Globally, the telecommunications sector is proving to be a core and essential infrastructure service to national economies, with data infrastructure becoming critical in a connected world and will likely increasingly attract a new class of investors such as large infrastructure funds. The publisher expects the Japanese telecommunications industry to remain steady thanks to the defensiveness nature of the industry, amid the political uncertainties and an uncertain economic outlook due to rising inflation.
The Japanese telecommunications market is the third-largest market in the world by revenue (USD138 billion) with three large fixed and mobile network operators that invested heavily in towers and fibre infrastructure over the past two decades despite an overall market underpinned by low economic and population growth. Growing mobile phone penetration and high fixed broadband take-up among households will fuel future growth over the next five years.
Following the market expansion over the last 5 years, the publisher forecasts subdued revenue growth growing to 2028, the diminishing impact of declining legacy voice and SMS revenue, Rakuten market entry and population decline.
The strategic and economic competition between Japan and China is at the centre of advanced technology competition and the future of global data and communications. For most developed countries in the region, gaining strategic and economic power depends heavily on having technological ascendancy, especially in data and communications.
The Capex from Japanese operators is cyclical with mobile rollout leading to investments in line with the operators’ top-line growth. Capex investments peaked in 2021 while all three operators built their respective 5G mobile networks. Capex will continue growing from 2024 through to 2028, as mobile operators invest in 5G. Japan sees 5G as the backbone of a wide range of technological advances including autonomous vehicles, smart cities and Internet of Things. All three mobile operators launched 5G services in March 2020. The Capex to GDP ratio will grow slightly during the forecast prior to 2028.
The Japanese three-player mobile market is a remarkably stable market, however it is about to be rocked by fourth market entrant – Rakuten Mobile – looking to follow the steps of successful new entrants launch such as Free in France and Reliance Jio in India. Rakuten has set an ambitious target of being the first cloud-native mobile network.
Mobile Subscribers and Revenue
Average annual mobile revenue growth was lower (1.5%) than mobile service subscriptions growth (4.6%) during the period 2014-2019, highlighting the structural challenges faced by mobile operators. Declining voice & SMS revenue only partially offset by wireless data monetisation is putting pressure on ARPU, compounded by bundling discounts to stem churn.
IoT connections is a major growth driver for mobile operators, a slowdown in mobile subscriptions growth will put long term pressure, dialing up competition for the three mobile operators fighting for fewer new customers.
According to our benchmark study of mobile data pricing, Japan had among the biggest cost reduction per GB over the last 3 years, while India has the lowest rate in the world with just a few cents per GB. Many operators are looking to Rakuten Mobile’s trailblazing strategy of deploying its network using a cloud-native mobile network blueprint to lower its rollout costs. The traditional telecommunications model is becoming increasingly hard to sustain amidst declining operating margins and continued expectations for cheaper services and more value inclusion.
The analyst forecasts Rakuten could capture up to 10m subscribers in 3 years by offering lower pricing, e-Commerce bundling and other lifestyle services to its existing 100 million Rakuten customers, while KDDI and to a lesser extent NTT and Softbank already embarked on such journey.
The analyst forecasts 5G mobile subscribers will represent nearly 75% subscribers of all subscriptions by 2028, 4G will represent about 25% of all connections while 3G will be shut down by the end of 2026.
Broadband Subscribers – FTTH Push to Gigabit Speeds
After over 20 years of investments in fibre infrastructure, Japan boasts one of the highest FTTH penetration in the world as well as one of the most advanced, consumer broadband products offering speeds up to 10Gbps. However, most people use 100Mbps packages which are mostly bundled with mobile services by the three dominant players, NTT, KDDI and Softbank.
Fixed broadband penetration is forecasted to grow modestly as Japan’s investments in full-fibre networks are now reaching maturity with affordable packages and increased broadband household penetration growing towards saturation.
Thematics–Telecoms Infrastructure / 5G / M&A / Infrastructure
Infrastructure funds, pension funds and government funds are assigning high valuation multiples to telecommunications infrastructure assets such as mobile towers, data centres, submarine cable and fibre infrastructure.
Investment funds are assigning high valuation multiples to telecommunications infrastructure assets such as mobile towers, data centres, submarine cable and fibre infrastructure. This report outlines some real market examples of how investors view and value these investments with real industry examples and EV/EBITDA comparatives and benchmarks.
The Japan Telecoms Industry Report transactions database analysis highlights the dearth of inbound (domestic) transactions in the Japanese telecommunications services market, with the largest transactions from Softbank entering the mobile market and consolidating its position by acquiring smaller operators. However, in the short to medium term, the mobile telco sector is unlikely to experience corporate activity with Rakuten market entry. Softbank Group is selling down shares of its mobile arm to raise cash and fortify its ailing balance sheet with the group still owning about 40% of its mobile unit.
The arrival of 4G moved the Internet off our desktops into our palms and pockets, 5G could transform the network from something we carry around to something taking us around either virtually (augmented reality or virtual reality) or in reality (autonomous vehicles), the 5G outcome and benefits beyond fast connectivity remain largely unknown in terms of business models, investments required and timeline.