The Leading Lights of Telecoms - Japan Telecom
Vodafone’s (www.vodafone.com) bid to become the largest global mobile operator took another concrete step when it upped its shareholding equity in Japan Telecom (www.japan-telecom.co.jp), which also owns Japan’s third biggest cellular operator J-Phone (www.j-phone.com/h). Chris Gent, CEO, Vodafone, shares some thoughts on this strategy.
What is your purpose or objective of your trip to Japan this time?
The most important part of this trip is to reconnect with our partners, who have been involved in developments of our increasing investment in Japan. It’s very important for us to meet with the Japan Telecom management, chairman Sakata and president Murakami. We are very pleased with the positive response they have given to this initiative (increasing investment in Japan). The other thing I wanted to do was to discuss with both of them plans for their future.
In the new year, Sakata, founder of Japan Telecom, will be stepping down as chairman. He will be succeeded by Murakami. I wanted to make sure they will be entirely happy with this development, and that they understood that this is constructive for the company.
Who are some of your technology/equipment suppliers?
For J-Phone, on the network side, suppliers are Ericsson, Nokia, and NEC. Handset vendors for J-Phone (not Vodafone) are NEC, Fujitsu, Kenwood, Sharp, Denso, Sanyo, Matsushita, and Nokia.
How do you evaluate Japan Telecom’s fixed-line service? How are you going to develop the business?
We only really got involved with the business as a participating shareholder a few months ago. As you are aware, the mid-term performance led to Japan Telecom giving out warning that their previous guidance on results, though not far off for the end of the year, [had] performance issues that needed improvement.
We are going through a fairly thorough review with Murakami and his colleagues about the initiatives that they wish to take to improve the overall performance of the business. Neither they nor we are satisfied with the current business performance, and the competitiveness of the services. They have under-achieved in Myline, the carrier pre-selection service, against their own targets, that is one area which clearly needs to be addressed. And there are other aspects of services which they would like to improve. I will be working with them to get that moving as fast as possible.
Some reports say that Vodafone plans to sell Japan Telecom’s fixed-line communications business for £3 billion (US$24.75 million) to another carrier. What is your current plan?
We have no plans to sell Japan Telecom’s fixed-line business for £3 billion or any other sum. What we are doing is discussing with Japan Telecom’s management on how we can improve performance with the business. That is our first and most important priority. The reports have no basis.
Has there been any progress in the plan to list J-Phone?
Both Japan Telecom and Vodafone would like to give liquidity to minority shareholders in J-Phone. But we have not yet decided how we can achieve that. Listing is one way, but there may be other ways of doing this.
We will be looking at that with our advisers and determine what we are going to do. But the priorities at the present moment are to complete the tender offer, get Japan Telecom’s business working more effectively, and continue the integration process of J-Phone. Those are the three major priorities.
In Japan, NTT DoCoMo has a dominant share in the mobile market. What strategies would you use to compete against NTT DoCoMo?
If you look at J-Phone’s performance over the last few months, they have been building a stronger marketshare position based upon superior product offerings. Not just in terms of handsets, but also with its Java platform, which is very attractive to both application developers and end-users. As the integration of J-Phone process moves ahead, we will start producing national rate plans and work continuously on improving [our] branding.
Already, we’ve begun some work on this, and we will get to work on the corporate sector. There is a lot of scope for Vodafone to add value to Japan Telecom and J-Phone in the corporate side of the business.
We are ambitious for J-Phone, and will put up very strong competition. NTT DoCoMo is a very capable company, so I’m sure it will respond to us with vigour, and all of this goes well for the Japan market. In the meantime, if we overtake Au, and become the second largest operator in Japan, that is also our plan.
What is your global strategy?
Our global strategy was based on investing to make decent returns for our shareholders. Therefore, we could be No. 1–3 in our given markets. We are strongly focused on Europe, the US, and Japan because those are three big markets.
We are actually in most of our targeted countries, and we don’t have any particular intention to move beyond the present territories. Being a global leader is one thing, but we are not looking to be globally dominant at all in every country. We don’t think that is appropriate or necessary to achieve global leadership for our customers.
There is global recession now and the mobile industry is saturated. What do you see for the future demand for mobile phone?
The Japan economy has, by most measures, been quite flat over the past nine years, yet, the telecoms business has developed and grown quite well. In particular, the mobile business is taking an increasing share of people’s expenditure. So we are optimistic that we can sustain good growth even through recession.
What we can say is that people do need to communicate. Therefore, particularly Vodafone which has 93 million customers around the world, we have a defensive quality in terms of revenues that we get.
In many respects, we are in a reasonably good position with good growth prospects, both in terms of new customer additions, and more importantly, in new services, new usages, and new applications going out over the next several years.
Frost & Sullivan’s take on: Japan Telecom
Japan Telecom is the third largest telecoms carrier in Japan. It was recently acquired by Vodafone Group, which now has a controlling stake of 66.7% in the company. Its core business is divided into voice transmission services which dominated 65% of the total year 2000 revenue, data transmission services at 7%, leased circuits services at 7.1% and supplementary services at 22%, respectively.
The company’s long-distance call subscribers for its 0088 service saw a 3% growth to 17.1 million representing 30.8% of NTT’s fixed-line subscribers. Japan Telecom has been able to maintain a steady pool of customers as it offers competitive call rates, wider array of services and reduced access charges through connections to group unit centres.
The company’s data subscribers increased 150%, attributed to Japan Telecom’s strategy of offering competitive rates. This strategy is mirrored in its Frame Relay and Cell Relay services.
As part of its strategy to extend its presence in this market, the company hopes to provide integrated solutions and strengthen its alliances with partners like Concert. However, a lot will depend on whether Vodafone, which focuses primarily on the cellular market, would like to retain the wireline business of Japan Telecom.
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