Softbank moves could prompt U.S. price war and talking dogs

The Japanese company already offers cheaper prices at home than potential partner Sprint in the U.S., despite the strong yen

If Japan's Softbank barges its way into the U.S. mobile market, expect contract prices to fall.

The company, mostly unknown outside of Japan, is in negotiations to acquire a large chunk in U.S. operator Sprint Nextel, and possible the smaller MetroPCS Wireless. If successful it is likely to pursue two strategies that have worked well at home: undercutting rivals, and oddball advertising.

When Softbank cut into the Japanese mobile market in 2006, it was also a newcomer to the business, but went on the offensive immediately with a host of new plans under a "Beyond Expectations" slogan, and a promise to offer the lowest prices in the industry. When rivals responded by dropping their prices, Softbank often responded within hours with a cheaper option.

"Softbank is likely to drop prices, as it has in the past" if a deal goes through, said Hideyuki Yokoya, a mobile analyst at MM Research Institute in Tokyo. "It is then good at communicating with consumers in a way that is easy to understand."

The company has a reputation in Japan for over-the-top advertising. It hired Brad Pitt and Cameron Diaz to star in commercials announcing its arrival as a mobile operator and used talking cats to explain its early pricing options. The company's current, long-running campaign features a mostly Japanese human family whose father is somehow a surly white dog, now a minor celebrity in the country.

Softbank Mobile, its cellular arm, already offers prices in Japan that are lower than those at Sprint. A 16GB iPhone 5 on an unlimited-data, two-year contract costs a total of about $2,200 over the length of the contract at Sprint, compared to about US$2,000 at Softbank, though voice prices vary. This is despite the yen hovering at near-record highs against the dollar, which inflates Japan prices as viewed from the U.S.: The newest iPad is about 10 percent more expensive in Japan in dollar terms.

In Japan, main rivals NTT DoCoMo and KDDI have often had no recourse but to match Softbank. The company's no-frills "White Plan" offered basic services for 980 yen (US$12.50) in 2007, a then-unheard-of price in the industry, and 10 million subscribers had signed up less than a year later. Now all three carriers offer 980-yen plans.

"The company finds a few specific points to focus on and engages competitors on those, including price," said Hironori Amano.

In fashion-conscious Japan phones are often seen as accessories, and many operators have long sold their handsets in a variety of colors. Not to be outdone, Softbank once launched a mobile phone in 20 different colors at the same time.

Prior to entering the mobile market, Softbank employed a similar strategy in fixed-line Internet, undercutting rivals and waging aggressive campaigns with piles of free modems for new subscribers in front of busy stations. In addition to its mobile and fixed-line Internet firms, the company runs host of Internet properties including Yahoo Japan, Ustream, and a major investment website -- and its own baseball team.

If it successfully acquires Sprint, the newly combined company will gain much more leverage when making purchases from handset makers and the companies that make cellular equipment, as both Sprint and Softbank continue to roll out their next-generation LTE networks.

"The company should be able to get lower prices, and offer more savings to customers," said Amano.

Softbank also has a knack for oddball products that capture the imagine. Earlier this year, in the wake of Japan's nuclear disaster, it announced a phone with a built-in radiation detector. In 2007 it secured a deal with Walt Disney Japan and started its Disney Mobile service, which still offers Mickey-branded handsets with special wallpaper and icons.

The company's years of experience in the Japanese market could also help it introduce new technologies in the U.S. One example is NFC (near field communication) touch-card technology, which has long come as standard on mobile phones in Japan, said MM Research's Yokoya.

"NFC is starting to take off in the U.S. Softbank has lots of experience in this area," he said.

U.S. mobile operator Sprint and Softbank have said they are in negotations for Softbank to make a possibly "substantial investment" in Sprint, and news reports have said Softbank may then try to use Sprint to go after MetroPCS.

Earlier this month, Softbank announced it had sealed a blockbuster deal to acquire smaller domestic rival eAccess to help expand its mobile data network.

Copyright © 2012 IDG Communications, Inc.

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