Softbank acquires Vodafone (Japan) for $15.5 billion

Japanese internet service provider, Softbank Corp., in its bid to realize its dream to become a communications powerhouse in Japan, is all set to buy Vodafone’s Japan business for 15.5 billion (1.8 trillion yen) and hence establish a strong foothold in Japan’s $78 billion mobile market. The sale is scheduled to be completed in the first half of the next fiscal year, which begins April 1. This would amount to the purchase of 97.68 percent stake in Vodafone by the company.

The U.K.-based company, Vodafone, is said to be pulling out of Japan less than five years after entering Asia’s most advanced cell phone market, just ahead of the implementation of changes that promise to shake up Japan’s mobile market and squeeze the subscriber base of third-place Vodafone.

These changes include the introduction of number portability, which lets subscribers keep their old phone numbers when they switch providers. However, speaking at a press luncheon in Tokyo, head, Masao Nakamura suggested his company would benefit from the introduction of portability, saying, "We don’t expect any net loss in subscribers.’’ He also pointed out that when portability was introduced into the U.S. market in late 2003, companies lost fewer subscribers than had been predicted, but there was a high rate of complaints about how the switches were carried out.

Another upheaval that Vodafone would have had to face is the planned entry of three new companies, into the already crowded market. Interestingly, one of these new entrants is going to be Softbank. Hence, the purchase of Vodafone’s Japan operations by billionaire founder Masayoshi Son implies that Softbank directly gets 15 million customers and saves on the cost of building a mobile infrastructure from scratch.

Also, Vodafone’s mobile phone business in Japan has suffered from weak sales of its third-generation (3G) phones, management changes and mass defections of customers that once set a monthly record high for the industry.

Another reason that the quick exit is being attributed to is, Sir Christopher Gent’s yielding his honorary post as non executive chairman and life president of the company. Before he stepped down as chief executive in May 2004, Gent had overseen much of Vodafone’s expansion into overseas markets, including Japan.

Making the formal announcement, CEO, Vodafone, Arun Sarin, said, “It has become increasingly clear that the greatest operational benefits come from strong local and regional scale. In the case of Japan, we have been making progress on the turnaround in recent months. However, given the relative competitive position of the business, the reduced prospects for superior long-term returns and a good offer from SoftBank, the board took the decision to sell.

Reacting positively to the news, shares of Vodafone rose $0.18 to touch $22.92, while shares of SoftBank climbed ¥120 ($1.03) to ¥3,140 ($27.00).