January 7, 2014 1:00 pm JST

SoftBank's Son to push forward grand strategy in 2014

MAI NEMOTO, Nikkei staff writer

TOKYO -- In Japan, dreams we have in the night after New Year's Day are our first dreams of the year. The first dream of Masayoshi Son, chairman and CEO of SoftBank, must have been a grand one, since his ideas are always on a global scale.

     For Son, the year 2013 "became a major milestone for stepping out into the world." SoftBank made Sprint, the third-largest U.S. mobile carrier, a subsidiary at a cost of $21.6 billion, and purchased overseas companies worth about a hundred billion yen each. In late December, it was reported that SoftBank could acquire T-Mobile US, America's fourth-largest mobile carrier, for over 2 trillion yen ($18.9 billion). He has surprised market observers with the scale and speed of acquisitions he decides.

Higher hopes

In 2014, how far will Son push forward his global strategy?

     "One billion subscribers" is a figure Son often mentions in conversations in-house these days. With Japan's population standing at about 130 million and the world population at about 7.1 billion, one billion subscribers would truly be on a global scale. SoftBank currently has a total of about 100 million subscribers in Japan and the U.S., including Sprint's subscribers. If it acquires T-Mobile US, the number will grow to about 150 million, but it would still be far short of 1 billion. The company will therefore seek growth in overseas markets other than Japan and the U.S.

     "We always have discussions with a world map spread before us," said a SoftBank executive. The world is wide, and operations in the U.S. are a mere "prelude" to "becoming the No. 1 company in the world," as Son puts it.

     Son's next target "may be Europe, with growing momentum for industry reorganization, or emerging countries that provide potentially large customer bases," said an industry insider.

     In Europe, many major telecommunications companies operate in a small market. Many mobile operators have been unable to earn satisfactory profits from users of comparatively profitable smartphone services. Technological progress is impeded by strict regulations. "There is a serious decline in European telecom companies' ability," said an analyst at a foreign securities company. The European Commission is trying to promote the unification of telecom markets and the integration of telecom carriers in Europe, and U.S. telecom carrier AT&T is said to be looking for promising European carriers. It would not be surprising if SoftBank finds a good opportunity to enter the European market in this situation.

     In emerging Asian countries, the number of mobile service subscribers is expected to continue growing with improvement in living standards. In those countries, however, it is not easy to develop a stable earnings model. SoftBank's average revenue per user (ARPU) is about 4,500 yen per month in Japan, but the corresponding figure in India is only a few dollars.

Strong group performers

In Asia, SoftBank could enhance cooperation with Alibaba Group, China's leading e-commerce operator, of which SoftBank is the largest shareholder. Alibaba's Executive Chairman Jack Ma said he would like to cooperate with SoftBank in e-commerce operations in Southeast Asia. Cooperating with Alibaba is promising not only in telecom services but in e-commerce and other content services.

     Alibaba seems to hold the key to SoftBank's growth in 2014. It is said that Alibaba plans to go public on the Hong Kong stock exchange or elsewhere possibly in 2014, and its corporate value is said to exceed 10 trillion yen. SoftBank owns about 37% of the company's stock. It can expect the fruits of investment in the company as well as benefits from cooperation in business.

     SoftBank has many other strongly performing companies in its group, including Yahoo Japan and GungHo Online Entertainment. Unrealized gains on its shareholdings in group companies total roughly 2 trillion yen, according to an estimate.

     SoftBank's management method is characterized by the use of financial leverage. When the company acquired Sprint, its equity capital was valued at about 1 trillion yen, but it borrowed 1.98 trillion yen to carry out the acquisition. Although some people concerned are worried about the expanding debt, the company has so far been successful in pursuing its active acquisition strategy through coordination of its finances and management.

     SoftBank's stock price rose nearly threefold in 2013, when its market capitalization reached 11 trillion yen, the second highest after that of Toyota Motor on the first section of the Tokyo Stock Exchange. For the year through March 2014, its operating profit is expected to top 1 trillion yen by international accounting standards, allowing the company to overtake NTT Docomo to take the top spot in the domestic telecom industry.

     For Son, such landmark figures must already be becoming commonplace.