Setting Fire To The Cell-Phone Market

Softbank's Son sues to open the cellular spectrum to outsiders -- such as himself

Three years ago, Masayoshi Son walked into Japan's communications ministry and threatened to set himself on fire. A stunt of course, but he was deadly serious about one thing: He felt regulators were dragging their feet in forcing Japan's Nippon Telegraph & Telephone Corp. (NTT ), the former monopoly operator, to fulfill its legal obligation to connect residential customers to the broadband lines of Yahoo! BB, a mainstay of Son's Softbank Corp.

The theatrical gesture worked. The ministry bore down on NTT, and it soon started linking its lines to Softbank's, setting the cozy world of Japanese telecom ablaze. Today, some 4.5 million Japanese pay about $35 monthly for Yahoo! BB, and NTT itself has introduced a rival high-speed plan that 6 million have signed up for.

Now, Son hopes to transform Japan's cellular market. His plan is to offer his broadband customers -- most of whom also subscribe to supercheap Internet telephony -- package deals that include mobile service, the Internet, and voice calling. That, he says, would help cut rates for Japanese mobile users, who pay an average of $65 monthly. "I can guarantee that cell-phone prices will be lower if we come in," says Son, Softbank's president.


Problem is, Son doesn't have a license. And the communications ministry doesn't have any immediate plans to offer him one. In August, the ministry announced it wants to reshuffle the radio spectrum used for cell-phone service, but only between two of the three incumbents: KDDI and NTT DoCoMo. (The third is Vodafone Japan.) At a later date, the ministry said, it would give a less desirable piece of the radio band to a newcomer.

The reshuffling has Son hot under the collar again, but this time he's not threatening self-immolation. Instead, on Oct. 13 he filed a lawsuit against the ministry, calling for the spectrum reallocation to be stopped. "I'm getting smarter," Son says. "It's still business suicide, but it's better than physically killing myself." Specifically, Son wants the ministry to divide the spectrum into three chunks, giving equal pieces to a newcomer -- which Son hopes will be Softbank -- and to KDDI and DoCoMo. His argument: Both carriers are already sitting on unused spectrum, so why shouldn't they face more competition?

The lawsuit isn't the only way Son is turning up the heat. In September he placed a full-page ad in the dailies proclaiming his intention to get into cellular service -- and exhorting the public to back his effort. "You can change the future of Japanese mobile communications," one ad said. The ministry was flooded with 30,000 e-mails supporting Son.

The ministry won't comment on the lawsuit. But officials there say giving the spectrum to DoCoMo and KDDI will allow them to manage their networks more efficiently. For its part, DoCoMo says it is using all of its spectrum, and that it has spent billions of dollars building out its network in the current frequency range -- making any change prohibitively expensive. "The present allocation is fair, and it's Mr. Son's plan that's unfair," says Kei-ichi Enoki, managing director of DoCoMo's services division. KDDI also says it has no unused spectrum.

The Japanese courts are notoriously slow, so it may be some time before a decision. Most observers say it's likely to rule in the ministry's favor in any event. But Son's gambit may nonetheless pay off. When it comes time to issue a new license, the ministry will "need a very good reason for not giving it to Son because of the public pressure," says Tetsuro Tsusaka, an analyst with Deutsche Bank in Tokyo. Once he's free to start his cellular service, Son can move fast. Softbank has $5 billion in cash to invest in a new system. And with his millions of broadband customers ready to sign up for his cellular service, Son would likely be a strong competitor. Then the sparks are sure to fly.

By David Rocks, with Hiroko Tashiro, in Tokyo

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