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KDDI counts on startup Soracom to open new fronts

Rising 'internet of things' star to complement languishing mobile services

KDDI held a briefing on its Soracom purchase slated for completion this month.

TOKYO -- KDDI hopes to propel its expansion of "internet of things" operations in Japan and abroad with the acquisition this month of a startup in the low-cost IoT arena, compensating for lackluster mobile services at home.

The Japanese telecommunications giant held a briefing Tuesday on the pending purchase of Soracom, a deal it announced last week. KDDI will invest about 20 billion yen ($181 million) in the Tokyo-based startup to make it a subsidiary by the end of August.

"We are gaining more capabilities in the area of IoT" thanks to the deal, said Shingo Niori, a proud chief of value-business planning at KDDI. Soracom CEO Ken Tamagawa responded: "We needed to build a closer-than-ever relationship with a telecom company in order to provide services promptly."

Soracom was founded less than three years ago, but it already counted some 7,000 customers in and outside Japan, mainly small and midsize businesses, as of last month. The 20 billion yen price tag is notably large for Japanese acquisition deals involving such a young company.

Soracom began offering low-priced internet of things services in September 2015 by using the network infrastructure of NTT Docomo. As a mobile virtual network operator, it charges a monthly fee as low as a few hundred yen.

The company has earned a good reputation for its technology. Internet of things service users typically have to buy expensive equipment, but Soracom eliminated that need by employing cloud computing technology, thereby slashing fees. KDDI recognized this ability, agreeing to pay a hefty sum to buy the business.

KDDI intends to solidify its foundation of internet of things services in Japan and abroad by absorbing Soracom's customer base and expertise. The telecom company hopes to use the newly acquired assets to set the standard specification for internet of things services and to offer the next-generation 5G communications service.

Money for the purchase comes from the 500 billion yen KDDI set aside for acquisitions over three years starting in fiscal 2016, with a focus on the internet of things.

In February, KDDI bought cloud-service developer Iret and created a joint venture in Tokyo with global consulting company Accenture, naming the business Arise Analytics. The telecom company is moving with urgency because its mainstay "au" brand of mobile services faces tough competition from mobile virtual network operators. KDDI's au subscribers decreased 3% over two years through the end of June to 24.96 million.

KDDI was the first among major Japanese telecom companies to create a venture capital fund, back in February 2012.

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