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KDDI has become the latest Japanese mobile carrier to announce an ambitious programme of hundreds of billions of yen in investment in state-of-the-art technology, as competition intensifies in the sector.
Japan’s mobile companies are under pressure to boost their capital spending because number portability comes into effect starting from October, allowing customers to switch provider without changing their phone number.
Some analysts predict this will make customers much more fickle – increasing the need to come up with technological innovations to tempt customers into staying or defecting from rivals.
Analysts are also expecting competition in the industry to toughen following the takeover of Vodafone Japan by Softbank, the internet services company, earlier this year. Softbank has a reputation for slashing prices to gain share in whichever market it enters.
KDDI, Japan’s second biggest mobile carrier, said it would invest Y200bn over the next three years on upgrading its wireless network. The enhanced mobile network, called Rev A, will allow customers to send photos and videos from their handsets to other people’s handsets or computers about 10 times faster than they can at the moment.
KDDI’s announcement followed Softbank’s revelation earlier this month that it planned to invest more than Y400bn in the year to March to double the number of base stations to 46,000.
Analysts say Softbank needs to increase the number of mobile base stations because its nationwide coverage is weak compared with KDDI and NTT DoCoMo, Japan’s biggest mobile carrier.
But analysts say Softbank needs to solve other problems too, if it is to reverse the decline in market share inherited from Vodafone Japan’s management. Vodafone’s handsets are seen as unappealing compared with its rivals.
Consumer surveys suggest KDDI is likely to win market share from its competitors when number portability comes. Consumers like the company’s music services in particular. Analysts have also praise the sound quality of conversations on KDDI mobiles.
KDDI’s Y200bn network upgrade will begin in December, two months after number portability begins, with consumers in urban areas benefiting first. Its total investment budget for the year to March is Y333bn, a 21 per cent increase on the 2005-06 budget.
Softbank said the expenditure on extra base stations was ”not all the capital spending” that Softbank planned, but ”this is the most expensive part”.
But analysts doubt Softbank’s ability to maintain profit increases, given its high spending plans.
NTT DoCoMo plans capital spending of Y905bn for the year to March, a more modest 2 per cent increase. In an interview with the FT earlier this year Masao Nakamura, chief executive of NTT DoComo, hinted at the dangers of reacting too aggressively to number portability by pointing out it ”is not a one-time phenomenon”.