Softbank driven by investments, acquisitions

Japanese Internet company isn't afraid to take on big players through acquisitions

In 2001, Nippon Telegraph and Telephone, Japan's dominant telecom provider, got a shock. It had just started DSL broadband Internet service and was taking its first steps toward reaping the benefits of an ambitious and costly plan to string fiber-optic cable along every street in the country when along came Softbank.

Emboldened by a few shrewd investments in Internet startups, including a particularly successful investment in Yahoo, Softbank decided having its own Internet connection business would mesh well with its stable of startups, and the company wasn't afraid of busting down NTT's doors to do it.

Softbank's DSL service debuted at less than half the price of NTT's, forcing the bigger company and other competitors to scramble to match it. Aggressive investment in the latest technology meant that within months Softbank wasn't just delivering cheaper DSL but a faster service. And an equally aggressive marketing campaign had sales people on the streets across Japan offering free DSL modems to anyone who signed up.

The move by Softbank was all the more impressive because at the time the Japanese telecom market had severely limited competition. The few independent carriers usually pegged their prices just a fraction below those of NTT, and for the conservative Japanese consumer, lower prices were never enough of a draw to attract big numbers away from the stability, size and reliability that NTT stood for, but Softbank's offer was too good to pass up.

Softbank's bold move into Japan's DSL market symbolized the way it has done business ever since: It's not afraid to take on the big players, it's used to not being taken seriously at first, it's favorite tools are pricing and technology, and CEO Masayoshi Son has no problem making big financial bets on acquisitions to get the company where he wants it. Thursday's news that the company is in negotiations with Sprint to make what could be a "substantial investment" -- or even an outright acquisition, according to a report in the Japanese business newspaper Nikkei -- of the third-largest U.S. carrier is in line with Softbank's strategy.

The company began life in 1981 as a distributor of computer software and publisher of computer magazines. For its first decade it kept to the software and publishing business, but a series of expansions began in the early nineties and picked up pace from the middle of that decade when it acquired a stake in then start-up Yahoo. Within months, Softbank's shareholding had risen to over 37 percent of the company -- a bet that fueled Softbank's business expansion as Yahoo shares climbed.

Early deals included the acquisition of U.S. publisher Ziff Davis and a joint venture with Rupert Murdoch's News Corp. to attempt to break open the Japanese satellite broadcasting market. Over the years, the company has invested in a string of startups and today owns stakes in two of China's biggest Internet companies: Renren and Alibaba.

But perhaps more so than the Internet, the cellular market is where Softbank has made its mark.

In the mid 2000's as Japan looked to increase competition in the domestic telecom sector, Softbank had finally won enough respect from the government to be awarded a mobile license -- something that has never just come down to money in Japan -- but it wasn't the type of spectrum the company wanted.

Despite pressure from Softbank, no more spectrum was forthcoming so the company pounced when the U.K.'s Vodafone decided it wanted to leave Japan. Vodafone had entered Japan a few years earlier with the acquisition of the number-three carrier but had limited success in pushing global phones and services to finicky Japanese consumers.

Softbank acquired Vodafone Japan and within months the mobile phone market got the same jolt of competition that the DSL market had gotten five years earlier. The company took on significant amounts of debt to make the acquisition but managed to pay it off by slowly selling down its stake in Yahoo.

Masayoshi Son has spoken frequently of his great admiration of Apple founder Steve Jobs and was responsible for introducing Japan to the iPhone in 2008. At the time, Japan's cellular market was its own little bubble, full of domestic handsets that didn't sell overseas and with none of the foreign brands that were fast becoming popular worldwide.

Initially, analysts were unsure how the iPhone would be greeted by Japanese consumers, so Softbank's commitment to launch the phone was a bet of faith, but the phone proved to be a success. Its introduction woke Japanese consumers up to the existence of quality beyond the nation's shores, and sent Japanese handset makers into a tailspin from which they are yet to recover.

Now the iPhone is the hottest handset in Japan and even though its also carried by a rival carrier, Softbank continues to be its greatest flag waver in Japan.

Recently, Softbank announced a deal to acquire data-centric mobile operator eAccess for a deal worth $2 billion. The acquisition, when complete, will make Softbank the number-two carrier in Japan.

If Softbank does acquire third-ranked U.S. carrier Sprint, the U.S. could be the next market to witness Masayoshi Son's bold business style.

Martyn Williams covers mobile telecoms, Silicon Valley and general technology breaking news for The IDG News Service. Follow Martyn on Twitter at @martyn_williams. Martyn's e-mail address is martyn_williams@idg.com

This story, "Softbank driven by investments, acquisitions" was originally published by IDG News Service .

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