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5G networks

SoftBank holds back on 5G investment as licenses awarded

Plans to spend significantly less than rivals indicate caution over new tech

A SoftBank spokesperson said the company will invest in the 5G network coverage "by looking at demand." (Nikkei Montage)

TOKYO -- SoftBank Corp. has committed significantly less capital to roll out its superfast fifth-generation network than its peers NTT Docomo and KDDI, in a sign of caution over the nascent technology.

The investment figures were revealed in applications by the three carriers and Rakuten, a newcomer that plans to launch 4G services in October. The applications were approved by the Ministry of Internal Affairs and Communications and made public on Wednesday.

NTT Docomo and KDDI, the top two players, plan to invest a minimum of 795 billion yen ($7.1 billion) and 466 billion yen, respectively, in 5G. SoftBank, in contrast, only earmarked 206 billion yen, only slightly higher than Rakuten's 194 billion yen.

The lower initial investment means SoftBank's 5G network may be focused on major cities. Softbank plans to cover with its 5G service only 64% of Japan's land area by March 2025, barely above the minimum 50% threshold required by the ministry. NTT Docomo and KDDI plan to cover more than 90%.

A Softbank spokesperson said that the company will invest in the 5G network coverage "by looking at demand," because it is still uncertain where and how the technology will be used.

But the spokesperson said the company expects total 5G investment will be larger than its 206 billion yen commitment because it plans to upgrade existing infrastructure.

Still, SoftBank's cautious approach marks a stark difference from its peers, not only at home but in South Korea, which rushed to launch services last week, and the U.S., where carrier Verizon said it switched on 5G in parts of Chicago and Minneapolis around the same time.

Despite the hype, questions linger over how much consumers are willing to pay for lower latency when playing video games or faster download speeds when watching movies. Applications in new areas, such as telemedicine and autonomous driving, are still unproven.

"Whether 5G will actually be useful is still a big question mark," said Shinji Moriyuki, an analyst at SBI Securities. "SoftBank seems to be taking the realistic approach of waiting until it sees a solid business case."

SoftBank entered the mobile market in 2006 by buying the local unit of Vodafone, and gained market share by becoming Japan's exclusive carrier of Apple's iPhone. In recent years, SoftBank has invested aggressively in 4G to compete with bigger rivals. Total capital expenditure stood at 373 billion yen for the year ended March 2018, compared to NTT Docomo's 577 billion yen.

Masayoshi Son, chairman and CEO of SoftBank parent SoftBank Group, is known for his bullish views on technology's ability to transform industries. But in recent years, his focus has shifted from operating a telecommunications business to investing in the world's leading artificial intelligence companies.

Holding back on early investment for 5G may turn out to be costly over the long run. "Consumers would be motivated to choose the carrier that has wider network coverage," said a spokesperson at NTT Docomo. A KDDI spokesperson said that while profitability varies in cities and rural areas, it plans to partner with local governments to jointly develop 5G applications.

The initiative is backed by the Japanese government, which hopes 5G will become a solution to a deepening labor shortage, especially in rural areas. In the past, the Communications Ministry required operators to provide services for half the population, which is mostly concentrated in big cities. For 5G, it divided Japan into 4,500 blocks and required operators to roll out services in at least half of them.

SoftBank's larger debt compared to its two larger rivals may also have contributed to the less aggressive plan, some analysts said. Carriers are already under pressure to cut service rates -- Docomo soon plans to announce new pricing structures that are up to 40% lower than existing ones.

The entrance of e-commerce group Rakuten, which is rolling out 4G using what it calls "revolutionary" infrastructure that costs much less than conventional base stations, is also expected to fuel price competition.

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