The Japan telecom sector has continued to outperform over the past few months mainly because of 1) firm results driven by smartphone expansion, 2) declining concern about price wars as mobile operators encouraged their users to migrate to LTE with higher tariff offerings, and 3) the inflow of funds into domestic defensive stocks. In particular, Softbank and KDDI showed stronger share price performance due to good fundamentals and increasing expectations for iPhone5, which would accelerate their subscriber acquisition pace/market share gain.
LTE with higher tariff and more efficient network will be positive for the sector. The launch of LTE will underscore the superiority of KDDI’s network. From a mid-term perspective, we expect smartphones and tablets to generate material data traffic, which would be a competitive focal point in the sector. With its comfortable network based on both mobile and fixed network and also lower bundled charges, we see a pickup in subscriber recruitment at KDDI and its earnings will enter a growth phase. On the other hand, as KDDI is lifting the ban on LTE/3G tethering with the iPhone 5, we would expect competition among data dongles to intensify.
The key to watch would be 1) subscriber trend in October when iPhone5 can drastically change market share, 2) possible launch
of a new tablet by Apple, which would be positive for Softbank and possibly KDDI.