Japan Telecoms Industry Report - 2023-2030

Executive Summary

Japan Telecoms Industry Report at a Glance

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 (USD137 billion) with four 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 2030, 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.

Capex Investments

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 2030, 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 with Rakuten launching in 2021. The Capex to GDP ratio will decline slighly during the forecast peior to 2030.

The publisher projects an increase in Capex spend throughout 2024 alone by installing more 5G base stations across all cities, ramping up Japan’s 5G rollout nationwide and consolidating its 5G network leadership in terms of subscribers and availability in the country.

Operator Profiles

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.

Between 2016 and 2022, both NTT lost revenue and EBITDA share to KDDI and Softbank over the last six years, Softbank lost some EBITDA share while cost reduction measures started to flow in 2019 with improving EBITDA and cash flow.

Mobile Subscribers and Revenue

Average annual mobile revenue growth was lower (-0.7%) than mobile service subscription growth (4.1%) during the period 2016-2022, 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 subscription growth will put long term pressure, dialling 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 reductions per GB over the last 3 years, while India has the lowest rate in the world with just a few cents per GB.

The publisher 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 publisher forecasts 5G mobile subscribers will represent nearly 70% subscribers of all subscriptions by 2030, 6G at 5%, 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.

High Penetration of FTTH

Japan boasts one of the highest FTTH penetrations in the world (85%) and offers some of the most advanced consumer broadband products with speeds up to 10Gbps. The majority of users opt for 100Mbps packages, often bundled with mobile services.

Satellite Broadband: Reshaping Connectivity

LEO and GEO Satellites

The satellite broadband sector is another area where Japan is making strides. With detailed comparisons of Low Earth Orbit (LEO) and Geosynchronous Orbit (GEO) satellites, Japan is leveraging these technologies for global coverage and low-latency communication, ideal for real-time application. By 2030, the satellite broadband subscribers in Japan are expected to reach 1 million, with the market growing at an average annual rate of 102%. This growth will be accelerated by the deployment of more LEO constellations, such as Starlink Project Kuiper and OneWeb​.

Government Initiatives in Digital Infrastructure

Pioneering Digital Strategies

The Japanese government has been a pioneer in ICT initiatives. Strategies like e-Japan Phase I & II and the i-Japan Strategy 2015 focused on developing high-speed internet access, e-Government, and digital inclusion. These initiatives aimed to bridge the digital divide and foster a citizen-driven digital society.

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.

Our 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.

Conclusion: Japan’s Telecommunication Evolution

As we look towards 2030, Japan’s telecommunications sector is poised for dynamic growth. With advancements in 5G, IoT, and satellite broadband, along with supportive government policies, Japan is set to continue its legacy as a leader in the global telecommunications arena.

Companies Mentioned

• Arteria Networks
• e-Mobile
• Internet Initiative Japan
• JCom
• JTower
• KDDI
• NTT
• NTT Data
• NTT Docomo
• Rakuten
• Softbank
• Sony-Net
• Starlink

Methodology

The publisher uses primary and secondary research as well as proprietary information sources to generate market analysis and forecasts for fixed and mobile services in terms of both subscribers and revenue. Interviews are conducted with key service providers in the region to determine current and potential market sizing as well as future service offerings. Information gathered through interviews is further cross-checked to validate the total market size.

The primary research is supplemented with a range of secondary source material, including related research, press releases, securities filings, media, Web-based materials, and trade publications.

Industry and population statistics are also leveraged for reference and to ensure consistency in the data collection. Extensive service provider primary and secondary research, together with the publisher's end-user research database, provides a strong basis for sizing and forecasting the market. The multiple reference points allow for validation of information provided by the service providers compared with that gathered from alternative sources.

Note: Forecasts are made in local currency, and no allowance is made for inflation. All numbers in this document may not be exact due to rounding.