Global Insight Perspective | |
Significance | Following the acquisition, KDDI, Japan's second-largest mobile operator, will become the fourth-largest provider of fibre-optic communication services in the country. |
Implications | The deal will enable KDDI to tap into the growing demand for faster download of data-centric multimedia services. The operator also seeks to offer new services, including bundling fixed-line and mobile, to attract customers. In addition, the operator will be able to reduce future operating costs, by avoiding leasing fees it paid to NTT for fibre-optic network access. |
Outlook | Subscriber growth for FTTH services has exceeded that for DSL services since the first quarter of 2005; this trend looks set to continue in the near future. The competition is also expected to increase, with more operators hoping to tap into the growth opportunities. |
KDDI President Tadashi Onodera said the company would offer 144,596 current and newly-issued shares—the ratio of which would be determined later—for the TEPCO unit on 1 January 2007. The company did not disclose the value of the deal. The Nihon Keizai Shimbun valued the deal at over ¥100 billion (US$838.4 million). The two companies will also set up a joint venture corporation around January 2007 to build and maintain the TEPCO optical network, which serves about 340,000 customers in the Tokyo metropolitan area. KDDI and TEPCO already have business ties. At the beginning of this year, KDDI acquired TEPCO's telecoms unit PoweredCom in a ¥127.48-billion all-stock deal aimed at bolstering its fixed-line business.
Outlook and Implications
- KDDI to Become Fourth-Largest Fibre-Optic Service Provider: In addition to acquiring the fibre-optic infrastructure, KDDI will also take over the utility firm's customer base, boosting its chances of catching up with the industry leader NTT. The combined number of subscribers to the two companies' fibre-optic services stood at 530,000 as of the end of last month, while NTT East and West, the two regional units of NTT, dominated with 4.72 million subscribers. The deal will create the country's fourth biggest provider of fibre-optic services by subscribers, following NTT East, NTT West and Usen Corp, and help KDDI tap into the growing demand for faster download of data services, such as music and video. KDDI is seeking new services to improve earnings in its fixed-line operation, which posted an operating loss of ¥61.3 billion in the year ending March 2006. That compares to the company's overall operating profit of ¥296.6 billion, thanks to gains from its popular mobile services. The country's second-largest mobile operator also plans to bundle its fixed-line with its "au" mobile services. In addition, the deal will free the operator from leasing fees it paid to borrow network access owned by NTT. KDDI will also avoid construction costs for connecting to NTT optical lines, as well as gaining the ability to expand the network in line with market demand without depending on NTT.
- FTTH Status in Japan: The FTTH subscriber base in Japan has undergone significant growth since the third quarter of 2004, as the Japanese broadband market moves towards high-capacity broadband technology to satisfy continued demand for multimedia and entertainment services such as video-on-demand (VOD). At end-2005, the number of FTTH subscribers amounted to 4.64 million, accounting for 20.7% of the country's total broadband subscriber base. The number of FTTH subscribers has exhibited steady growth, to the point where FTTH is now the leading contributor to overall growth in broadband services. During 2005, FTTH services recorded net growth of 2.21 million subscribers, compared to a 1.15-million subscriber increase for DSL. Net subscriber growth for FTTH services has exceeded that for DSL services since the first quarter of 2005; this trend looks set to continue in the immediate future.
- NTT's FTTH Plan: NTT aims to 'shift 30 million customers to optical fibre access and next-generation network services by 2010' (this does not mean that NTT will have 30 million FTTH customers, but that FTTH will be installed in 30 million customer premises). Despite the benefits of migrating to an IP platform, NTT should avoid attempting to do so at all costs, or it may suffer from issues such as steep price cuts. Given that the price of connectivity will fall further, due to competitive pressures, NTT will need to sell extra services—such as TV programming, VOD and gaming—to support revenue growth. As the experience of its mobile unit NTT DoCoMo has shown, subscriber growth will not in itself lead to an increase in spending per customer. Despite rapid 3G subscriber growth, DoCoMo has experienced average revenue per user (ARPU) erosion, as a result of intense price competition and the migration of customers onto flat-rate plans (see World: 26 January 2006: Mobile Metrics—Asia Leads the Way in the Global 3G Market).