TT-720 -- Lady Luck Smiles on Masayoshi Son, e-biz news from Japan

* * * * * * * * * T E R R I E 'S T A K E * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.

General Edition Sunday, July 28, 2013, Issue No. 720


- What's New -- Lady Luck Smiles on Masayoshi Son
- News -- Chaotic wind-down for AirAsia
- Upcoming Events
- Corrections/Feedback
- Travel Picks -- Akita Citizen's Market, Sunset in Okinawa
- News Credits

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At the start of this month, on July 5, the U.S. Federal Communications Commission (FCC) gave approval to the US$21.6bn acquisition of cell phone operator Sprint Nextel by Softbank. The deal brought Softbank 78% of the outstanding shares of Sprint, and thus essentially control of the firm. It was a triumphant moment for Masayoshi Son, the iconic founder and CEO of Softbank, and elevates his firm into becoming one of the largest telcos in the world.

The deal was pure Masayoshi Son, an ambitious and tenacious man who seems to understand the art of leveraged deals better than most. In the case of Sprint, he offered the Sprint shareholders a reasonable price right from the start, on a company that analysts thought was a loser because of its heavy debt load. Then, just as approvals were being sought and everyone thought the deal was done, it was threatened by a late counteroffer by the owner of Dish Networks, Charlie Ergen, who offered a lot more money.

Probably at this point a lesser suitor would have been sunk, but not Son. Instead, he dug his heels in, did some intensive lobbying, reviewed his numbers, and made a significantly better offer to Sprint's delighted shareholders. He was able to land his whale, but even Mr. Son said later in Tokyo that it was more expensive than he'd expected. Analysts agreed, Softbank's stock and credit rating dropped, and the media was full of reports about how could Softbank possibly squeeze out more profit out in order to cover the acquisition? Certainly not easy to do when you are the low-cost value leader in the marketplace.

But then, "expensive" is just a relative term when it comes to Mr. Son. After all, everyone (including us) thought that the US$15bn he paid for Vodafone Japan back in 2006 was expensive. And yet, just 7 years later he's parlayed that business into a market cap of JPY7.8trn (about US$80bn).

[Continued below...]

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[...Article continues]

So why did Mr. Son buy Sprint? Given that the two companies are in basically non-contiguous markets, there are no overlapping operations to cull, no surplus managers to fire, no duplicated subsidiaries to sell off. So basically, none of the usual synergy given as a rationale for M&A. OK, it is true that Softbank Japan probably practices some of the tightest cost control management in the industry, and also has figured out how to analyze customers in great detail so as to extract more profit from them. In Japan it's been all about bean-counting layered on to great pricing, great products, and reasonable (sometimes not great) infrastructure. Maybe Sprint could use a bit more of this. But Son himself isn't representing the deal as a cost-cutting opportunity. In fact, the best he could say in that regard was that the two firms could get US$2bn in savings on infrastructure equipment and handsets over the next four years. It would take 40 years for him to amortize the purchase if that was the only gain from the deal.

If it's not about reducing costs, then maybe it's about increasing users and their Average Revenue Per User (ARPU)? Mr. Son is a strong believer in offering the consumer everything they could possibly want, in a compelling package. He's done this over and over. First by building Yahoo Japan into a one stop content portal for pretty much any commercial information you'd want from the internet, at a time when other companies were satisfied in offering a bit of news and very few other compelling functions. As a result, Yahoo Japan has become the most heavily visited portal in Japan, with an earnings capability to match. Next, with Softbank Mobile, he offered the wildly successful iPhone, uncapped data usage, and attractive pricing plans -- the results of which are now legend.

So it would not be surprising if he is planning to bring the same radical approach of "give the customer (a lot) more than they expect" to Sprint. Many analysts have commented that the real value of Sprint is in its spectrum-rich subsidiary, Clearwire. This company has enough unused bandwidth to allow Sprint to become the fastest carrier in next-generation 4G LTE networks. As Son learned from experience in Japan, for consumer happiness/loyalty, you need not just the cheapest prices but also a well-performing network and lots of content, so that customers have no reason to defect. LTE is all about speed and content delivery.

Probably the real reason that Masayoshi Son bought Sprint, though, is personal. Given his background of overcoming hardship and fighting discrimination against minorities (3rd generation Koreans for example), for Son the art of business (war) has always been about winning respect and being number one. He's an Alpha Male, and has said as much in media interviews. Given everything that he has gone through so far, from Japanese banks trying to backstab him, to bureaucrats who changed the regulations so as to try to trip him up, he has learned how to fight and win.

In Son's world, the challenge of taking over Sprint is not that big a deal. He spoke of this in one of his interviews, saying that turning the company around will be less difficult than what he experienced with previous businesses, like starting a cell phone company in the first place (the one prior to the Vodafone takeover). Vodaphone was also a huge challenge. Son was in trouble from a failing internet investment strategy and he really needed a big new play. To grab the phone business, he had to win the goodwill of Vodafone itself and a number of foreign banks who co-underwrote his adventure (and which then profited handsomely from it). Then, after having bet the farm on the acquisition, he still had to take a very sick company and infuse it with a new sense of mission by tearing out lackadaisical employees who thought they were still working for a foreign charity.

Luckily for Mr. Son, he has much better managers over at Sprint. To start with, he is friends with the very capable existing CEO, Daniel Hesse. In a previous incarnation, Hesse was CEO of a firm that Son invested in. They are the same age, they have been through the wars -- one magazine article describes Hesse as "Underneath the nice-guy exterior [Hesse] is a tough-as-nails character hardened by decades of battles in the chaotic and fast-changing telecom world." But for the entrepreneur title, Hesse could probably be Mr. Son's psychological brother. This close relationship will be important once Son starts squeezing the Sprint business to produce the cash flow needed.

What is likely to happen to Sprint over the next few years, and ultimately to Son and Softbank? Mr. Son has already set the tone by not making any replacements of senior Sprint managers, yet. Instead, we imagine that he is going to personally investigate what he can do to shake up the U.S. cell phone industry the same way he did in Japan. Logic would tell us that he will have to wait at least until the 4G network is built out over the next two years. So until then we think the strategy will be to spend like hell, get that LTE network up and running, then go after AT&T and Verizon customers with flat-rate, low-cost accounts as in Japan.

This will hurt earnings during those two years, and so shareholders may not be happy unless they can think longer term. But financially, possibly Mr. Son may not care. Over the last couple of months, it has been rumored that Alibaba, the huge Chinese e-Commerce company that Softbank owns a stake in (31.9% on a voting rights basis), will go public soon. The rumors are that Alibaba will list in Hong Kong this fall, and will be valued at around US$70bn to US$80bn. Son will have known about the IPO plans weeks ago, and maybe this gave him the confidence he needed to up his Sprint bid. It would certainly give him confidence that he can fund a 4G build out. There were also rumors that the Alibaba deal helped him arm-wrestle a number of international investment banks to stump up support to push the Sprint deal through in the face of Dish's competitive bid. We suppose that nothing is impossible in the world of big finance, and now, with Sprint under his belt, Mr. Son's future seem to be laid out in front of him.

At least, that is, until he finds someone else to buy out in the meantime...

...The information janitors/


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+++ NEWS

- Chaotic wind-down for AirAsia
- TEPCO's Hirose admits radiation leakage into ocean
- Nakodo firm expands to Thailand
- Southern blue fin tuna prices down 20%
- Abe's definition of inflation not quite kosher

=> Chaotic wind-down for AirAsia

When business schools run classes about how NOT to wind up a company in Japan, they will probably use AirAsia as a case study. Now that it has split with partner ANA, AirAsia finds itself unable to operate the number of aircraft needed to fulfill its obligations in Japan, and as a result will leave more than 14,000 paid passengers without booked transport. The carrier is still flying until the end of October, but we imagine that few customers will want to buy tickets, knowing that they could be cancelled again. (Source: TT commentary from, Jul 27, 2013)

=> TEPCO's Hirose admits radiation leakage into ocean

Using a variety of excuses, none of which are really credible, the boss of TEPCO, Naomi Hirose, apologized for the delay in admission by the utility that in fact radioactive groundwater is indeed leaking into the ocean. Apparently the company first suspected seepage into the ocean on June 19th when it received worrying readings of Strontium and Tritium levels spiking in a monitoring well. ***Ed: Although the foreign press hasn't picked up on the details yet, the Japanese press were alerted yesterday to the fact that at least one of the leaks is a power cable tunnel servicing Reactor #2, where cesium levels of 2.35bn Becquerels/liter were detected. This is way off the safety scale.** (Source: TT commentary from, Jul 26, 2013)

=> Nakodo firm expands to Thailand

Threatened by internet dating and falling interest in getting married anyway, Japanese matchmaker Zwei has decided that the pastures are greener abroad. The company recently opened its first store in Thailand, in an upmarket shopping center. The company initially targeted Thais only, but has found that about 10% of its customers are single Japanese men posted to Thailand, who want to meet someone before they return to Japan. Not only is Zwei introducing them to Thai women, but also Japanese women, who are making the trip down to Thailand because they view single men who have been posted there as being on a desirable career track. ***Ed: Interesting angle on how Japanese women think. With LCC airfares, a quick trip to Bangkok is probably not such a bad idea.** (Source: TT commentary from, Jul 25, 2013)

=> Southern blue fin tuna prices down 20%

Someone forgot to tell the fishing industry that Abenomics is all about inflation. Apparently the price for Australian-raised southern Bluefin tuna, a major source of tuna in Japan, has fallen 20% from last year's wholesale price, and now ships to Japan for JPY1,350/kg. Wholesalers in Japan say demand for the fish is soft, which is attributable to a global slowdown and consumers cutting back on fancy foods. (Source: TT commentary from, Jul 25, 2013)

=> Abe's definition of inflation not quite kosher

While government statistics this week showed that Japan experienced a 0.3% rise in inflation for non-food items in May, and thus financial types were patting each other on the back, a look at the source of that inflation shows that things are not quite what they seem. As an article in points out, in fact, increased imported energy prices were mostly responsible for the inflation increase, and if stripped out, then consumer prices would have actually FALLEN 0.2%. ***Ed: Oh, dear... Back to the drawing board guys.** (Source: TT commentary from, Jul 26, 2013)

NOTE: Broken links
Some online news sources remove their articles after just a few days of posting them, thus breaking our links -- we apologize for the inconvenience.


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In 2011, we lost a great friend and colleague, Bob Grondine. Bob made considerable contributions in Japan to the legal and business community as well as important civic and charitable efforts. Not only was Bob a wonderful friend, family man and mentor, he was also a role model as a leader in US-Japan relations.

Among a number of US-Japan causes, Bob was an important supporter and chair of the Japan Advisory Committee of the United States-Japan Bridging Foundation, an organization established to grow global leaders through a program providing scholarships to American college students to study in Japan. Students designated as Grondine Scholars will be selected for their ability to emulate Bob's intellect and spirit as well as his dedication to the
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Donations of all amounts are welcome. To learn more, visit or click on the link below. Thank you.


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BiOS is urgently looking for an Account Manager with experience in recruiting and account management for IT infrastructure service delivery, at our BiOS office in the Minato-ku area. The candidate will be responsible for supporting the continued development and management of our existing clients, and serving as the BiOS frontline and primary point of contact for new clients and onsite staffs, as well as networking and developing opportunities with potential clients. You will also be responsible for providing a permanent recruitment support.

Due to the technical nature and demanding work environment, this position is suitable for someone with solid experience in recruiting, sales, account management, or similar client-facing tasks, preferably in IT. In addition, since this role requires direct communication with both internal staffs and clients who are bilingual in English and Japanese, fluent English and Japanese will be required.

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- Helpdesk/Desktop Support Engineer, global food/beverage import firm, JPY3M - JPY4.5M
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- Bilingual Sales Administrator, BiOS, JPY3M - JPY3.5M
- Server (Windows/LINUX) Engineer, Japanese IT services provider, JPY4M - JPY6M

Interested individuals may e-mail resumes to: Check out the BiOS web page for other jobs:

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Every 2 weeks BiOS sends out a regular communication to its job seeking candidates, called BiOS Job Mail. Every edition carries a list of BiOS's current and most up-to-date vacancies, with featured entries containing a short job description and every job being linked to the main entry on the BiOS home page. Regardless of whether you are unemployed and searching, thinking about a career change, or just curious to know if there is something out there that might suit you better, the BiOS Job Mail newsletter is an easy and convenient way for you to stay informed. If you would like to register for the BiOS Job Mail, or to find out more, please email



=> No events announcements this week.



In this section we run comments and corrections submitted by readers. We encourage you to spot our mistakes and amplify our points, by email, to

=> No corrections or comments this week.



=> Akita Citizens Market
Where locals come for free market action

The Citizens Market sounds like some throwback to the Soviet era, to a time where the socialist utopia promised enough food for all. There are no posters advancing the workers's progress however, and if you want to see pictures of a workers and farmers movement, you may be better off heading down to the aptly named red brick building to view the works at the Tokushi Katsuhira Memorial.

On the other hand, if you want to find out where the locals come to participate in some free market action, this is the place. In a small city like Akita, word gets out quickly on where the freshest and best food is to be found. If you want the best and freshest of all, you must go to the markets. Even the film crew from the TV series 'Iris' came here to sample the wares.

=> Cape Zanpa Sunset, Okinawa
A Beautiful Coastline, a Lighthouse & The Setting Sun

Cape Zanpa is one of the most beautiful locations to witness the sun setting into the East China Sea. Okinawa is known for its beautiful capes, however, Cape Zanpa is one of the few capes on Okinawa Island that has an operational lighthouse, and is easily accessible from Naha and surrounding villages. The rugged coastline and rustic lighthouse make an ideal setting at any time of day, however, I decided to visit closer to dusk, to witness what was one of my personal favorite sunsets in recent memory. [Ed: Really nice photos with this story.]



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