Huawei Technologies

2005.10

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Business Mode Unlocking the secrets of SoftBank’s 3G success

Unlocking the secrets of SoftBank’s 3G success SoftBank Mobile conducts the fastest 2G to 3G evolution in Japan. After the acquisition on Vodafone K.K. in March 2006, the operator has sustained leading subscriber growth rates for an impressive 26 consecutive months despite a saturated market and intense competition. Its 3G customers now account for 93% of its total subscriber base. As the unequivocal leader in non-voice ARPU growth, we can surely learn much about 3G operations from SoftBank Mobile’s unparalleled success. By Zhou Jing

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odafone sold its Japanese subsidiary, Vodafone K.K., to SoftBank on March 17, 2006. As a holding company of Yahoo! Japan at the time of acquisition, SoftBank already owned Japan Telecom, Japan’s third largest fix-line telephone operator, and SoftBank BB, Japan’s largest broadband service provider. Foreseeing that mobile Internet is destined to outpace fixed Internet, SoftBank president, 27 DEC 2009 . ISSUE 53

Masayoshi Son is dedicated to expanding the company’s existing service portfolio to integrate Internet portal, high-speed data communication, and fixed and mobile services. While Vodafone K.K.’s 15.13 million subscribers, 16.8% market share and a booming 3G market strengthened SoftBank’s entry into the mobile Internet sector, the competitive hurdles thrown down by NTT DOCOMO and KDDI

still seemed insurmountable. The two Japanese giants enjoyed five times more subscribers than SoftBank at that time. It was widely believed that SoftBank would soon fall flat due to the lack of operational experience in mobile telecommunications. Surprisingly, SoftBank Mobile secured the largest share of market net adds in April 2007, just a year after its acquisition. Thanks to a collaborative business model and an innovative marketing strategy,

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SoftBank Mobile weathered the storm and continued to grow in strength.

Group synergy pays dividends SoftBank Mobile synergized SoftBank Group’s resources to strengthen its brand, service channels, content, cost competitiveness, and attract more customers. By fully utilizing the group’s legacy infrastructure, portals, channels, and content, SoftBank Mobile developed a series of differentiated products and services to sharpen its competitive edge in terms of price and marketing. In partnership with SoftBank BB and SoftBank Telecom, SoftBank Mobile p rov i d e s i n n ova t i ve F M C s e r v i c e s , including integrated mail services for enterprise users. Under the brand S!mail, the operator has increased its mobile subscriber base by attracting existing fixed and broadband subscribers. The seamless integration of Yahoo! Keitai Portal into its mobile service portfolio raised SoftBank’s brand equity, won more subscribers, and increased service take up. Cross-marketing strategies that utilize its existing channels and subscriber resources have continued to streamline the company’s resource utilization and maximize returns. All service branches of SoftBank Group have benefited from service package sales. A year after the acquisition of Vodafone K.K., the SoftBank Group had increased its profits by 19.6%, while SoftBank Mobile enjoyed an impressive 12.1% rise. More remarkably, SoftBank Telecom recovered from a shaky performance. By building a strong Internet service platform that offered rich content, such as music, sport, news, e-commerce, SoftBank constructed a unique model that married rich content, low costs, and a reliable transaction platform. This aggressive marketing model and the synergy between SoftBank Group’s various subsidiaries catalyzed greater profits and a significant reduction in marketing costs.

SoftBank’s 3G philosophy

SoftBank Mobile believes that mobile phones are the key profit generator in terms of Internet access, especially given their prominence in Japanese society. Increasing computing speed and resolution are steering the role of mobile phones towards an Internet access tool, which in turn has driven SoftBank Mobile to revolutionize the market landscape. I n 2 0 0 6 , Ja p a n’s A R P U w a s t h e highest in the world, with voice services contributing 80% of operators’ revenues. High charges for voice services, however, detrimentally impacted service use and customer loyalty. According to Masayoshi Son, revenues from voice services are expected to account for only 3% of SoftBank’s total sales revenues in the next decade. Though in 2006 data services occupied only 20% of its sales turnover, SoftBank began to reorient its focus towards data and shrink away from voice service as a means of achieving sustainable, long-term profits and a stronger market presence. SoftBank Mobile then consolidated its data tariff plan by attracting subscribers with a very aggressive voice pricing strategy and inexpensive 3G mobile phones. It was anticipated that the resulting losses from voice would be offset by the longterm sales of value-added data services. To raise the quality of mobile phone services, the operator expanded and upgraded its 3G network. In just a year, it doubled its number of BTSs, which now outnumber NTT DOCOMO’s and have dramatically improved network quality. Its corporate and technical strategies have resulted in ARPU variance below 1%, the success of which is remarkable given the prevailing trend of spiraling ARPU.

Distinctive mobile phone customization and sales models As Japanese operators dictate the direction of the industry chain, phone vendors customize handsets according to demand. Before being acquired by SoftBank, Vodafone K.K. lost a large number of its customers to KDDI and

NTT DOCOMO, who were offering more stylish phones with greater functionality. Following the takeover, SoftBank targeted the handset market and began retailing a wide range of slim and ultratrendy phones in various colors and styles. Outshining those available from KDDI and NTT DOCOMO, Masayoshi Son recalls the company’s simple aim, “We wished to provide customers with the slimmest and most stylish phones.” Innovative designs resulted in a stunning debut in handset retail; for example, the 705SH became the slimmest phone on the market, and the 707SC sparkled with Swarovski crystals. To integrate mobile telecommunications and the Internet, SoftBank Mobile concentrated on functionality. In addition to a large, high-res screen; increased memor y; HSPA capability; and easy Internet access, SoftBank’s unique handset design catered to subscribers’ fashion, entertainment, and business needs. Prioritizing ease of use, subscribers can access content such as stock markets, news, music or even their home PC. A simple press of the “Yahoo!” key, for example, directly accesses the Yahoo! Mobile Portal. In addition to the operation system, Windows Mobile Professional Edition 6.0, that offers enhanced stability and functionality, the smart phone X01T integrates other security features, such as fingerprint recognition on its back cover. With these enhancements and innovations, SoftBank’s mobile phones have been a hit in the market to the extent that complaints usually concern waiting times. On June 4, 2008, SoftBank Mobile introduced the iPhone, hoping to attract more music and technology enthusiasts. However, the more stylish and smart mobile phones come with a higher price tag, forcing operators to offer inducements at the sacrifice of profits to attract customers. SoftBank Mobile launched a 24-month installment plan in September 2006 to ease the financial burden of buying a high-end phone, which it supplemented by giving the first 2 months free of base charge, and selective discounts of monthly base charges and data services throughout the contract. This move was also long-term DEC 2009 . ISSUE 53

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Business Mode Unlocking the secrets of SoftBank’s 3G success thinking on SoftBank’s part; bundled with a two-year contract, SoftBank Mobile was likely to receive at least two years of loyalty with the installment package. Additionally, SoftBank Mobile reduced distributors’ sales commission by 25% to make this business model more viable. The installment plan has dramatically reduced churn, and 80% of all new subscribers have signed up with the plan. For Q4 2006, SoftBank reported a year-on-year sales revenue increase of 144.3%, with operating profits up a staggering 260.4%.

A competitive tariff strategy SoftBank Mobile’s pricing strategy is to attract customers with low voice tariff and raise overall ARPU by offering the simple and clear data charges.

Cost-effective voice service plans On October 24, 2006, Japan launched the Mobile Number Portability initiative. SoftBank Mobile had slashed its mobile voice charges the day before to give free domestic calls and SMS across its network, as well as a series of other preferential fees, to compete with KDDI and NTT DOCOMO. To maintain quality while offering free calls, SoftBank Mobile charged JPY21 per 30 second during peak hours if the total monthly free call time between 9:00 am and 1:00 pm exceeded 200 minutes. Three months after implementation, SoftBank had signed up 490,000 new subscribers, the second largest increase in net adds. O n Ja n u a r y 1 6 , 2 0 0 7 , So f t Ba n k Mobile launched the White Plan. With a monthly base charge of JPY980, this simple charging plan centered on free intra-network calls between 1:00 am and 9:00 pm, and JPY21 per 30 second for other calls. In contrast, the then top two operators, NTT DOCOMO and KDDI are running with JPY4,000 monthly base charge and JPY40 per minute. Within a quarter of implementing the White Plan, SoftBank Mobile overtook KDDI to rank first in Japan with net adds totaling 39.78% of the market. 29 DEC 2009 . ISSUE 53

In just 6 months, White Plan customers soared to 9 million–60% of SoftBank Mobile’s total customers. Double White Plan subscribers topped 2.7 million. On the other hand, SoftBank Mobile launched preferential packages for both individual and enterprise users, one of which gave subscribers to its package of mobile calls, Internet, and mobile data service discounts totaling up to 70%. On March 1, 2007, SoftBank Mobile launched the Double White Plan, which doubled the White Plan’s monthly JPY980 base charge and entitled subscribers to a 50% discount on calls between 9:00 pm and 1:00 am. On May 10, 2007, it followed this with the White Plan Family Discount 24, which allowed free calls between family members for White Plan subscribers. In just 6 months, White Plan customers soared to 9 million–60% of SoftBank Mobile’s total customers. Double White Plan subscribers topped 2.7 million, 70% of whom also signed up to the White Plan Family Discount. Interestingly, these low price plans only increased SoftBank Mobile’s MOU to 155, an increase of just 10 minutes, compared with NTT DOCOMO’s and KDDI’s MOU of 140. This demonstrated that voice prices could be slashed as part of a profitable price strategy.

Bundled data services In a departure from KDDI’s “flat rate” tariff plan and NTT DOCOMO’s “PakeHoudai” usage-based plan, SoftBank Mobile launched preferential packages for both individual and enterprise users, one of which gave subscribers to its package

of mobile calls, Internet, and mobile data service discounts totaling up to 70%. For a monthly charge of JPY315, an individual could receive a combination of SMS and Internet access services, a reduction of JPY980 compared with a separate subscription to each. SoftBank Mobile also tapped into the lucrative Netbook “large screen” market, knowing that doing so would fuel a great surge in data traffic, burden mobile backhaul capacity and raise bandwidth costs. With bandwidth-hungry devices such as Netbooks, cost reduction became imperative to enhance its wireless Internet access services. By consolidating the group’s subset of services and to provide rich content, SoftBank Mobile had already established a unique advantage with its phone “small screen” services. For large screen services, the operator partnered with EMOBILE as its route to success. Entering Japan’s mobile market in March 2007, EMOBILE provides the countr y’s cheapest wireless Internet access thanks to a range of cutting-edge technologies. These include distributed Node Bs and All-IP transmission which build a cost-effective and efficient HSPA network. The two operators embarked on a synergistic partnership that fully utilized their joining resources under the parameters of network sharing and separate pricing. SoftBank Mobile swiftly expanded its wireless Internet access services at no extra cost, and EMOBILE profited considerably from leasing its network to SoftBank. In February 2009, SoftBank launched its monthly wireless Internet access service package at a similar price to EMOBILE’s.

Diversified mobile Internet services Low pricing strategies alone are not enough to drive profits. To raise ARPU, operators must offer differentiated services that are impossible to be copied in the short-term. SoftBank Mobile believes storage and functional improvements to mobile phones will gradually shift fixed Internet services, like data download,

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Email, location, searching engine, and instant messaging, into the mobile domain to give unrestricted access. SoftBank Mobile has as such launched a series of mobile Internet ser vices: S!Felica, S!GPS NAVI, S!CAST, S!LOOP, S!CIT Y and S!Comic. Independent from mobile data ser vices, these are being integrated with other resources of the group to maximize service reach. For example, by combining Yahoo! BB and mobile communication capabilities, SoftBank Mobile has created the mobile portal, Yahoo! Mobile, to provide content that users normally expect from fixed broadband. Usually used individually and always on the move, mobile phones facilitate the mobile social networking services. In October 2006, SoftBank Mobile unveiled the world’s first 3 D mobile vir tual community service, S!Town. Targeted at girls aged between 18 and 24, S!Town attracted 100,000 subscribers in just four months after its launch. The ser vice allows subscribers to

customize their domain space and avatar to tour virtual cities, go shopping, play games, and chat with other subscribers. Built in a 3D environment, S!Town extends far beyond texting, photos and videos to give a completely new subscriber experience. Payment is usage based without monthly base charges: first-time access generates 25KB of data traffic for JPY40 (0.4USD) and personal room customization consumes 100KB for JPY160 (1.6USD). As S!Town also provides subscribers with links to other websites, advertising is expected to become its leading revenue stream.

An impressive brand strategy SoftBank Mobile also benefits considerably from innovative brand planning and advertising strategies. According to Commercial Message (CM), the SoftBank Mobile’s series of “White

Family” ads consistently rank top among Japanese households. Featuring a Japanese mother and daughter, a black son, and– of course–a white Hokkaido dog father, this innovative ad series has continued to illustrate the benefits of the White Family plan since 2007. Working for SoftBank, the daughter recommends various products that add value to the family and bring the brand to life in a humorous, family-oriented way. Amongst the public, this has served to engender trust in SoftBank and its products, and the characters–notably the black son and dog dad–have become celebrities! As a latecomer to Japan’s 3G arena, So f t Ba n k h a s r e s h a p e d t h e m a r k e t landscape and stayed at the forefront of successful mobile Internet theory and practice. SoftBank’s success has derived from its insight into mobile Internet trends and the implementation of reactive and innovative business models. Editor: Xue Hua [email protected] DEC 2009 . ISSUE 53

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