SoftBank Business Strategy

Domestic Telecommunications Business Strategy : “Beyond Carrier : Transcending the Boundaries of a Telecom Carrier” Ken Miyauchi

Expanding the customer base of the telecommunications business for our next growth phase

At present, SoftBank Corp. is rapidly transforming into an entity that transcends the typical business field of a telecommunications operator by advancing a Beyond Carrier strategy. Aiming to sustain growth over the medium to long term, this strategy calls on us to leverage our broad telecommunications customer base to extend our business into the service and content fields and related areas while expanding this customer base.

In the telecommunications business, with our sights set on the coming five to 10 years, we positioned fiscal 2016 and fiscal 2017 as a period of up-front investment to expand the customer base. During this period, we actively grew sales through efforts that combined three brands: the smartphone brands SoftBank and Y!mobile and the fiber-optic broadband service brand SoftBank Hikari. SoftBank Group Corp.'s domestic telecommunications segment income decreased 5.1% year on year, to ¥683.0 billion, due to discounts on communication service charges resulting from an aggressive marketing strategy based on the Home Bundle Discount Hikari Set, which provides a discount for customers subscribing to both mobile services through their smartphones and SoftBank Hikari broadband services, and the Giga Monster high-volume data plan. However, we steadily expanded the customer base as planned. In fiscal 2017, we achieved steady increases of 1.69 million in the number of smartphone subscribers net additions and 1.38 million in the number of SoftBank Hikari subscribers net additions.

In smartphone services, both our mainstay brand, SoftBank, and the inexpensive sister-brand Y!mobile have been steadily acquiring new subscribers. This reflects the fact that the brands, which in their first couple of years were attempting to establish their uniqueness in the market, have clarified their positioning and are accurately catering to customer demand. The SoftBank brand targets customers who want to enjoy a smartphone experience with the latest device and on a high-volume data plan. We believe that customers enjoying the user value gained from these plans feel that even a monthly cost of around ¥8,000 is a fair price. Of course, this is not representative of all customer demand. For customers who want to minimize monthly costs and only need an older-generation device for simply e-mailing and using social media, Y!mobile is the most appropriate option. Since each brand's positioning has become clear in this way, we do not have to be as concerned about competition between the brands as we once were. For example, we used to worry that if the same store carried both brands, customers would only be interested in low-priced Y!mobile products. Currently, however, it is not unusual for customers who visit stores seeking Y!mobile products to compare the brands and select SoftBank products. As of the end of fiscal 2017, we had a network of more than 1,000 double-brand stores.

Up-front investment for customer base expantion

Up-front investment for customer base expantion

Another way in which we are expanding the customer base is to strengthen collaboration with Yahoo Japan. By providing a range of benefits to users of SoftBank and Y!mobile smartphones, such as giving users 10 times the standard reward points for purchases through Yahoo! Shopping and offering Yahoo! Premium membership service for substantially free, we are heightening the value of the services that both brands provide. This is a particularly effective way of retaining customers.

We expect to see increases in revenues and profits in fiscal 2018. This reflects the steady expansion of the customer base resulting from the abovementioned up-front investments and a slowdown in the decline in ARPU, which was previously trending steadily downward.

Developing 5G network for the IoT era

At the same time as expanding the customer base, we are strengthening our network in preparation for the coming of the Internet of Things (IoT) era. These efforts are focused on 5G, which is based on a next-generation mobile communication system. We are steadily advancing preparations for the scheduled commencement of 5G services in 2020. For example, in April 2018 we began a low-price, energy-saving telecommunications service for IoT devices, NB-IoT, targeting corporate customers. Also, we acquired spectrum in 3.4GHz band for use in pre-5G services.

Concerns have been expressed that the construction of the 5G network may cause capital expenditures to increase again. However, even with the inclusion of 5G-related investment, we expect to be able to keep the annual capital expenditure ceiling at its current level of ¥400.0 billion, as SoftBank Corp. already has numerous base stations. In particular, it has a large number of small cells, which cover radiuses of several hundred meters. Therefore, we do not need to make major investments in location acquisition or for the installation of new base stations—the costliest items in network development capital expenditures. We have this compatible infrastructure because initially, lacking platinum band spectrum, we developed a network of base stations with 2.1GHz spectrum as our main band. Moreover, after acquiring eAccess and WILLCOM, we were able to use their base stations without modification.

Full-scale penetration of IoT will require 5G network that simultaneously interconnects wireless sensors embedded in a huge number of devices. In Japan alone, there are likely to be well in excess of 10 billion connections. Although the volume of data transmitted and the cost of transmission per devices are expected to be low, given the numbers and growth potential as well as the potential for expanding related services, we believe that the advent of IoT will be a major business opportunity for SoftBank Corp.

Planting the seeds of new businesses

As mentioned at the beginning, SoftBank Corp. is advancing a Beyond Carrier strategy with a view to sustaining growth by expanding the customer base of its telecommunications business while leveraging this broad base to extend its business into the service and content fields and related areas. As part of these efforts, in fiscal 2017 we planted the seeds of many new businesses in peripheral fields. In appropriate circumstances, we are bringing the world-leading business models of SoftBank Vision Fund and Delta Fund investees to Japan and rolling out the business models by capitalizing on the customer base and personnel of SoftBank Corp. For example, we have established a joint venture with WeWork of the U.S. and opened five “co-working spaces” in Roppongi, Ginza, and other locations in Tokyo as of the end of July 2018. We plan to open another location in August. We are also advancing joint ventures with companies that are not investees of the funds. Joint ventures that we have established with China's Alibaba, an investee of SoftBank Group Corp., and U.S. company Cybereason, a SoftBank Corp. investee, are providing cloud services and cybersecurity services, respectively in Japan.

Further, we are not limiting these initiatives to Japan. We are considering jointly developing these new businesses in a similar manner in China and other parts of Asia. By incorporating services that have the momentum to attract people worldwide, SoftBank Corp. plans to create drivers of the medium to long term growth.

Increasing efficiency through structural reform

As well as the growth strategies that I have been outlining, we are tackling thorough structural reform. One such initiative, our Smart & Fun! workstyle reform, has led to significant benefits. Launched in fiscal 2017, this initiative is not only tasked with reducing overtime work. Instead, the main concept is to use IT to work in a smarter and more enjoyable way. Accordingly, we are automating and increasing the efficiency of work through the use of AI and robotics and encouraging employees to make effective use of the freed-up time for self-development. As the initiative has progressed over the past year, not only has average monthly overtime work decreased per employee, but I feel that the mind-set of employees has also changed. Evidence of this change is that employees in frontline operations have spearheaded the launch of more than 400 projects focused on reforming operational processes. We want to use IT to make the details of the duties that each employee performs and the skills that they use more visible. This visualization will enable us to assign exactly the right people to exactly the right jobs and thereby fundamentally improve operational efficiency. Further, systems we are currently introducing—such as systems encouraging employees to leave the office on time, use the super flextime system, or consider partial telecommuting—are producing some benefits. Going forward, we plan to introduce full telecommuting and other systems to create a flexible working environment that will allow employees to work virtually anywhere.

Preparing for major transition

Through a series of acquisitions, the SoftBank Group has created a telecommunications business from scratch. Regardless of which company they come from or their previous careers, personnel with diverse backgrounds have focused on what needs to be done now, tomorrow, and in the future and made concerted efforts to tackle tasks. In the telecommunications and information industries in which SoftBank Corp. is based, change is extremely rapid and dramatic. If we do not remain vigilant, we can miss in a flash the shifts in industry trends that may occur. Accordingly, we must remain at the forefront of our industry, which makes our corporate culture of thinking outside the box without being constrained by precedent an extremely valuable asset. Also, the use of leading-edge technology in our own operations adds authority and differentiation to our businesses. While using well-devised governance methods to preempt the emergence of “Big Company Syndrome” —the innovation stagnation often prevalent in large corporations— we will continue to value the unique corporate culture of SoftBank Corp., which is in fact the source of our competitiveness, and move forward with the Beyond Carrier strategy.

Aiming to become a strategic holding company in accordance with the Cluster of No.1 Strategy, SoftBank Group Corp. has decided to prepare for the listing of SoftBank Corp. Accordingly on July 9, 2018, SoftBank Corp. made a preliminary application to list its shares on the Tokyo Stock Exchange. If the listing takes place, SoftBank Corp. will manage its business even more autonomously and independently than before. To meet the expectations of shareholders and other stakeholders, we will establish a strict governance system that compares favorably with those of other listed companies and focus strongly on accomplishing the goals that we set out.