Mobile group ready to call it a day in Japan

It will not surprise anyone who has watched Vodafone’s trials in Japan that it might sell to Softbank, the domestic technology group, and end business in the country.

But other operators in the fiercely competitive mobile phone market will be nervously awaiting the outcome of talks between the groups. Ever since Masayoshi Son, Softbank chief executive, trumpeted his intention to break into the mobile market, the maverick entrepreneur has generated unease.

Vodafone stunned the Japanese public five years ago when it bought a controlling stake in what was then Japan Telecom. The deal was greeted with scepticism about its ability to succeed in Japan’s demanding mobile phone market.

Among the errors the group itself eventually came to acknowledge was its failure to understand Japanese consumer preferences.

In the early years of its Japanese foray, Vodafone tried to fit the market into a global strategy, disregarding the fact that Japanese mobile consumers demand high quality and many advanced features, even if they do not fully exploit them. A global handset, which Vodafone launched in Japan with much fanfare, was a flop.

Meanwhile, Vodafone’s global strategy also delayed its roll-out of third-generation services in Japan, weakening it in a market where being at the forefront of technology trends was crucial.

Vodafone’s failure to build up its 3G network in Japan led many customers to switch to rivals. Between January 2005 and May 2005, the company lost more subscribers in Japan than it gained.

The UK-led strategy also alienated local staff and resulted in management turmoil.

Vodafone fired Darryl Green – the first chief executive of its Japanese mobile subsidiary and the first foreigner to head a Japanese telecoms group – after only three years.

The group then hired as president Shiro Tsuda, a veteran from rival NTT DoCoMo who had decades of experience in the Japanese market. But it replaced him after just four months with Bill Morrow, who was called back to Japan from the UK to rescue the business.

Unhappiness among mid-level management also led to the defection of a highly regarded product developer, who was credited with strong successes at J-Phone, the mobile phone group owned by Japan Telecom that was renamed Vodafone KK.

The decision to re-brand J-Phone has also been widely cited as a critical error.

Although not as large or well-funded as rivals DoCoMo and KDDI, J-Phone held its own in Japan as an innovative and nimble player with a strong following among young users.

Critics believe the name change to Vodafone, which was unfamiliar in Japan, undermined its position.

For its part, Softbank will take a major step forward in its ambitious plan to become a leading, if not the top, mobile operator in Japan.

Mr Son, who is credited with developing Japan’s broadband market by offering ADSL services at inexpensive rates, has an impressive ability to run businesses without much regard for profits or shareholder satisfaction.

This has sparked fears that he will wage a damaging price war to win market share in the mobile phone sector, as he did in the ADSL market.

Until details of a potential Vodafone-Softbank deal emerged, however, Softbank’s competitors were relatively secure in the knowledge that even after winning a coveted mobile licence last year, Mr Son would have to spend hundreds of billions of yen building up a network.

In addition to the cost, the time needed to complete a network roll-out was considered an impediment to Softbank becoming a significant threat, at least in the near term.

A successful acquisition of Vodafone’s operations in Japan would change that.

Should it succeed, Softbank will not only get a ready-made network, albeit one that will still require investment, but also an installed customer base.

Also, Softbank has a stake in Yahoo! Japan, whose online expertise will be a significant asset with mobile operators increasingly facing the need to develop non-voice services.

Whatever Softbank’s strategy, its acquisition of Vodafone’s Japanese unit is likely to shake up Japan’s mobile industry, which has enjoyed huge profits amid limited competition.

The regulator recently agreed to award three new licences to increase competition, one of which was won by Softbank.

The costs will be high for operators, including Softbank.

But if Softbank turns into the strong competitor that its rivals fear, the benefits to consumers could be immeasurable.