What should be the expansion strategy of Softbank?. A white paper on Softbank's future roadmap

1. What should be the expansion strategy of Softbank?
White Paper
By Rahul Sarkar

2. Page 2 by Rahul Sarkar
Contents
Introduction/Problem ..................................................................................................................3
Current Status ...............................................................................................................................4
Strategic Analysis – Porter’s Five Forces [5] ............................................................................6
Strategic Analysis – grid model.................................................................................................7
Value Chain Analysis..................................................................................................................8
Potential Strategy Alternatives..................................................................................................9
Recommended Alternatives .....................................................................................................10
References....................................................................................................................................11

3. Page 3 by Rahul Sarkar
Section 1
Introduction/Problem
Softbank Corp is the third largest
telecom provider in Japan with
revenues of ¥3.202 trillion in 2012.
Established in 1981 Softbank is a
VC firm having interest in
various areas of which telecom is
primary.[15] Mr Masayoshi Son,
founder and CEO long realized
that technology will integrate
and converge. He looked at an
ecosystem which would
differentiate it from its
competitors. He had also long-
held ambition to become a
leading mobile phone operator in
Japan. From an internet based
company, he made some strategic
moves to move into the space of
mobile telephony with acquisition –
small and big. They did the biggest
LBO of Japan by acquiring
Vodafone K.K in 2006. Japan has
always been the leading indicator
of technology. They have had the
fastest broadband much before the
entire world. Japan also has the
cheapest broadband in the world
and the credit goes to Softbank to
start the trend. Over the years,
proliferation of technology in
human lives has been substantial
and new product markets appeared
when companies started to look
beyond stand alone services like
internet or fixed line telephony or
mobile telephony.
Convergence and integration
are the new norms and we see
how companies have competed
to provide bundled services.
With Softbank’s internet
business it was difficult to
realize long term profitability.
Although the broadband
market was suppose to grow
20% y-o-y till 2017, it was not
substantial enough for a
company whose growth
hunger is high. Obviously
Softbank can grow organically
but what about the synergy?
Vodafone KK had given
Softbank substantial market
share making them the third in
But is acquiring telcos will
solve the problem for Softbank.
If we look at the long term
strategy of Softbank, they have
to touch human lives not just
by new gadgets but also by its
ease of use and affordability.
Vodafone KK had bad 3G
infrastructure, targeting only
corporate clientele. Will
Softbank a specific target
segment or will it grow by
differentiation? The big
question we will try to answer
then is what should be the
expansion strategy for Softbank
going forward?
Fig 1: Softbank network coverage (Source:
gojapan.about.com/library/map/blmap-gifu.htm)
Fig 2: Softbank ecosystem
and investment focus
(Source:
www.softbank.co.jp/en/iri
nfo/investor/strengths/)

4. Page 4 by Rahul Sarkar
Section 2
Current Status
Softbank has steadily increased its market
share since entering the mobile
communication market in 2006. During the last
fiscal, the net increase in subscribers reached
3,430,000 lines, thus exceeding by 25.7%, the
net increase of 2,730,000 lines which was
achieved during the previous year. iphones,
ipads, and ultra speed compatible data
handsets etc developed favourably, ranking at
the top in the annual net increase in
subscribers for four consecutive years.[6] So
essentially Softbank has been doing well after
the Vodafone KK acquisition. However its
competitors NTT Docomo and KDDI Corp
having making inroads in convergence and
integration quite substantially. Infact NTT
Docomo is one of the pioneers of mobile
innovation across the globe. NTT Docomo
devised a coherent business strategy to meet
the challenges of industry convergence by
product complementarities.
NTT Docomo took possible mobile internet
services as a starting point for business and
chose the appropriate technologies
accordingly. A demand- pull approach
therefore characterized its approach to
exploiting technological opportunities. Unlike
European network operators, KDDI Corp had
retained extensive R&D capabilities that
provided crucial system integration
competencies and allowed the company to
play an active role in the innovative process.
Clearly due to these reason NTT Docomo and
KDDI Corp are No 1 and 2 respectively. [3] If
Softbank has to emulate the success of these
two companies, they would have to innovate
for new products plus achieve operational
efficiency in its existing value chain. If we look
at the generic strategic model of target market,
we realize that Softbank is not playing in niche
market. In order to be successful they have to
be differentiated and that’s where strategic
Fig 3: Softbank
customer growth
(Source:
http://www.bell
park.co.jp/en/ir/
pdf/19th/en_19q_
setsumeikai.pdf)
Fig 4: Mobile
consumer growth for
top 3 telcos in Japan

5. Page 5 by Rahul Sarkar
Section 2
acquisitions of mobile companies makes sense.
As per Thomson Reuters ‚Softbank operating
margin will fall by 2015 unless they strengthen
their ecosystem.‛ Vodafone KK before
acquisition was struggling to reduce cost.
Softbank which relies on low pricing has to
also look at spiraling cost of Vodafone KK in
order to realize the full synergy. Softbank need
to look at their ecosystem by leveraging their
web expertise and put it in the handsets –
smartphone with more customized product.
They are the first company in Japan who got
apple products in market. But the question is
how long? "The risk is the sustainability of
what they have been doing," said ISI Group
analyst Brian Marshall. "They have put up a
huge number and the question is can they
continue to penetrate with their current
existing product portfolio at these price
levels?" The fear is that the number of people
who can afford an iPad or an iPhone is
dwindling. The competition has become
immense in all areas and timing is paramount
and perhaps time to concentrate in VAS.
Fig 5: Income statement analysis (Source: Thomson Reuters)
Fig 7: Softbank ecosystem challenges (Source: Softbank.co.jp)
Fig 6: Softbank unique visitors (Source: Softbank.co.jp)

6. Page 6 by Rahul Sarkar
Section 3
Strategic Analysis – Porter’s Five Forces [5]
In order to understand the strategic direction that Softbank need to take going forward, it is
essential to understand the competitive intensity of the industry using Porter’s 5 forces model for
mobile telephony industry.
 Competition: How strong is the rivalry posed by the present competition? - HIGH
1. The number of firms in the industry, there are many firms in the industry with different
products.
2. All firms have economies of scale, that is they have relatively high fixed costs and low
variable costs, the more they produce the lower their per unit costs become. This results in
more intense rivalry between firms as they compete to gain market share;
3. Customers have majorly low switching costs, this intensifies competition as firms compete
to retain their current customers and steal customers from other firms;
4. Low levels of product differentiation between firms leads to increased competition.
5. High exit barriers and hence companies stay even if they don’t want
 Barriers to entry: What is the threat posed by new players entering the market? – HIGH
1. high capital costs of setting up a business in this industry
2. Industry requires highly specialized equipment,
3. Extensive scale and branding of existing competitors
4. Government regulations are predominant in this industry
5. Individual firms have economies of scale which results in lower cost and threat to new
entrants
 Substitutes: What is the threat posed by substitute products and services? – HIGH
1. The switching costs between the operators is low with number portability
2. Buyer propensity to substitute is high
3. Perceived level of product differentiation is low.
 Supplier bargaining power: How much bargaining power do suppliers have? - LOW
1. The number of possible suppliers and the strength of competition between suppliers is
pretty high
2. Suppliers produce homogenous products
 Customer bargaining power: How much bargaining power do customers have? - HIGH
1. The volume of goods or services purchased is not in bulk
2. The number of customers are high
3. Brand name strength is high
4. Products differentiation is low.
5. All major operators have similar network coverage so no differentiation.

7. Page 7 by Rahul Sarkar
Section 4
Strategic Analysis – grid model
Market/Applications of Hardware and Software products
 Business continuity plan is needed. Network failures, lesser inventory plus delays in new
handsets to market have cost loss of sales and shaken confidence in service offerings.
 Since Softbank also stores customer related data, it is imperative that have a very high
secured facility else they will be tangled in legal disputes
 Supply chain management should be planned properly and diligently. Recent issues with
Japan nuclear disaster and Tsunami have put up losses in terms of network failure, supplier
delays and customer reluctance.
Differentiation
 Softbank to continuously innovate and provide more value added services – bundled
services, enterprise solutions in order to be step ahead in the increased competitive
environment.
 Softbank should now move to look for other products in lifestyle which are essential for
consumer while maintaining the synergy with existing products.
 Softbank had till now played up the catch up game. Operators like NTT Docomo and KDDI
Corp are spending heavily on R&D and coming up with innovative products. Softbank
needs to use the capabilities of acquired companies to the fullest before diversifying further.
Fig 8: Market/application of
Softbank, BCP (Source:
tm.softbank.jp › ... › ULTINA
(ICT Platform Service)
Fig 9: Balance Sheet
Analysis (Source:
Thomson Reuters)

8. Page 8 by Rahul Sarkar
Section 5
Value Chain Analysis [17]
The value chain as both a concept and tool has been used for many years by companies to identify
their strategic position. The focal of the value chain is the end product and the chain is designed
around the activities required to produce it. Softbank has its own value chain.
 Network Equipment and Spectrum – 77% population coverage, Running on 1800 Mhz
 Infrastructure and Operations – All in-house
 Billing – Own billing CRM system
 Retail Distribution – Own branded and other retail chain as Bell-Park , Own distribution
 Portals and Resellers – Own Portal and Bell Park Portals.
Fig 10: Value chain for Mobile Operator (Source: Bharti’s presentation to mobile congress 2008)
Fig 11: Value chain for VAS – Softbank future strategy (Source: google.com)

9. Page 9 by Rahul Sarkar
Section 6
Potential Strategy Alternatives
ALTERNATIVE 1: As Masayoshi Son, CEO and
founder of Softbank said ‚‚We believe that online
investing is going to be one of the highest growth
business segments of the next decade‛, it is
imperative Softbank will go global and form JV in
new markets. In past 2 years we saw Softbank
moving to India and China and European market.
In India they have already set a JV with Bharti
telecom & set up a 50:50 entity for mobile internet
space. Similarly there are recent investments in
InMobi, Visual revenue, and Kingfish labs which
show how Soft bank is also moving towards
mobile advertising. And finally invest on the
ecosystem deploying a unique business model
combining both telecom services and gaming in
SE Asia similar as Tencent in China.[12]
ALTERNATIVE 2: Softbank Corp has always
played on the price. With the acquisition of
Vodafone, it was really challenging for them to
reduce cost and make it as a differentiating factor.
They have to reduce operational cost by
outsourcing the most costly parts of their value
chain. They can outsource installation and
maintenance of their network to network
operators. While better customer relationship,
growing revenue stream are very important but,
at the same time, decreasing operational cost is
essential. In order to do so, they can do the
unexpected and outsource the IT and networking
services while staying purely focused on
marketing, sales and distribution of the value
chain similar to Bharti in India. [4]
ALTERNATIVE 3: Leveraging the knowledge of
the crowd: Open Source Freebox Business Model
Innovation. Recent patent filings like ‚Enhanced
TV‛ show their interest in TV business. Although
nothing concrete has happened but surely they
can do something with their exceptionally good
backhaul network. They can bring free internet
television to the end consumer, develop own
‘freebox’ - an internet television set-top box for
households. Roll out freebox based on triply play
strategy connecting mobile devices, TV and
internet together. This can be recognized as one of
the most important innovation drivers and keep
on adding new services and features. [4]
Fig 12: Growth of T&M business with mobile broadband
(Source: www.sharedresearch.jp/en/Anritsu)

10. Page 10 by Rahul Sarkar
Section 7
Recommended Alternatives
With so many great alternatives, following are the most recommended to Softbank Strategy.
RECOMMENDED 1: Masayoshi Son said
‚‚Japan has the infrastructure for this kind of
service, so it would be a shame not to use it.‛
MVNO will be the next big thing. Since
Softbank has started moving to global
locations, MVNO will help him in
consolidating. Softbank can become a MVNO
(mobile virtual network operator) operating in
the Japan and other countries and offers cheap
mobile telephony. Softbank with its stake in
InMobi can entice advertisers to pay for the
minutes on MVNO and align with the
extensive personal profiles completed by the
subscribers in advance. This will increase
advertisers’ rate of convergence enormously
and saves some boring ads on the mobile
phones for the customers. It is a business
model driven by advertisers. [4]
RECOMMENDED 2: Softbank can use an
innovative plan as used in Finland by Fon
wherein they encourage wireless internet users
to share their bandwidth for the community.
Consumers who share their wifi will get access
to all other wifi access points in the community
all over the world. The wifi-sharing
community shares in the revenues stream
which is gained by the non-softbank who pay a
small fee for accessing the network via mobile
or laptop. Softbank can leverage on its JV in
other countries and access their network to
provide this service. This consolidates their
ecosystem and customers can now use mobile
as a wifi spot plus access other networks via
their smartphone. [4]
Fig 13: Convergence
using backhaul
network and mobile
network – MVNO,
hubspot (Source:
www.mmc.co.jp)

11. Page 11 by Rahul Sarkar
Section 8
References
1. ftp://ftp.unibocconi.it/pub/RePEc/cri/papers/WP199CorrocherZirulia.pdf
2. http://www.scribd.com/doc/2335648/Innovations-of-Mobile-Communications-Standards-
and-their-applications-for-telecom-companies
3. http://itseurope.org/ITS%20CONF/berlin04/Papers/GerumSjurtsStieglitz_paper.pdf
4. http://www.shakingupthevaluechain.com/2009/01/five-inspiring-business-model-
innovations-in-the-telecommunication-industry/
5. http://www.tomspencer.com.au/2008/08/17/porters-five-forces-model-analysis-
framework/#section1
6. http://www.bellpark.co.jp/en/ir/pdf/19th/en_19q_setsumeikai.pdf
7. http://www.analysysmason.com/About-Us/News/Insight/Insight-merger-acquisition-
Asia-Pacific-Mar2012/
8. http://www.reuters.com/article/2012/04/16/us-softbank-nokiasiemens-
idUSBRE83F09R20120416
9. http://www.whioam.com/softbank-is-betting-on-twitter.html
10. http://www.virtual-strategy.com/2012/06/08/research-and-markets-next-generation-
network-japan-market-trends-challenges-and-prospects
11. http://www.softbanktelecom.co.jp/en/news/press/2007/20070528_01/
12. http://www.crunchbase.com/company/softbank
13. http://www.ft.com/cms/s/2/01d53e7a-ad0a-11da-9643-
0000779e2340.html#axzz1xNpF0ycE
14. http://www.japaninc.com/ww153
15. http://en.wikipedia.org/wiki/SoftBank_Mobile
16. http://en.wikipedia.org/wiki/SoftBank
17. https://dspace.lib.cranfield.ac.uk/bitstream/1826/2688/1/From%20Value%20Chain%20to%
20Value%20network%20-%202006.pdf
18. http://thinkexist.com/quotes/masayoshi_son/