IPhone continues to rock Japanese cellphone market

by Kazuaki Nagata

Staff Writer

Since arriving in Japan in 2008, Apple Inc.’s iPhone series has won the love of many Japanese cellphone users long accustomed to phones heavily customized for the domestic market.

The iPhone shock could have even more repercussions, as the September debut of the iPhone 5 appears to be changing the landscape of Japan’s telecommunications industry.

Softbank Corp. made a surprising move last week to acquire eAccess Ltd., the country’s fourth-largest carrier and operator of the Emobile brand, to reinforce its network infrastructure and gain a competitive edge over its rivals, especially KDDI Corp. The competition between Softbank and KDDI — the two iPhone providers in Japan — has been escalating.

Meanwhile, NTT DoCoMo Inc., Japan’s biggest carrier, has been trying to differentiate itself from the others but is struggling to keep customers from defecting to the iPhone camp. DoCoMo insists it will stick with its non-iPhone strategy and provide its own original services.

“If you ask me whether the iPhone 5′s influence over this business merger (with eAccess) is big, yes,” Softbank CEO Masayoshi Son stressed at a hastily called news conference Oct. 1 where he announced the acquisition of eAccess.

Softbank, the third-largest carrier, has valued eAccess shares at ¥52,000, almost three times the premium, and will pay about ¥180 billion.

With the move, Softbank will acquire 4.2 million Emobile subscribers. When combining the subscribers of PHS operator Willcom, also part of the Softbank group, the number of Softbank subscribers will total 39 million and surpass KDDI’s roughly 36 million.

Getting a boost from iPhone sales, Softbank has posted record operating profits for seven consecutive years.

It posted ¥675 billion in operating profit for its latest business year, more than 10 times the fiscal 2005 figure.

To understand the iPhone’s influence on Softbank’s move to acquire eAccess, LTE networks and tethering are two key concepts.

LTE, which stands for Long Term Evolution, is a new network system that can transfer data several times faster than the current mainstream 3G network.

Tethering is a function that enables a phone to work as a wireless Internet modem through which other devices can connect to the Internet.

The iPhone 5 can connect to an LTE and is capable of tethering.

Softbank and KDDI launched LTE network services with their 2.1 GHz band when the iPhone 5 debuted on Sept. 21.

Meanwhile, Emobile is already running an LTE on the 1.7 GHz band, meaning Softbank can use this network to reinforce its LTE coverage and capacity, which Son called a “double engine” LTE service.

Critics and users often complain that Softbank’s network is weak, so the eAccess network will be a huge asset, especially in the iPhone competition with KDDI.

In the period before the iPhone 5 debuted here, KDDI appeared to have the advantage in the iPhone realm because it was quick to announce that its users would have tethering from the first day the iPhone 5 hit stores. Softbank was hesitant to embrace tethering because it means a drastic increase in data traffic.

“If we provide a tethering service without enough network capacity, the network would collapse, which would give great inconvenience to our users,” said Son, who later followed KDDI and announced Sept. 19 that Softbank will start a tethering service in January.

Adding the eAccess networks means “we can provide a tethering service with confidence,” Son said Oct. 1, adding that the firm decided to move up the launch for tethering to December.

In addition to the 1.7 GHz LTE network, eAccess has a 700 MHz band that can be used after 2015.

Experts said that even though Softbank is paying a high price for eAccess, it’s a good deal considering it’s getting two networks.

“The 1.7 GHz band will improve iPhone coverage and will help Softbank keep its users in the short term,” said a telecom analyst who wanted to remain anonymous on this topic.

For the long term, data traffic for mobile devices will only increase, so the 700 MHz network band will become an even more important asset for Softbank, he said.

The communications ministry assigns precious network bands to carriers, so the companies can’t get as many as they want no matter how desperately they want them.

The telecom analyst added that eAccess hasn’t been doing well, so its market value isn’t all that great. This meant it wasn’t an attractive target, except for a buyer like Softbank, which had good reasons to acquire it.

“If you think of it as Softbank purchasing bands, it is not an expensive acquisition,” he said.

While the competition between Softbank and KDDI has attracted public attention, DoCoMo has lately been left out of the spotlight, except for media headlines about its struggles.

Before it started selling iPhones, KDDI was the carrier lagging behind the others in the smartphone competition. But since it started selling iPhones last October, it has been No. 1 in terms of getting users of other carriers to defect.

The statistics indicate DoCoMo is losing customers to the others.

In terms of business results, the iPhone impact has not been large. DoCoMo has been turning a bigger profit than Softbank. But DoCoMo officials said if the situation continues, earnings will be affected.

Seeing thousands of people lining up for an iPhone, “we are really jealous as we don’t get to see such scenes even though we have provided a variety of devices lately,” said Michio Fujiwara, director of DoCoMo’s corporate strategy and planning department.

Still, it is unlikely the iPhone will join DoCoMo’s lineup anytime soon.

This is because the iPhone would interfere with DoCoMo’s long-term business strategy, which focuses on strengthening more original Internet-based services within its network, one that can be used by any of DoCoMo’s smartphones. Apple’s strict control over the iPhone wouldn’t fit DoCoMo’s strategy.

Plus, some services overlap. For instance, while DoCoMo runs its own voice concierge service, Apple provides a voice assistant service called Siri.

Also, if it decided to sell iPhones, Apple would likely require that they account for more than half of DoCoMo’s total smartphones sold, according to former DoCoMo President Ryuji Yamada.

Thus, if DoCoMo decides to provide iPhones, “we might become just a network infrastructure provider,” which means the carrier wouldn’t be able to gain significant profits from its software content, DoCoMo strategist Fujiwara said.

DoCoMo has focused on providing smartphones that run on Google’s Android operating system, which can be customized freely by handset makers and carriers.

When thinking about gaining customers, iPhones may be an option, but “to realize our long-term vision, Android has more potential,” Fujiwara said.