Japan Carriers Get $13.6 Billion Hint Profit Can Be Too High

  • Official says rising earnings leave room for cheaper services
  • Communication minister may ask wireless carriers to cut prices

For Japan’s phone carriers, rising profits may not be such a good thing.

That’s because earnings are growing so fast, they’re attracting government scrutiny that has spooked investors. Over Tuesday and Wednesday, NTT Docomo Inc., Nippon Telegraph & Telephone Corp. and KDDI Corp. saw their market values tumble by a combined 1.49 trillion yen ($13.6 billion) after an official said the communications ministry plans to step up the pressure for carriers to reduce phone bills in light of their higher profits.

Those comments signaled Prime Minister Shinzo Abe isn’t done pressuring the $125-billion-plus industry after an earlier effort led to cheaper plans for only a limited number of users and ironically, bolstered carriers’ profits by bringing down handset subsidies. Now, the government is seeking to get companies to reduce phone bills for a wider number of consumers, according to the ministry official.

“This is a reminder that phone companies are in a regulated industry and we must take the risk of policy changes into account,” said Tatsushi Maeno, head of Japanese equities at Pinebridge Investments Japan Co. in Tokyo. “The more profit they make, the more profit they may have to give up, which is not a favorable situation for shareholders.”

Most carriers’ shares extended declines Wednesday, with KDDI dropping 2.1 percent, bringing its 2-day decline to 5.6 percent, the most in almost three months. The benchmark Topix index was little changed. Docomo fell 1.1 percent Wednesday, while NTT slid 2.5 percent and SoftBank rose 1.4 percent.

Minister of Internal Affairs and Communications Sanae Takaichi may make a new round of requests to carriers for cheaper plans, according to the official, who asked not to be named because the matter hasn’t been made public. A ministry spokesman declined to comment.

September Swoon

Investors have been spooked before by the government. In September, Abe called for lower mobile phone rates, prompting a selloff that caused Docomo’s market value to fall about 1.1 trillion yen over two days. KDDI lost 931 billion yen and SoftBank Group Corp. 510 billion yen, rounding out a 2.5-trillion-yen rout by the nation’s three largest wireless carriers.

In that effort, the government set up a panel that issued a report calling the companies’ price plans unfair and asking them to cut handset subsidies, a suggestion the industry embraced as it reduced costs. The recommendations prompted a rebound in the companies shares as investors bet adjustments to price plans wouldn’t hurt earnings much.

The government’s focus will now be to widen the variety of lower-cost plans to benefit more users, the ministry official said. For example, the requests to carriers would include shortening the number of years required for users to qualify for pricing plans geared toward “long-term” customers, according to the official.

Docomo has said it will introduce low-rate pricing plans for long-term users in June, which apply to users who’ve been subscribing for more than four years, and maximum discounts of 2,500 yen a month to users who’ve been customers for more than 15 years. KDDI and SoftBank are also considering offering new plans to reduce user costs.

“We will consider price adjustments if the ministry requests more,” Docomo spokeswoman Hiroko Shimoyama said. “We will continue to amend handset prices, and also will adjust phone-bill plans one by one.”

Representatives at KDDI and SoftBank said their carriers would consider new requests for price cuts from the ministry if they are made.

While the ministry doesn’t directly regulate pricing, mobile-phone operators have a track record of complying with the government’s requests on pricing.

Meanwhile, profits in the industry are booming.

Earnings per share will jump 12 percent in the year started April 1 at Japan’s four largest telecommunications firms, including Docomo parent Nippon Telegraph & Telephone Corp., according to the average of analyst estimates compiled by Bloomberg. That’s about 5 times the 2.4 percent average EPS growth estimated for the 10 biggest companies.

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