Sun, May 11, 2003 - Page 11 News List

Softbank's losses are mounting

MONEY PIT The telecommunications and Internet holding company at the center of Japan's broadband market is hoping to reduce its reliance on bank loans


The Softbank Corp, the Japanese telecommunications and Internet holding company, said on Friday that its losses mounted last year as it continued to spend heavily to promote its high-speed Internet service.

Softbank has been at the center of Japan's broadband market since it touched off a boom in the construction of high-speed networks here in 2001. It has consistently offered the lowest-cost connections in an effort to win market share away from Nippon Telegraph and Telephone, a unit of the NTT Group and the country's dominant phone company. The number of broadband subscribers has grown more than tenfold in two years.

Unlike a typical phone company, Softbank has had to build its network from scratch, leasing equipment and connections from NTT and other companies. Through its Yahoo BB subsidiary, Softbank now has about 40 percent of the broadband market, but the cost of acquiring new customers has become a major burden.

The high expenses are a big reason Softbank reported a net loss of Japanese Yen 100 billion (US$833 million) for the fiscal year ended March 31, up from a loss of Japanese Yen 88.7 billion in the previous year.

Revenue grew just 0.4 percent, to Japanese Yen 407 billion, as contractions at Softbank's e-commerce and media holdings offset gains in new broadband subscribers.

Softbank spends as much as Japanese Yen 30,000 (US$250) to sign up each new user, equivalent to about 10 months of subscription fees. Even so, the company said today that with about 2.6 million customers already signed up, it was getting close to the 3 million level, where it can break even on its digital subscriber line, or DSL, service.

"Two years ago, no one could see DSL at all; everyone was talking about high fiber lines," said Masayoshi Son, Softbank's president. "There are still a lot of potential customers."

Softbank is also trying to lure new customers and earn more fee income from them by offering telephone and cable television service along with its Internet connections. A customer who signs up for all the options Softbank offers would pay about three times the US$28 monthly fee the company charges for basic service.

In part because of Softbank's aggressive pricing, Japan now has the lowest prices for broadband services in the world, according to the International Telecommunications Union.

More than one-quarter of all homes with Internet connections use broadband, the third highest after South Korea and Canada. Lines able to deliver high-speed service should reach about half of all homes in the country by 2007, according to Gartner Japan.

NTT was a latecomer to the broadband market, but it has started to counter Softbank's moves, introducing similar services and stepping up its advertising. As the world's largest telecommunications company, NTT can afford to lose money on its broadband service, many analysts say, and it may soon be tempted to cut its rates sharply to grab market share back from Softbank.

"The big risk to Softbank is if NTT competes on price," said Luigi Limentani, an analyst at Nikko Salomon Smith Barney.

To keep building its network and still be able to afford to charge the lowest prices in the country, Softbank has been selling some of its large portfolio of investment holdings, including some of its stakes in Yahoo, UTStarCom and ETrade.

The company also expects to raise about Japanese Yen 100 billion (US$833 million) from the sale of its stake of 49 percent in Aozora Bank, the successor to the nationalized Nippon Credit Bank.

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