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Business

The end for SoftBank's cash cow

A Sprint store in the U.S.

TOKYO -- SoftBank Group Chairman and CEO Masayoshi Son is said to enjoy his 10 p.m. conversations with the people at U.S. mobile phone operator Sprint's head office in Kansas.

The chats often focus on how to improve telecom networks. Son speaks to employees of SoftBank's U.S. subsidiary using the title "chief network officer," something usually associated with middle management.

"My heart jumps" during the talks, Son said.

A year or so ago, the teleconferences were a totally different affair. Son would bang his desk and shout such pleasantries as, "Why don't you understand? You are idiots!"

The frustration came from Sprint employees seeming to maintain a "no problem" stance, despite the mountains of complaints pouring in from subscribers.

Losing the magic touch

Sprint was acquired by SoftBank in 2013 for $21.6 billion. At the time it was the third largest mobile phone company in the U.S. Following the acquisition, the Japanese telecoms giant had hoped to buy fourth-ranked T-Mobile US in a bid to challenge the two industry leaders, AT&T and Verizon Wireless.

But the plan fell through when U.S. authorities objected to the purchase. SoftBank thus began the process of rehabilitating Sprint, but found the company's management sloppier than expected.

Behind-the-scenes efforts to sell Sprint got underway early last year, but failed to find a buyer. In the meantime, it has fallen behind T-Mobile in terms of subscriber numbers. Recently, however, the flight has at last started to slow down.

Son is under growing pressure to accelerate the revamp of the company in the face of changes in the Japanese mobile phone market -- until now something of a cash cow. The mobile phone segment chalks up operating profit of 688.3 billion yen ($6.57 billion), or nearly 70% of group profit. But an administrative guidance issued by the government may soon begin eating into its earning power.

The Ministry of Internal Affairs and Communications has banned mobile carriers from effectively selling smartphones free of charge through cash-back offers or monthly rate discounts. But some SoftBank outlets were found to have continued the practice, and the ministry was forced to intervene in April.

SoftBank claimed its cashback offers were a "necessary expense" to win customers away from its larger rivals NTT Docomo and KDDI. But it is now unable to use its favorite marketing tool.

Winning the initial exclusive rights to iPhone sales drew huge publicity for SoftBank. But NTT Docomo and KDDI have been able to move in on the market, and SoftBank has lost the Midas touch.

"Price destruction," was the company's slogan as it made its assault on the mobile phone market. Having gained a foothold in terms of market share, however, it has come to maintain fee schedules and services similar to the two bigger rivals.

"I have become a grown-up," Son said. However, for many, SoftBank has lost much of its trailblazer reputation and is now often seen as having vested interests.

Adopting innovative strategies, SoftBank has entered markets bound by regulations and conventions, such as broadcasting, finance and electric power and shaken up the industries, but has failed to really cement a place as a market leader.

With options running out, it may fail to break out of its current position in the domestic mobile phone market as well.

No rival

SoftBank has announced it will acquire British semiconductor designer ARM Holdings for some 3.3 trillion yen. Specializing in circuit designs, the Cambridge-based company has captured some 90% of the smartphone chip market.

Although ARM is small in scale, with sales of less than 200 billion yen, Son can scarcely hide his joy at having bought the cornerstone of the smartphone chip market. One official at a leading chipmaker said ARM had "no rival at present."

But as the internet of things is only just taking off, many feel it is too early to tell if ARM will remain untouchable.

ARM captured its current unique positon thanks to the widespread use of smartphones, but there is no guarantee that new innovation will not provide the same platform for other companies.

An increase in ARM's presence will stimulate competition. Analysts warn that ARM's clients, such as Qualcomm and Samsung Electronics, will grow increasingly concerned about relying on just one company for chip designs.

The acquisition of ARM is part of Son's grand plan of becoming "the world's No.1." But if he stalls in his challenges for reform, he may fail to seize the lead in the internet of things age.

(Nikkei)

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