer Vodafone an alternative to bailing out of Japan

Mark Newman at Informa Telecoms and Media analyzes the prospects of Vodafone's struggling Japan unit. As Newman notes, "despite the company's recent, partly successful, attempts to regain its strategic direction and implement a handset strategy that suits the local market rather than Vodafone's global approach, the widely held view is that its efforts are too little, too late."

Newman writes that "Vodafone is not the only Japanese operator with reason to feel more than a little nervous about its prospects." He cites Japan's Ministry of Communications awarding of three new 3G licenses as a possible cause of concern. Two of the successful bidders were from the eMobile consortium, led by Japanese ISP eAccess, and BB Mobile. The latter's largest shareholder is Softbank, which controls Japan Telecom.

Newman thinks "the Japanese market could support four mobile operators" and as he points out, "it is one of the very few large developed markets - the others are France, Spain and South Korea - with only three operators." However he doesn't think the market can support five operators - "two of which need to build their infrastructures from scratch."

While rumors are rampant that Vodafone might be perfect as an acquisition for one of the new licensees, Newman opines that

Rather than merging, one or both of the two new operators could set up an infrastructure-sharing deal with Vodafone or KDDI/au. Such a deal could see the new operators installing their own networks in the greater Tokyo region but piggybacking on Vodafone's network elsewhere. They would effectively become MVNOs on the Vodafone network.
Newman thinks "Vodafone's strategy is likely to have profound implications for all Japanese operators." He said that:
Japan has always been a high-cost, high-ARPU mobile market. Mobile users have developed a taste for high-spec feature phones, which operators are prepared to heavily subsidize as long as their customers are generating ARPU levels of ¥7,000 (US$59). More than a quarter of ARPU is derived from nonvoice services that require advanced phone features.

The best opportunity for new players almost certainly lies at the lower end of the market. By the time eMobile and BB Mobile launch their services, WCDMA will be a mature global technology. DoCoMo, Vodafone and au have had to rely on Japanese handset manufacturers until now because Japan has adopted different network technologies from the rest of the world. But now that DoCoMo and Vodafone operate WCDMA networks, global handset vendors such as Nokia, Sony Ericsson and Motorola are stepping up their activities in Japan.
Newman concludes that "If Vodafone can turn its Japanese operation around and develop an effective wholesale and MVNO strategy, it could prove an effective model to replicate in other mature markets."