Much like advertising itself, the Japanese telecoms market has long been dominated by three main players. According to recently published figures of the Telecommunications Carriers Association, NTT DoCoMo claims a roughly 45 percent share (70.9 million) of the mobile phone subscriber market in FY2015, followed by KDDI with an about 30 percent share (45.9 million) and SoftBank with about 25 percent (39.6 million). These are highly profitable enterprises, earning combined net profits last year in excess of US$15 billion.
But the road ahead for the three giants does not look to be an easy one.
Lars Cosh-Ishii, founder and managing director of consultancy Mobikyo, notes that these companies do not release precise figures on how much they spend on advertising, but it’s clearly a lot: “Annual stated advertising expenses ran above US$50 million for DoCoMo alone in 2012, about half of their impressive R&D budget, so it would be reasonable to suggest the collective total across all three might well exceed US$100 million,” he said.
The pie they are fighting over, however, is not getting much larger, as the aggregate size of Japan’s smartphone market has nearly stopped growing. There is already an average of 1.5 devices per person.
Efforts to promote telecoms services remain intense. Indeed, about 5 percent of all ads broadcast on Japanese television are from these three companies alone.
Kentaro Yoshida, a telecoms industry consultant at Dentsu, notes that not only has the scope been vast, but also the quality of the major advertising campaigns run by these companies has been very high within the context of other sectors. Campaigns such as SoftBank’s long-running ‘Otosan’ remain extremely popular with consumers, according to the CM Research Laboratory (CM総合研究所). A KDDI campaign featuring characters from traditional Japanese tales was found to be the most popular campaign in Japan, Yoshida said.
But he observed that although these campaigns have received very good reviews from consumers, they have “not led to better business results”. The business impact of creatively acclaimed work online, where Telcos have become more adventurous in recent years, with the likes of DoCoMo’s ‘3-Second Cooking’ videos, is also questionable.
The three telecoms giants are now facing a serious threat from below. Yoshida says that around 10 percent of smartphone users use companies other than DoCoMo, KDDI and SoftBank. “This trend is growing rapidly,” he said. “Last year it was 5 percent and it has since doubled. I consider these companies to have a lot of momentum at the moment.”
There are already more than 20 of these smaller players, some of them with recognisable brands such as Aeon Mobile, Biglobe, Yamada Sim, U-Mobile, and Rakuten Mobile. Among these companies with smaller shares but often lower fees for their customers, Y!mobile seems to be distinguishing itself among the public with more than 1,000 actual stores and a popular ad campaign featuring a housecat.
Cosh-Ishii noted: “The last few years has seen a rapid increase of Mobile Virtual Network Operators re-selling the established players’ excess capacity, with estimated volumes counting into the 10 million+ subscriptions range, and the highly popular Line platform just announced they will also enable services from this summer. It will be an interesting segment to watch as the matrix of SIM-free devices, cost per gigabyte of data and compared quality of service all remain somewhat fluid, while awareness of alternate options is certainly increasing.”
The big three understand that they are under assault and, while profits are still strong and any immediate impact on their business will be small, see the need to modify for the future. They are responding with a plethora of loyalty plans, point cards, and other benefits to reward customers who stay put. SoftBank in particular is taking steps to diversify, having recently spent $32 billion to buy the UK chip designer ARM.
With regard to customer incentivisation, Yoshida said that this increasing complexity of plans and benefits is itself giving rise to another problem, which is that many Japanese consumers are simply overwhelmed by the many options before them. “The biggest task faced by the industry right now is educating people so that they will be able to use these services,” he says.