It's the end of a long battle for control over the Japanese telco, and most importantly its mobile subsidiary J-Phone, Vodafone's real interest in the company. While Vodafone's plans to almost double J-Phone's margins are ambitious in the face of dominant incumbent NTT DoCoMo, the UK firm has enough resources to make the goal viable at least.
UK mobile operator Vodafone has agreed to pay $2.64 billion in cash to take control of Japan Telecom (JT). The company will gain an extra 21.7% stake in the company to add to its existing 45% holding.
Vodafone has long been interested in JT, because of its mobile phone unit, J-Phone. The UK group, which also owns 45% of J-Phone directly, wants to improve the performance of Japan's number three mobile operator, increasing both margins and subscriber numbers.
The rest of JT is likely to be sold off over the next few years. Vodafone has been quick to do this with other combined fixed-line and mobile telecoms operators, so that it maintains its focus the mobile sector. There's little reason for the company to tie up equity in a non-core business, especially given the current climate.
However, the crucial question is whether Vodafone can pull off the same trick with J-Phone that it has managed with its other acquisitions. The group's global EBITDA (earnings before interest, tax, depreciation and amortization) margins are currently around 34%, compared with J-Phone's 18%. Vodafone has said it can increase J-Phone's margins to 30% by the end of 2005. If it achieves this feat, the acquisition clearly will have been worthwhile.
NTT DoCoMo will be hard for Vodafone to beat, however. It has a market share of over 50%, with a high proportion of its subscribers using its i-Mode mobile Internet service. Given that NTT is scheduled to launch commercial 3G services next month, well before J-Phone's spring 2002 launch date, Vodafone's chances of catching up are appear slight.
All is not lost, however. J-Phone's J-Sky Internet service is also popular and the operator does have 20% market share in one of the world's largest mobile markets. DoCoMo has also been comparatively weak in business services - Vodafone's strongest area globally. With Vodafone's muscle behind it, J-Phone stands a strong chance of boosting margins and improving its position against number two operator, KDDI, even if it may struggle against DoCoMo.