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Vodafone's Bad Connection In Japan

Its mobile unit is struggling. Can a management shakeup turn it around?

When British cellular giant Vodafone Group PLC (VOD ) took over Japanese mobile carrier J-Phone Co. four years ago, the deal looked like a sure thing. J-Phone was coming off of five straight years of market-share growth, it had a hip reputation, and it was within spitting distance of second place in Japan's cellular market. Today, that all looks like ancient history. The company's market share has tumbled to 17.8% since peaking at 18.6% in 2003 -- just before the J-Phone name was dropped in favor of Vodafone. Rivals' data services offer download speeds up to eight times as fast as Vodafone's. And in January, Vodafone saw its subscriber base fall by nearly 59,000 customers -- despite the introduction of seven new third-generation, or 3G, handsets since December. "The January subscriber figures were surprisingly bad, and I don't think it's temporary," says Daisaku Masuno, an analyst at Nomura Securities Co. in Tokyo.

Not surprisingly, Vodafone is shaking up management. On Feb. 7, Shiro Tsuda said he would step aside as president of Vodafone's Japanese operation after just 68 days at the helm. Tsuda will become executive chairman, while Bill Morrow, a former chief executive of Japan Telecom (J-Phone's fixed-line sibling) and most recently CEO of Vodafone's British operations, takes over as president. "Morrow can play a coordinating role in the group much better because he knows [the Vodafone board] and has no language problems," says Tsuda, a former exec at leading mobile carrier NTT DoCoMo who speaks little English.