Prepare for some grim reading. There wasn’t a lot of good news on Vodafone’s Eastern Front, for the short term at least, arising out of Vodafone K.K.’s November 18-announced first-half financials. It is eerily quiet in the Little V machine gun nests out here on the 3G frontier. Vodafone K.K. faces gently sliding ARPU, wilting subscriber uptake and a long haul launch for a fully-fledged rollout of cutting-edge 3G keitai. “Japan Telecom Holdings (JTH) stock finished down 15 percent for the day after posting first half earnings,” notes CSFB senior telecoms analyst Mark Berman. “The market is essentially saying that it has completely lost confidence in both the competitiveness of Vodafone in Japan, and believes further that the current … management is more concerned with appeasing parent Vodafone than it is with rewarding minority shareholders,” he writes this week. On the other hand, the basis for a big comeback could be on the cards for next summer. We’ll give an overview of these points below, but before we start blazing away ** we’d like to sincerely apologize to Vodafone K.K. for our mucking up an item in the Happy Packet discount series in last week’s newsletter. For the record, packet rate slashes DO apply to 3G, and we said they didn’t ** Honto-ni, gomen nasai, Vodafone-Sama! WWJ subscribers log-on and in..
November 18′s Japan Telecom Holdings Co. Ltd. figures show that Vodafone K.K.’s net income fell 5.4 percent to 70 billion yen ($642.1 million) from 74 billion yen last year. EBITDA margin was up 30.9 percent from 30.7 percent for the same period a year ago.
Net additions have plunged: Little V’s share of net additions compared to DoCoMo and KDDI has plummeted to 11 percent over the past summer quarter. J-Phone’s share was in the mid-high 20s last year and 30 percent in spring 03. 03 now equals Oh dear.
New subscriber adds fell to 26,000 in September but recovered a little to 33,000 in October. That doesn’t do much for the company’s claim to have lowered acquistion costs from 36,400 yen for the half year to 32,000 yen for the same period last time. And compare Little V’s uptake to to KDDI’s October gain of 185,900, and DoCoMo’s 146,000.
ARPU continued its steady graceful decline (Note Vodafone says ARPU has stabilized.)
1H 00: 7,900 yen ($72.45)
2H 00: 7.500 yen
1H 01: 7,900 yen
2H 01: 7,400 yen
1H 02: 7.350 yen
2H 02: 7,180 yen
1H 03: 6,970 yen ($63.94)
And while Vodafone K.K. ARPU saw a 2.7 percent decline, ARPU was up 2.3 percent in Italy, up 1.7 percent, in the UK and stable in Germany. Of course, volumes and prices are different (very different! See Daniel Scuka’s previous VP ) But considering the huge and tremendously successful efforts J-Phone made to boost packet data with sha-mail and movie-sha mail and great handsets, the lack of new, cutting-edge PDCs over this summer seems to have played its role to cutting about a 1,000 yen per subscriber per month cut in ARPU from a couple of years ago. Ouch!
The number of prepay customers topped a million in the first quarter of this year and is set to pass 1.25 million, probably in the Christmas season, when little Taro gets something hi-tech tangled in his stocking. Vodafone sees this as a positive sign.
Global Standard 3G has continued to add few subscribers, with 5,600 net adds for October. Vodafone 3G users are now nearing the 90,000 mark as we write and might break 100,000 in the New Year. This still leaves the company a distant third and far behind DoCoMo’s 1.3 million FOMA subs and KDDI’s 10.7 million CDMA 1X users.
‘The first half of fiscal 2003 was challenging with our competitors [sic] offering a wider and more attractive range of handsets and price plans,’ said Vodafone’s Green in a November 18 canned statement. A statement that also seems to sum up the gist of our recent viewpoints on the state-of-play between the V-D-K carrier triptych.
A Tokyo-based telecoms analyst who (unfortunately) declined to be named for this Viewpoint told us that he thought, ‘Vodafone has dropped the ball.’ In particular, the old J-Phone’s ability to come out with new keitai and services on its PDC network to compete with KDDI and DoCoMo (in fact to boldly innovate), said the analyst, seems to have been buried in the larger integration issues of absorbing the former J-Phone into the larger Vodafone group. ‘Things (innovations) come in waves. Where is Vodafone’s answer to the 505i series, or KDDI’s flat rate for data” the analyst mused.
We note that the Japanese journalist next to Kallender at the press conference was unable to suppress several sniggers when Green told us that the Bowlingual phones coming shortly and the Happy Packet series of discounts would be the first steps to recovery. Was the Japanese journalist thinking, ‘is that it”
The market, as Berman noted, certainly put the boot in Japan Telecom’s share prices.
‘The damage to Vodafone’s reputation in Japan from the negative press would likely adversely affect their local employees and suppliers as well, having a material impact on Vodafone Japan operations as a whole going forward. Unlike in the other countries where they operate, Vodafone is in a relatively weak position and cannot afford the degree of negative press that they are receiving. As of today, we question whether management at Vodafone understands this connection, and is willing to to address it,’ writes Berman.
We can second that. Green was less than convincing when he faced the inevitable (and, at the moment, rather pointless) question about Vodafone K.K.’s original one million 3G subscriber targets. It’s something that, clearly, he’d rather not talk about anymore. It looks like a long, cold dark winter could be ahead for this Vodafone outpost.
Or does it?
We choose to understand Green’s strategic argument that next year will be one of recovery for Vodafone K.K. When we look more closely, it seems that Little V has performed a real work of art in integrating the old J-Phone into the fold. And, hang on’ there were also a bunch of good performance indicators in the financials too.
‘While we accept that some operational risks exist, the fundamentals-especially when looked at on a long-term outlook-do not justify the massive drop we saw yesterday,’ Berman noted. And we agree.
We, in turn, note that Vodafone K.K.’s market share remained stable at 18.6 percent. Little V grew their service revenue by 8.2 percent year-on-year, with data revenue percentage hitting 21.6 percent in the first half. Operating revenues were up 6.2 percent, hitting 756 billion yen ($6.94 billion) compared to 712 billion for the same period last year. Service revenues got an 8.2 percent boost to 615 billion yen ($5.64 billion) compared to 569 billion yen last year.
‘When it comes to pure telecoms revenue, we have seen a lot of growth there, business continues to grow,’ said Matthew Nicholson, Vodafone K.K.s spokesman.
What’s in a name’ The brand change cost more than chump change, and figured into the 8.9 percent increase in operating expenses to 634 billion yen for the half year. But, for that, and the chance to get its mits on best keitai technologies in the world, the company says it’s smoothly switched 1,883 shops, 600 signs and mainly kept its brand awareness, which is, the company claims, hitting over 80 percent. We didn’t ask what kinds of people Vodafone has asked, how many, and where, so the figure is just a number to us. But on the ground, under the ground and even driving along Tokyo’s clunk-de-clunk-de-clunk elevated highways, we can tell you it’s impossible to move around this metropolis for 5 minutes without meeting a Vodafone billboard or advertisement of some sort, as we mentioned in an earlier viewpoint.
Saying that, someone ought to tell quasi-governmental state broadcaster NHK, which often reports on DoCoMo’s financials in its evening news. Also on its November 18, 22:00 news, NHK interrupted its usual diet of world events, for example segments devoted to topics such as Japanese carp herpes, the nation’s bid to win volleyball medals, and the twist-turn-writhe positions of the (STILL- FOREVER’) ruling Liberal Democratic Party’s decision to send Japan’s ‘Self-Defense Forces’ to get shot to bits/bombed to pieces in Iraq’(pause for breath…) to focus on meiwaku (nuisance) mail. DoCoMo, KDDI and ‘other carriers’ are again fighting to keep up blocking the best efforts of the spam and sex industries, which always seem half a step ahead in finding ways to bypass the generally diligent measures taken to keep unwanted rubbish off our brilliant LCD screens.
Who are these “other carriers,” we wonder’
Also, spam is, unfortunately, back on the keitai menu again, and this issue will be materiel for a VP soon.
The First Light/Dawn of Vodafone 3G
The buildout continues. There is more good news. While Hutchinson 3, for example, has had toil and trouble with its network, Vodafone K.K. has 97 percent population coverage and, propping up that, more than 13,000 basestations in and humming as the year ends. There have been some minor issues, but the network, we hear, works. The company hopes to boost its basestations to 20,000 by October 2004. Something approaching 90 percent of the company’s approx 250 billion yen capex budget this year will have gone to 3G infrastructure.
A Phone! A phone! My Kingdom for a set of decent 3GPP-compatible Phones!
But the issue is not, now, perhaps, networks. It’s phones. And there is some bright news here as well. On 2.5G, Vodafone– despite not launching waves of new model lineups recently to compete, for example, with the 505 and 505i series from DoCoMo– does have the V601N, V610SH and V101D. The Sharp SH boasts a two megapixel camera, while the V601N NEC TV-tuner phone we cuddled up to is also impressive (battery issues not withstanding) with good reception on most channels. Mind you, we only got to test drive it in Vodafone’s lobby, so we can’t fully vouch for its performance yet.
Vodafone’s original schedule to have its first 3G global models ready for October was torpedoed by handset technical problems that delayed both the Sanyo V8101SA (out on December 1) and the V801SH by Sharp (in the stores, and hopefully — for Vodafone — in pockets, in February or March 2004. But we can say one thing; we’ve gotten our sweaty palms on the new slick Sanyo slider and we can tell you, it rocks!!! Even though it’s a slider and not a clamshell, the author felt like Captain Kirk!
As Vodafone’s Nicholson says, you can potentially use it in the United States, Europe, Asia (Korea being a bit, ahem of a cdma issue), roaming in 81 countries to send your 40-second sha-mails, with SMS available in 70 countries and GPRS roaming in 26 countries. It’s a pity he couldn’t tell us where you can pick one up. That might be good to know, you know…
As to the new tear-shaped Nokia 7600, out ‘sometime’ next year, we’ll reserve judgment. But we note that Vodafone gets very shy when we ask them when the Nokia’s shipping. It’s easy to knock Nokia at the moment. It’s either a stunning or a dreadful design, and it’s great to see Nokia with gloves off really allowing innovative ideas to flourish. We think that poses well for everyone. If Nokia are going to go toe-to-toe with Samsung, with the Korean behemoth’s ability to flood high-spec, dirt cheap product on the market, they’re going to have to move their ideas up a notch or two.
Green repeatedly plugged Vodafone’s current strategy of narrowing price differentials between upgrades and new phones. More importantly, Green’s promise to the market is that with the new hefty packet rate slashes, including the ability make long-distance calls for 5 yen a minute, plus still-competitive 2.5G offerings, plus fun-quirky-barking mad stuff such as Bowlingual, plus the TV phone, Vodafone remains COMPETITIVE. They’ve executed a massive transition without any major cock-ups we’ve heard of at least in the Vodafone K.K. corner. And they are thinking big. Then there is the global horsepower. When Vodafone gets into gear, they can build compelling reasons to get the best (phones) out of the best (= Japanese makers). Samsung are claiming that the U.S. cdma market is theirs for the taking. For Japanese handset makers, now, Vodafone is thier global oyster. Fingers crossed that components schedules for memories, screens, tuners, SAWs, batteries, CAMERA MODULES and the like are all being managed well. In the longer run, we buy Green’s argument that the learning curves getting the Sanyo and Sharp 3G models out make for good news next summer when Vodafone will be able to unleash a tsunami of great phones (mainly from Japan, we suspect) on a coordinated platform.
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