EU investment in Japan could be 50% higher had Vodafone succeeded in Japan

EU investment in Japan is about € 85 billion (US$ 106 billion) - it could be 50% higher had Vodafone succeeded in Japan.

EU investment in Japan is about € 85 billion – it could be 50% higher!

Vodafone-Japan: what could the value be today?

Had Vodafone succeeded in Japan, Vodafone-Japan could be worth about US$ 50 billion today, about 1/2 of Vodafone’s total global market-cap today, and combined investment in Japan by European (EU) companies could be about 50% higher than it is today!

With COLT about to acquire KVH, it might seem that this is the only foreign infrastructure based telecom provider left in Japan’s telecom market after a long string of management failures, including Vodafone, Cable & Wireless, Willcom, WorldCom and others.

However, foreign investment in Japan’s telco/cloud infrastructure has not ended, and we believe the next wave including AWS, Microsoft, Google et al may become far more successful than the first wave.

For companies considering investment or business expansion in Japan, it is useful to understand the potential market-capitalization which can be achieved in Japan in case of success, instead of just looking at the sales figures:

  • as an example, combined EU investment in Japan is estimated to be approx. € 85 billion (US$ 106 billion) in total,
  • had Vodafone succeeded in Japan, total investment in Japan by European (EU) companies would be about 50% higher than it is today.

Why Vodafone-Japan could be worth US$ 50 billion (1/2 of Vodafone’s global market cap) had it been successful

Let us estimate what Vodafone-Japan could be worth today, had it not failed:

Since Vodafone-Japan’s sale to SoftBank on March 17, 2006, Japan’s telecom market has continuously grown, so we can expect today’s valuations to be considerably higher than in 2006. Lets assume that Vodafone-Japan had been successful, and had grown in sync with competitors NTT-Docomo and KDDI, and lets assume that Vodafone-Japan would have been able to continue J-Phone’s innovations to keep subscription figures and financial results in sync with KDDI. In this case, it would not be unreasonable to assume that Vodafone-Japan’s market capitalization today would be KDDI’s minus the value of KDDI’s global data-center business. Thus we arrive at an estimate, that Vodafone-Japan would have a market-cap value on the order of US$ 50 billion today.

US$ 50 billion is about 50% of Vodafone’s total global valuation, and about 50% of the sum of all direct investments in Japan by all European (EU) companies combined.

Thus, had Vodafone been successful in Japan, EU investments in Japan could be about 50% higher than they are today, and Vodafone’s global market cap could be 50% higher as well.

Market capitalization (Dec 2, 2014):

  • NTT Group: US$ 61 billion
  • NTT-Docomo: US$ 68 billion
  • KDDI: US$ 58 billion
  • SoftBank: US$ 80 billion
  • Vodafone plc (global group): US$ 97 billion
  • Vodafone-Japan market cap, had it been successful (our estimate): US$ 50 billion corresponding to approx. 50% of Vodafone’s global market cap)
  • total investment in Japan by all European (EU) companies combined: € 85 billion (= US$ 106 billion)
    (see: EU-Japan direct investment register)
EU investment in Japan is about € 85 billion - it could be 50% higher!
EU investment in Japan is about € 85 billion – it could be 50% higher!

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Briefing EU Technology Attaches to Japan about Japan’s telecom sector – unspoken question: Why did Vodafone fail in Japan?

EU Flags

Following Vodafone’s decision to end business in Japan and the announcement of the sale of Vodafone-Japan to SoftBank, this author has been asked to brief the Technology Attaches of the 25 EU Embassies in Tokyo on Japan’s mobile phone and telecom sector (download the presentation as a pdf-file here).

The EU Technology Attaches were particularly interested in the impact on Europe by the termination of by far the biggest ever European investment in Japan. Clearly it is also important to determine, what other European companies can learn from Vodafone’s experience.

More details in our blog post:
Why did Vodafone fail in Japan and sell to SoftBank?

Eurotechnology Japan KK has been awarded a contract by the European Union to benchmark Japan’s telecom sector vs EU and make recommendations.

More about Japan’s telecom sector: JCOMM report (pdf-file)

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Vodafone brand disappears from Japan: Vodafone -> SoftBank rebranding

vodafone brand disappears from Japan

Vodafone sells Japan operations to Softbank

Vodafone brand is replaced by the Softbank brand

“SoftBank” replaces “Vodafone” brand in Japan following Vodafone’s decision to sell all Japan operations to the Softbank Group (after Vodafone had previously split off and sold fixed-line and other operations to Softbank in earlier transactions).

Photographs below show the world famous Vodafone board on Tokyo-Shibuya’s Hachiko-square being replaced by the SoftBank advertisement from June 14, 2006.

SoftBank acquired Vodafone-Japan and rebranded to SoftBank mobile on June 14, 2006
SoftBank acquired Vodafone-Japan and rebranded to SoftBank mobile on June 14, 2006
Rebranding advertisement boards along Tokyo's Yamanote ring line
Rebranding advertisement boards along Tokyo’s Yamanote ring line. Noteworthy are the cheese, cow, car tire and ice cream bar shaped mobile phone covers, which Vodafone offered because it was short of new phone models, and which did not help to improve Vodafone’s brand in Japan

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Implementing Vodafone’s departure from Japan: SoftBank starts rebranding Vodafone in Japan

vodafone brand disappears from Japan

Vodafone sold Japan operations to SoftBank

The Vodafone brand is replaced by the SoftBank brand all over Japan

Saturday June 10, 2006 was the first time we saw SoftBank replacing the Vodafone brand in Japan – bringing a formal end to Europe’s largest ever investment in Japan.

Vodafone’s withdrawal from Japan is a turning point in more ways than one and has wider implications for Europe (read below).

Vodafone’s withdrawal also shows, that the values of cross-cultural management skills are often underestimated.

SoftBank’s brand strategy

Rebranding from Vodafone to SoftBank after SoftBank acquired Vodafone Japan
Rebranding from Vodafone to SoftBank after SoftBank acquired Vodafone Japan

Upper image shows the world-famous Vodafone board on Shibuya’s hachiko square, which has appeared in many movies and TV shows. It will soon be replaced.

Lower image shows one of the first SoftBank advertisements in Tokyo’s busiest commuter railstation Shinjuku showing Sharp’s mobile-TV handset.

The photo demonstrates SoftBank’s brand strategy of partnering with world-famous brands, such as with Apple’s iPod and Sharp’s AQUOS display brand.

Implications for Europe of Vodafone’s withdrawal from Japan

As a European myself, I am looking at the wider implications for Europe of Vodafone’s withdrawal from Japan – and our company was recently awarded a contract by the European Union Government on exactly these issues – as well as others.

Vodafone’s investment was by far the largest European investment in Japan. What is maybe less well known is that Vodafone was dispatching a relatively large stream of managers between several
continents (Europe, Australia etc) and Japan. Several times when visiting the KDDI Designing Center for example I could meet young German Vodafone managers who had just arrived for a management position at Vodafone-Japan, and who were studying the mobile phone handsets in KDDI’s showroom. These expatriates all left within a few weeks of SoftBank taking control of the company.

As a result of these interactions, Vodafone could bring J-Phone’s J-Sky mobile internet service to Europe, which was adapted for European conditions and rebranded “Vodafone Live!”. There would be no “Vodafone Live!” in Europe without Vodafone’s acquisition of J-Phone (including JSky). Vodafone also brought SHARP and Toshiba mobile handsets to Europe.

Apart from the immediate impact on Vodafone as a Corporation, we expect also a more general longterm impact from the strong reduction of Europe-Japan technology exchanges due to Vodafone’s withdrawal from Japan.

Vodafone’s withdrawal from Japan also shows how difficult it is for European telecom firms to succeed in Japan – and for Japanese firms in the telecom sector to succeed in Europe. Our company knows this first-hand from our work for NTT-Communications, and some other Japanese companies. – Read our presentation to Japanese industry associations here (in Japanese language).

It also shows how easy it is to underestimate the importance of cross-cultural management skills and the associated perils

While large US corporations, including INTEL, General Motors, and Motorola have been forced by confrontation with Japan’s competition to completely reshape themselves, this has not yet happened to any large European corporation because of the larger perceived separation between EU and Japan.

Comparing Europe and Japan in telecoms….

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Why Japan is several years ahead of EU in telecoms and broadband?

Why Japan is several years ahead of EU in telecoms and what can Europe do to catch up? Presentation at the Embassy of the European Union in Tokyo

and what can Europe do to catch up?

Presentation to EU Technology Attaches at the Embassy of the European Union in Tokyo

Today (March 23, 2006) I was invited to brief the Technology Attaches of the Embassies of the 25 European Union countries here in Tokyo about Japan’s telecommunications sector (both fixed net and wireless) in a one hour presentation + discussion. I had offered several alternative topics and the conference of EU Technology Attaches selected the most provocative title I had offered:

“Why Japan is several years ahead of Europe in telecommunications and what Europe can do to catch up”

Vodafone KK’s Chairman and former NTT-DoCoMo Vice-President Tsuda, who had worked 34 years at NTT and DoCoMo (and who resigned from his Vodafone-Japan CEO position a few weeks after being head-hunted), said in a recent interview with Bloomberg that “Japan is way ahead in 3G”. – therefore, although this title is clearly provocative, it’s clearly worthwhile examining this question. With the sale of Vodafone KK to SoftBank last week, the timing of this briefing was particularly interesting. My presentation discussed the following questions:

  • Is Japan ahead of Europe in Telecommunications?
  • Why?
  • What is the impact?
  • Is this important?
  • What Europe can do to catch up

EU awards project contract to Eurotechnology Japan KK to document the status of fixed and wireless broad band communications in EU vs Japan

As a consequence of this presentation the EU awards project contract to Eurotechnology Japan KK to document the status of fixed and wireless broad band communications in EU vs Japan, and to prepare recommendations for the EU to learn from Japan, and accelerate progress in Europe.

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EU investments in Japan: Why did Vodafone fail in Japan?

vodafone brand disappears from Japan

Vodafone made the largest ever European investment in Japan

Why did Vodafone fail so dramatically in Japan?

Quick answer

Vodafone failed in Japan not for one single reason but for hundreds of reasons, which can be grouped into two groups

  1. Soft factors:
    • Japan knowledge at HQ, and knowledge at HQ about the specifics of Japan’s telecom sector (or lack thereof).
    • choice of management structure (there were attempts to correct the management structure, however too little and too late).
    • attitude displayed both privately e.g. within the Japanese industry sector and publicly via marketing messages and advertising
    • choice of executives and lower ranking managers and their knowledge and experience in Japan’s telecom sector (or lack thereof)
    • lack of sufficient know-how and experience to manage a large Japanese company, and particular the chain of retail stores
    • and many more
  2. Hard factors:
    • far too low budgets for infrastructure investment resulting in much lower coverage and network quality compared to competitors NTT-DoCoMo and KDDI/au and TuKa, Willcom and others. As a consequence of far too low investment budgets, Vodafone failed three times to introduce 3G services in Japan. (3G services were not successfully introduced until after the acquisition by Softbank, and after conversion of Vodafone KK to Softbank-Mobile).
    • mobile phone handsets were inferior to the handsets offered by competitors NTT-DoCoMo and KDDI, and TuKa
    • and many more

Long answer

Find a long answer in this blog post below, in our other blog posts, and in some detail including statistics and financial data in our Softbank Report.

On Friday March 17, 2006, Vodafone and Softbank announced that Vodafone sells Vodafone KK (the totality of all Vodafone operations in Japan) to Softbank.

It has been reported that on Monday March 20, 2006, Softbank started to move all Vodafone KK staff, furniture and equipment from Vodafone KK’s former headquarters in the top floors of the Atago-Greenhills-Mori-Tower to Softbank headquarters in Shiodome (near Shinbashi). Also Softbank started to arrange that essentially all foreign expatriate managers left Vodafone KK – some stayed in Japan working for other IT companies, some returned to European Vodafone divisions, and some pursue telecom careers in USA, India, Bangladesh, or elsewhere.

By total coincidence, I had dinner a high-level manager of Vodafone KK, of European nationality, at the indian restaurant Moti’s in Tokyo-Roppongi on exactly the same day, the Friday March 17, 2006 a few hours after the sale of Vodafone KK to Softbank was announced. I asked him: “Which of the following is true:”

  1. Vodafone never did any market research in Japan?
  2. Vodafone did market research in Japan, but the quality was low?
  3. Vodafone did market research in Japan, but nobody read it?

This Vodafone KK manager’s answer at the indian dinner was (3): market research was done about Japan’s mobile phone market, but the market research was not sufficiently taken into account in the business and strategy planning.

Fact is, that Vodafone KK took many major strategy and market decisions in Japan, which were not related to the realities of Japan’s market. Here one example. When “rebranding” (=changing the company / product / services names) from J-Phone to Vodafone, this “rebranding” campaign was centered on global roaming, i.e. Vodafone enabled Japanese customers to use Japanese J-Phone/Vodafone mobile phones in a very large number of countries outside Japan as well as inside Japan. This was at a time, when Japan’s mainstream mobile 2G phone system which both DoCoMo and J-Phone used was PDC, while much of the rest of the world, especially Europe used GSM. However, what Vodafone overlooked was, that at that time DoCoMo had about 30,000 roaming customers, out of approx. 50 million subscribers, i.e. only about 0.06% of Japanese mobile phone users used international roaming at that time. Thus Vodafone KK in Japan focused their main nation-wide poster and TV and other media campaign on about 0.06% of the Japanese market – less than a niche. (The reason we know how many roaming customers DoCoMo had at that time, is because one of Vodafone KK’s competitors in Japan engaged our company Eurotechnology Japan KK to analyze Japan’s roaming market, and help our client to develop strategy to better compete with Vodafone KK’s roaming products, which were aggressively marketed, and the core of Vodafone KK’s marketing focus).

Another example was Vodafone KK’s strategic focus on Japan’s prepaid market. In 2006 there were about 2.6 million prepaid mobile phone customers in Japan, i.e. about 2.7% of the market, while DoCoMo had about 45,200 prepaid subscribers, i.e. about 0.09% of DoCoMo’s subscribers were prepaid customers. Since the prepaid market in Europe (especially Italy where about 1/2 of the market is prepaid) is extremely important and highly profitable, Vodafone decided on the strategy to focus strongly on the development and growth of Japan’s prepaid market. Almost at the same time however, a national campaign started in Japan linking unregistered and illegally traded prepaid mobile phones to crime, and a law was proposed in Japan’s parliament to outlaw any type of prepaid mobile phones. Thus Vodafone KK found itself on the one hand promoting and investing to develop prepaid mobile phone services in Japan, developing, purchasing (as was the business model in Japan at that time) and bringing to market special prepaid handsets, and organizing national media campaigns promoting Vodafone prepaid mobile phones, while at the same time on the other hand facing the possibility that Japan’s parliament would outlaw these same prepaid mobile phones, and a broad press and TV national discussion on how prepaid mobile phones are linked to crime. The end result was, that instead of outlawing prepaid mobile phones, it was decided to introduce far stricter registration requirements and ID requirements for mobile phones and especially for prepaid mobile phones, and the unauthorized/unregistered sale or transfer of prepaid mobile phones in Japan was made a crime. The end effect for Vodafone of course was a commercial failure of Vodafone’s prepaid mobile phone campaign, in addition to a general decrease of ARPU (average revenue per user).

As a consequence of these and other factors, Vodafone KK’s market share continuously decreased, subscribers moved from Vodafone KK to DoCoMo and KDDI/au, and the financial performance of Vodafone KK deteriorated, in the end convincing Vodafone that the best option was to sell Vodafone’s Japan operations and terminate business activities in Japan.

You can find further details and statistics, financial performance and market share data during this period in our Softbank report.

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Vodafone in Japan? Why did Vodafone change its mind about Japan?

vodafone brand disappears from Japan

Negotiations between SoftBank and Vodafone about sale of Vodafone Japan confirmed

Bloomberg: Vodafone-Japan CEO Tsuda seeks growth in Japan, not sale

About one year ago, in an interview with Bloomberg (“Vodafone KK’s Tsuda seeks growth in Japan, not sale“), I mentioned that a sale of Vodafone’s Japan operations to Softbank might be the way Vodafone will go in Japan. This seems to be happening now and negotiations to this effect were confirmed by both Softbank and Vodafone over the weekend.

The potential deal

Although a deal has not been closed yet, it is widely reported that a sale of Vodafone’s Japan operations to Softbank is very likely to be closed within a few weeks. What could this deal look like?

As reported by Bloomberg Vodafone KK’s capitalization at the point of delisting from the Tokyo Stock Exchange was around YEN 1.4 Trillion (= about US$ 12 Billion). Bloomberg mentions estimations by London based analysts who value Vodafone KK in the range US$ 14 to 16 Billion. Of course, if a deal is actually concluded, it might be a complex deal with several components, not just a simple cash price, and any cash value will not be determined by analysts in London, but on the negotiating table between Softbank and Vodafone, and the final deal could be more complex than a simple sale against cash payment.

In any case, this deal – if it happens – promises to become one of the largest M&A transactions ever in Japan sofar in terms of cash value. Vodafone is reported to prefer a cash deal, and Softbank has been reported to consider a leveraged buy-out (LBO) where Softbank will take debt against the to-be-acquired company.

It has also been reported that Softbank seems to be planning to change the name of the resulting company, so the “Vodafone” brand is not likely to survive in Japan.

What is Softbank likely to do with Vodafone’s Japan operations

An acquisition of Vodafone’s Japan operations will be the completion of Softbank‘s march to build a full-scale telecommunications group on a par with NTT and KDDI through a series of acquisitions plus internal growth.

Softbank in this new shape will become a much more serious competitor for NTT and KDDI, which both have succeeded to transform themselves from former monopolies into some of the world’s most advanced telecom operators.

In a sense Softbank is already where DoCoMo and KDDI are working very hard to get to: DoCoMo and KDDI are working hard to build content and transaction businesses (such as shopping, financial services, auctions and music), because pure traffic revenue (ARPU) is driven down by relentless competition.

Softbank is strongly linked to YAHOO-Japan, and YAHOO-Japan demonstrated it’s strength by driving eBay out of Japan – so Softbank is already where DoCoMo and KDDI want to go. All Softbank still needed was a wireless network, and with a Vodafone acquisition, Softbank will have a wireless network much faster than expected.

A Vodafone/Softbank deal will not be a good development for eAccess/eMobile, and eAccess/eMobile is reported to have submitted documents to Japan’s regulatory authorities regarding Softbank’s wireless license. It will be interesting how the regulating government ministry will decide on the regulatory aspects of any Softbank/Vodafone deal. In the past few years Japan’s government has been singularly focused on creating the conditions to make Japan the most advanced IT market in the world, so I think we can
be confident to expect a wise decision – wise for Japan, not necessarily beneficial for particular mobile operators.

What made Vodafone change it’s mind about Japan?

As reported by Bloomberg, one year ago Vodafone had the clear intention to remain in Japan for the next 10, 20, 30 years. What made Vodafone change it’s mind?

As widely reported, Vodafone was loosing market share in Japan’s mobile phone market over the last several years.

With number portability being introduced in Japan from autumn 2006, and with three new operators entering the market during 2006-2007, the competitive environment will become much more severe than it is now, decreasing pure network profitability, while at the same time massive network investments are necessary.

Analysis of Vodafone-Japan’s subscriber numbers shows that early warning signs appeared already in 2002 – 2002 would have been the time for Vodafone to take decisive action to turn the business around in Japan.

More about Japan’s telecom sector: download our JCOMM-Report.

See also: my comments in Der Standard (German language) “Aus fuer Vodafone in Japan”

UPI also quotes us: “Globe Talk: Vodafone’s sayonara problems”

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The Economist about 3G and Vodafone in Japan

An article in The Economist about Vodafone is partly based on our analysis:

“Vodafone- Not so big in Japan” (The Economist, Sept 30th, 2004)

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