Grounded internet high flyer takes on NTT - Profile

Business Asia, August, 2003

Masayoshi Son, founder of Sofbank Corp, Japan's No2 provider of high-speed web access, is taking on the nation's biggest companies, winning the approval of some investors in the process.

Son's Tokyo-based Softbank is battling with Nippon Telegraph and Telephone Corp, the world's largest phone company, with its web access service called Yahoo! BB. In July, Softbank took on Sony with a foray into on-line computer gaming.

Some investors like what they see, saying Son's investments in high-speed internet services are bound to pay off. Softbank's shares have more than doubled since 1 January, rising 10 per cent alone in the past month.

On-line games mark the latest shift for Son. As an early investor in companies such a Yahoo! Inc and E*Trade Group, Son rode the soaring valuations of internet stocks to their height, becoming the world's second-richest man at softbank's peak in February 2000.

Since then, Softbank's shares have tumbled 94 per cent and Son has give up on his idea of building an internet empire funded through his initial investments.

Transformation

Over the past two years, Sn has transformed Softbank into a provider of high-speed internet services. Along the way, he has sold off stakes in Yahoo Japan, Yahoo! and UTStarcom Inc, the biggest supplier of cordless-phone systems in China.

On 25 July, Softbank opened "BB Games", a website to provide support for providers of games played over the internet. Softbank aims to introduce more than 100 games through the site by the end of March, which the company will make easier for gamemakers to use by handling charging and billing.

"On-line games are the most effective content to attract broadband (high-speed) users," Son told reporters at a news conference in Tokyo last month where he introduced his younger brother, Taizo Son, as a partner in the venture.

More users

Son's entry to the on-line game market, along with his internet phone service called BB Phone and a television service known as BB Cable TV, is all about attracting more users to softbank's high-speed internet service.

As of June, Yahoo! BB had 2.82 million users, compared with three million at NTT West and NTT East, NTT's two regional units. Japan's market for broadband internet users is expected to grow 34 per cent this year, according to the "Internet White Book" issued by Japanese publisher Impress Corp.

Softbank's transformation hasn't come cheap. The company has raised 168.2 billion yen the past two years through sake sales to fund Son's internet push. This month, Softbank will raise another 101 billion yen selling its 49 per cent stake in Aozora Ban to Cerberus Partners LP. Last month, Softbank raised 19 billion yen ($240.9 million) from investors using future revenue from its broadband users as collateral.

Debt problems

Softbank's debt totalled 340.7 billion yen as of 31 March, according to the company's latest earnings statement. Because of higher costs to market Yahoo! BB, Softbank reported a group net loss of 100 billion yen in the fiscal year ended in March, the company's second consecutive loss.

Over the next six years, Softbank needs 160 billion yen to repay outstanding bonds, Son told shareholders in June.

Some investors say they're concerned high-speed internet services alone won't be enough for Softbank to pay off debt and deep investing in broadband services at the same pace.

Other investors and analysts harbour grave doubts in Son and Softbank, arguing individual investors are responsible for driving Softbank's shares higher.

Son has another challenge: Softbank has been asking Japan's telecommunications ministry for help in its bid to get direct access to NTT's lines linking Yahoo BB to Softbank's broadbank customers. NTT West in June rejected Softbank's request.