Softbank Corp.

Introduction
In 30 years of existence Softbank Corp. has emerged as the second largest telecommunication player in Japan with a market cap of $36 Billioni. The company offers various voice, data and internet connectivity services to the mobile device users of Japan. Additionally, it invests in telecom and internet infrastructure to support its services. It has historically invested in online e-commerce portals, bidding sites, online payment services and entertainment sites for increasing the touch-points with Japanese consumers. Softbank is doing well financially as the long term debts are fairly balanced by long-term fixed assets in the balance sheet. The cash position is fairly comfortable as they maintain an average $ 13.6 Billion in operating and excess cash.ii The companys P/E ratio is healthy at 8.9 for last 12 months and in the 5 years since the acquisition of Vodafone KK Softbank has almost doubled its size in terms of market cap. However, competition is not sitting pretty. NTT DOCOMO has always been at the leading edge of the technology innovation and adoption in the field of mobile communications and devices. The Japanese Telecommunications market leader has a market cap of $ 67 Billion and is almost twice as large as its next biggest competitor, Softbank. The other significant competitor, KDDI, has not been able to make much of a dent in the market share of either of the two leading players in Japan Telecommunications. Though it has a market cap of $ 26.7 Billion it has not been able to take away market share from the market leaders. The Japanese mobile consumers are advanced users of internet and data services. This makes it all the more challenging for all the players in this highly competitive and capital intensive industry.

Fig.1 Profitability, Revenue & Net Income of Softbank

Fig.2 Japanese Telecommunications Market Shareiii

Madhuranath R

Softbank and the road ahead

Softbanks LBO of Vodafone KK in 2006 was under immense scrutiny and a lot of analysts were apprehensive about the move with grave concerns regarding the successful outcome of the acquisition. However, history has yet again proved that the strategic decision of its CEO, Masayoshi Son, has paid off once again. Softbank has successfully cleared its LBO debts regularly and the recessionary times dont seem to have impacted its earnings ratios.iv

market like Japan, deriving new value from existing partnerships is probably the most profitable way of enhancing enterprise and shareholder value. In light of the market situation, the most important question for Softbank in coming decade is Is Softbank doing enough to maintain its market position and is there a possibility of beating the mammoth market leader, NTT DOCOMO?

5-Forces of Japanese Telecommunications

Consumers in the Japanese telecom market are fairly advanced and the entire market as such is fairly saturated currently. The bargaining power of the consumers is fairly high as they have multiple options to choose from in terms of service providers. Suppliers of equipment and content for the telecom players are mainly based out of Japan, USA or Europe. Most of the suppliers are focused on providing the cutting edge technology to the end consumers and the implementation of large scale network upgrades put the telecom service providers at the mercy of suppliers who can drive a hard bargain. However, the suppliers do not drive a hard bargain as Japan is an advanced market which also serves as a test market for the implementation of advanced services elsewhere in the world. This makes the supplier bargaining power medium in Japan. Threat of new entrants is practically nil in Japan as domestic companies do not enter the highly

Fig.3 Debt reduction in Softbank BSv

The successful acquisition of Softbank raises new possibilities for its future growth as well. When Vodafone KK struggled to capitalize on its superior technology and novel services, Softbank was capable of turning around the heavily debt-ridden company to a profitable player. This proves the turn-around capability of Softbank as well as its commitment to succeed in extracting the synergies from a merger and acquisition prospect. In a fairly stagnant and advanced

Madhuranath R

competitive market and foreign companies cannot enter the market independently. Rivalry among the top companies in the market is quite high as each of them tries to outdo the other in innovation and consumer experience. Internet impact is quite high on this industry. Alliances and partnerships is the name of the game. The service providers have to be internet enabled and since most of the consumers are focused on the online environment and social media, the internet adoption and enabling are critical success factors. Overall, the telecom industry is not appealing for new entrants, but the existing market players have a high possibility of retaining the market share.

Overall Low Cost Provider

Broad Differentiation

Best Cost Focused Low Cost Provider Focused Differentiation

Fig.4 Softbank Strategy Segment

The strategic options available for a company like Softbank in the Japanese market are - Innovation excellence - Technology excellence - Alliances and Partnerships - Eco-system 1. Innovation Excellence Softbank aims at anticipating advancements in the industry and trying to meet the consumer expectations by the time the advancements catch on with the market. This goal has been achieved consistently by Softbank over last two decades. The Japanese consumers have a higher propensity to consume data intensive internet services like anime, music, movies, shopping, etc.vi These can be leveraged to increase the per capita revenue over the next decade. Innovation in content and the content delivery mechanisms will provide an edge for Softbank over competition.

Softbank Strategy Analysis & Options

The Softbank strategy has been to provide a wide range of related services to its consumers. This enables the company to lock-in the consumers within the Softbank eco-system. A simple example of such lock-in can be providing a mobile phone buyer the handset packaged with internet data pack. The user can also be provided the online payment option for paying the mobile bills regularly. The mobile phone can be preloaded with custom apps for accessing social media and common internet services. Additionally, text advertising can push e-commerce services operated by Softbank.

Madhuranath R

2. Technology Excellence NTT DoCoMo seems to have the upper hand in this sphere. Probably this is also the unique factor which has helped it retain the market leadership. The increasing use of internet to make phone and video calls from laptops and mobile devices has reduced the per capita voice call consumption in Japan and advanced markets across the world. Naturally, new technology is the only reason any consumer will be willing to pay a premium for the services provided by a telecom provider. Technology excellence in the form of new device launches, new lifestyle enhancing applications, improved connectivity, etc. can provide Softbank the requisite edge to remain relevant in a razorthin margin industry. 3. Alliances and Partnership Softbank, like other industry players, has been actively forming new alliances and partnerships.vii Most of the alliances and partnerships are primarily aimed at providing allied services to the consumers of mobile and internet services. The recent tie-up with PayPal for providing trusted online payment gateway services enhances the usage for the e-commerce services of Softbank. Tie-ups with partners like Bhartiviii from other major telecom markets like India will provide access to cross-sell services of Softbank to markets which are outside the reach of the current Japanese telecommunications providers.

Tie-up with device manufacturers like Sony, Apple, Samsung, etc. to complete the loop for the modern digital consumer will increase the revenue streams for Softbank which operates in a lowmargin industry in a highly saturated market. Since most Japanese corporations encourage the increased working hours for its employees, accessibility of work resources over the internet will become a major issue. Like in the past, Softbank can tie up with major corporations to provide secure enterprise mobile telephony and internet services at reasonable costs. These can become a major revenue stream in the long run for Softbank where the revenues can be forecast at a steady cash flow rate. Though the margins are not high, the per capita volume of transactions is so high that profitability will come from numbers. 4. Eco-system The market of Softbank is not limited to mobile phone calls, texts and internet. It also operates a wholesome ecosystem which keeps the consumer engaged in its own revenue generating businesses. This ecosystem can be further enhanced by providing value added services, lifestyle services and next generation custom services which will entice the user to remain in the same provider space. The alliances and partnerships will further contribute to this kind of an ecosystem enhancement.

Madhuranath R

Softbank strategy for the next decade

From the several strategic options available for Softbank the following can be considered the most important ones for long term sustainability. Innovation Excellence is a constant process for companies operating in tight market conditions. Only by creating innovative products and services or even innovative consumer experiences can the players hope to keep the loyalty of the consumers. Consequently, investment in the innovation is a key factor for Softbank. Companies like Apple invest around 7% of their revenues in innovation and research. Though Softbank need not need invest that much in its own company, it can create partnerships that ties-in innovative companies to provide exclusive access to their next generation products. The cost of acquiring such partnership contracts will be significantly lesser than investing in proprietary research and development. Technology Excellence is the only aspect of any product or service that will convince the consumer to pay a premium price for the offerings. In the modern digital savvy world of consumers, technology innovations have a lifecycle of less than 6months to 1-year. As such, it is more critical for Softbank to invest heavily in the infrastructure and equipment of the next generation technology while remaining at the leading edge of the technology innovation curve on a consistent basis.

Alliances and partnerships in this regard are critical for sourcing high quality products at reasonable prices. Access to newer markets outside Japan is possible through such alliances and partnerships. DoCoMo entered the Indian market in partnership with Tata Telecommunication Services which aims to provide the lowest cost telephony with best services. By capturing the consumers in low margin telephony market, the joint venture was able to move them into the high margin internet and broadband services market. This up-selling of services can lower the customer acquisition cost and also ensure the customer retention in the long run. Thus, we can see that alliances play a major role in not only achieving technology excellence and innovation excellence, but it is also very critical for reaching new markets and new market segments in existing markets. Thus, the final recommendation for Softbank is leveraging Alliances and Partnerships.

Madhuranath R

REFERENCES
i

http://www.bloomberg.com/quote/9984:JP http://www.bloomberg.com/quote/9984:JP/key-statistics

ii

iii

http://www.geek.com/articles/mobile/should-we-agreewith-sprints-ceo-that-att-will-be-too-big-20110325/
iv

http://www.bloomberg.com/quote/9984:JP/keystatistics
v

http://www.bloomberg.com/quote/9437:JP

vi

http://www.mbaskool.com/brandguide/telecom-serviceproviders/2122-softbank-mobile.html
vii

http://www.softbank.co.jp/en/news/press/2012/2012050 9_01/
viii

http://bsb.in/news/announcing_hoppr/

Madhuranath R