Telco/Internet specialist

Kirk Boodry

Redex Research

Equity Bottom-Up

Internet Initiative Japan / Equity Bottom-Up

IIJ has fired its salvo in the pricing wars with c. 10-40% reductions in consumer mobile plans although a shift in bundle sizes could minimize the impact as subscribers are upsold. Unsurprisingly, there are no sub 1GB plans since Rakuten is giving that away but the 2GB/¥780 plan is competitive (Rak: 1-3GB for ¥980) whilst IIJ is adding tiers higher than 12GB for the first time. On the aggregate, other businesses including Enterprise Mobile are generating sufficient growth that consumer mobile erosion is unlikely to have a material impact on consolidated numbers. Meanwhile, an impending announcement of mobile wholesale rates for FY20 is meaningful especially if costs are less than expected.

IIJ has fired its salvo in the pricing wars with c. 10-40% reductions in consumer mobile plans although a shift in bundle sizes could minimize the impact as subscribers are upsold. Unsurprisingly, there are no sub 1GB plans since Rakuten is giving that away but the 2GB/¥780 plan is competitive (Rak: 1-3GB for ¥980) whilst IIJ is adding tiers higher than 12GB for the first time. On the aggregate, other businesses including Enterprise Mobile are generating sufficient growth that consumer mobile erosion is unlikely to have a material impact on consolidated numbers. Meanwhile, an impending announcement of mobile wholesale rates for FY20 is meaningful especially if costs are less than expected. 

Internet Initiative Japan - New Pricing Plans Are Competitive and Impact Is Manageable

NTT (Nippon Telegraph & Telephone) / Equity Bottom-Up

NTT posted Q3 20 results modestly ahead of consensus and boosted the FY20 dividend by 5% in the first quarterly report since it bought out the DoCoMo minority stake. The importance of having closer ties between the mobile and fixed-line operations was highlighted by record growth in its local exchange subsidiaries (+4% for a combined NTT East/West) driven we think by telework demand. One sign of this is the sale of wholesale fiber lines outside mobile resale was the highest it has been since Q1 16. DoCoMo results were also solid with mobile service revenue flat YoY and the highest net sub growth since Q4 18.

NTT posted Q3 20 results modestly ahead of consensus and boosted the FY20 dividend by 5% in the first quarterly report since it bought out the DoCoMo minority stake. The importance of having closer ties between the mobile and fixed-line operations was highlighted by record growth in its local exchange subsidiaries (+4% for a combined NTT East/West) driven we think by telework demand. One sign of this is the sale of wholesale fiber lines outside mobile resale was the highest it has been since Q1 16. DoCoMo results were also solid with mobile service revenue flat YoY and the highest net sub growth since Q4 18.  

NTT Q3 20 Results: Dividend Raise as Fixed-Line and Domestic Businesses Are Steady

Softbank has lifted its full-year guidance for revenue and operating profit after a second consecutive solid quarter, driven by growth in sales to enterprise customers and a smaller budget for coronavirus-related expenses. Looking past Q4, the outlook for FY21 appears positive despite anticipated revenue erosion from reductions in consumer mobile pricing. <a href="https://www.smartkarma.com/entities/softbank-corp" target="_blank" data-smartkarma-citation="entities:27445:1" rel="noopener">Softbank Corp (9434 JP)</a>  shares trade at a premium to the sector thanks to heavier Internet exposure from Z Holdings but this year it is delivering leading financial momentum too.

Softbank has lifted its full-year guidance for revenue and operating profit after a second consecutive solid quarter, driven by growth in sales to enterprise customers and a smaller budget for coronavirus-related expenses. Looking past Q4, the outlook for FY21 appears positive despite anticipated revenue erosion from reductions in consumer mobile pricing. Softbank Corp (9434 JP)  shares trade at a premium to the sector thanks to heavier Internet exposure from Z Holdings but this year it is delivering leading financial momentum too.  

Softbank Corp. Q3 20 Results: Full-Year Guidance up After Second Clear Financial Beat

KDDI posted results that were ahead of consensus for revenue and modestly off for profitability. The revenue beat was largely driven by a rebound in handset sales after a weak (pandemic) H1 and helped by strong demand for the latest iPhone models. Financial targets for FY20 are within easy reach even as the impact of price reductions will start to be felt in Q4. As one would expect, KDDI is not ready to discuss how new mobile pricing will impact results next year although it did reassure that cost reductions and new services can offset any weakness in mobile revenue. On the aggregate, an uneventful but positive report

KDDI posted results that were ahead of consensus for revenue and modestly off for profitability. The revenue beat was largely driven by a rebound in handset sales after a weak (pandemic) H1 and helped by strong demand for the latest iPhone models. Financial targets for FY20 are within easy reach even as the impact of price reductions will start to be felt in Q4. As one would expect, KDDI is not ready to discuss how new mobile pricing will impact results next year although it did reassure that cost reductions and new services can offset any weakness in mobile revenue. On the aggregate, an uneventful but positive report

KDDI - Q3 20 Results: On-Track to Meet FY20 Targets but Details on FY21 yet to Come

Rakuten has adjusted its pricing structure to flexibly include usage tiers for the first time. This allows it to keep its original pricing of ¥2,980/month for unlimited (on-network) usage but match recent offers from the incumbents with new price points. It is a good response from Rakuten which restores itself as the price leader (when its users are on-network) whilst the flexibility itself becomes a selling point. This will lower average ARPU and service revenue going forward but management says that lower churn and customer acquisition costs should help it keep the timeline to break-even from shifting very much. A “free” tier for &lt;1GB usage is interesting but as the “first 3mn users get free service” campaign shows, price alone is not always enough.

Rakuten has adjusted its pricing structure to flexibly include usage tiers for the first time. This allows it to keep its original pricing of ¥2,980/month for unlimited (on-network) usage but match recent offers from the incumbents with new price points. It is a good response from Rakuten which restores itself as the price leader (when its users are on-network) whilst the flexibility itself becomes a selling point. This will lower average ARPU and service revenue going forward but management says that lower churn and customer acquisition costs should help it keep the timeline to break-even from shifting very much. A “free” tier for &lt;1GB usage is interesting but as the “first 3mn users get free service” campaign shows, price alone is not always enough.    

Rakuten - Pricing Response Has a Few Surprises but Coverage Remains the Issue

Japan

KDDI CORPORATION provides mobile communication services and sells mobile devices.  The Company also is a broadband provider.

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KDDI Corp (9433 JP)

Internet Initiative Japan - New Pricing Plans Are Competitive and Impact Is Manageable

IIJ's new consumer mobile pricing plans are competitive with Rakuten and the financial impact on consolidated results should be immaterial

Kirk Boodry

NTT Q3 20 Results: Dividend Raise as Fixed-Line and Domestic Businesses Are Steady

NTT posted steady Q3 results with evidence of progress on the fixed line from higher demand for telework solutions. It kept full-year guidance...

Kirk Boodry

Softbank Corp. Q3 20 Results: Full-Year Guidance up After Second Clear Financial Beat

Softbank has lifted its full-year guidance for revenue and operating profit after a second consecutive solid quarter and appears optimistic on the...

Kirk Boodry

KDDI - Q3 20 Results: On-Track to Meet FY20 Targets but Details on FY21 yet to Come

KDDI posted Q3 20 results that were largely in line with a clear path to meet FY20 guidance. It is too early for hard guidance on mobile price...

Kirk Boodry

Rakuten - Pricing Response Has a Few Surprises but Coverage Remains the Issue

Rakuten has responded to incumbents with new pricing that introduces variable pricing. The magnitude of change was largely expected however and...

Kirk Boodry

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