By Thursday’s market close, NTT DoCoMo’s shares were down a record 14.7 per cent, the sector was in chaos and Japan’s largest mobile carrier looked like the body found with a lighter in the ruins of a firework factory.
On the previous evening, the company stunned all-comers by saying it might slash its fees by as much as 40 per cent next year, conjuring a price war from nowhere and, judged investors, forcing DoCoMo’s two domestic rivals to ready similar cuts — an outcome expressly denied by KDDI and played down by SoftBank, which is planning to spin off its mobile business in a mega-IPO slated for December.
Despite that, the DoCoMo blast scorched KDDI and SoftBank shares, leaving respective scars of 16.2 per cent and 8.16 per cent and a combined $31bn crater in the three companies’ market value. DoCoMo is publicly listed and, fumed one sellside analyst on Wednesday, it has full freedom to set its pricing according to fair competition rules. None of the three main players were remotely spoiling for a price fight, so what is on DoCoMo’s mind?
One answer may be that it had the choice made for it or was pre-emptively cutting prices to head off sterner regulation that would leave it with even less control. In August, Yoshihide Suga, Japan’s chief cabinet secretary, managed to knock a combined $14bn off the mobile carriers’ shares by making a calculatedly populist call for a reduction in Japan’s very high mobile charges. He even voiced the 40 per cent figure.
But while DoCoMo may be majority owned by NTT, whose biggest shareholder is in turn the Japanese government, that does not oblige it to heed Mr Suga’s calls. Japanese companies acceding to politicians’ wishes when they don’t have to stinks of market norms that many had hoped were in the past.
A second explanation — the one given by NTT — is that it was “listening to customers” and pre-empting (read: “salting the earth for”) Rakuten’s entry to the market a full year from now. The “listening to customers” part rings hollow — they have been griping for years to no effect, so why has it suddenly worked now? The Rakuten part is more solid — DoCoMo could really do without a fourth, low-cost big competitor to spoil its easy ride — but in that case why not wait until Rakuten has laid out its offering and the price war is declared?
The third possibility is that this was indeed about stirring things up ahead of the IPO of SoftBank mobile — already a litmus test on many aspects of the Japanese market, but also pushing ahead in the face of global market turmoil and IPO cancellations.
Whatever the explanation for the price cut pledge, DoCoMo deserved its punishment on Thursday and its surviving shareholders deserve their apoplexy. The company cannot possibly act surprised at the market reaction, and the vagueness of the plan for the cuts themselves makes the announcement seem all the more hasty and irresponsible.
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