KDDI

(c) 2014 Eurotechnology Japan KK www.eurotechnology.com KDDI (Version 17) May 19, 2014
Version 17 of May 19, 2014

by Gerhard Fasol PhD, Eurotechnology Japan KK

http://www.eurotechnology.com/

fasol@eurotechnology.com

free trial report with a few selected pages, download full version here:

http://www.eurotechnology.com/store/kddi/
1
KDDI

EXECUTIVE SUMMARY
• Japan is the world’s most advanced telecommunications market and KDDI is it’s second largest player, and now with the
rise of SoftBank, Japan’s third largest telecommunication group.

• Over the last years, since 2003, KDDI/AU has consistently won mobile market share against both DoCoMo and often
also compared to SoftBank/Vodafone, and has also consistently increased profits. KDDI/AU also was the clear winner in
the initial phase after the introduction of mobile number portability.

• KDDI initially resisted the introduction of “smart phones” (such as iPhone and Android based phones), because KDDI
feared reduced operator control of content and services, and KDDI introduced the iPhone much later than SoftBank.

• KDDI emerged from KDD, the former monopoly operator for Japan’s external telecommunications, but today’s
“company DNA” has benefited from major shareholders KYOCERA andTOYOTA.

• KDDI, through several acquisitions and mergers, and development of an excellent strategy, managed a magnificent turn-
round from monopoly operator KDD (which quite a few people saw as doomed), into one of the world’s most
advanced integrated telecom operators combining highly profitable mobile services under the AU brand, with loss-
making fixed line services including “triple play” broadband fixed line, a national optical IP network and “Metal Plus” IP
services over unbundled copper lines leased from NTT. 80% of revenue is from mobile services.

• “au” is arguably one of the world’s most advanced mobile operator. Recently KDDI/au decided to switch radio
technology from Qualcomm’s CDMA2000 path to LTE.

• New Businesses: JIBUN-Bank and other financial services and UQ Communications WiMax business
2

KDDI
3
Version Date Revision and comments
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6 October 6, 2007
7 November 13, 2007
8 August 31, 2008
9 January 19, 2009
10 January 23, 2009
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16 January 6, 2011
17 May 19, 2014
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LICENSE
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AGENDA (LIST OF CONTENTS)
• KDDI’s proﬁle: structure and history

• Financials: revenue, net income and investment capital expenditure

• KDDI’s strategies sandwiched between the NTT and SoftBank groups

• KDDI’s position in Japan’s telecom markets

• Fixed line markets

• Basic phone serivices:“Metal-Plus”

• TheToyota connection

• Fixed line markets and broad band:“Hikari-One”, Metal-Plus and “Triple-play”

• KDDI’s wireless business - AU

• AU’s market position

• AU setting the agenda

• AU’s winning strategies

• Handset design, the AU Design Project

• KDDI Designing Studio

• Ezweb

• Mobile search and GOOGLE

• Mobile Music, Chaku Uta Full, LISMO, the AU Music Port and LISMO Music Store

• EZ.FM On-air Check Appli

• Ezchannel

• GPS, Ez-Naviwalk, 3D-Navi and location based services

• eBooks

• EZ-gamestreet

• EZ-shopping and auctions

• Prepaid phones

• Mobile payments and KDDI credit card

• MobileTV and video

• Duo-Gate and AU-My-Page

• Summary
6

UNDERSTANDING KDDI
7

KDDI’S MAIN BUSINESSES
• KDDI - Core businesses

• Mobile:“au” (30 million subscribers)

• Telephone: domestic, international

• Internet ISP:AUone.net (was:“DION”)

• Copper line local access:“Metal Plus”

• FTTH:“Hikari Plus”, now:“Hikari-One”

• Data Centers

• KDDI’s 70 Afﬁliate companies

• Mobile:Willcom (10% ownership, formerly: DDI-Pocket)

• Broad Band Communications and Solutions, KCOM, K Solution, JPI, and more

• Overseas:

• KDDI America, KDDI Europe, KDDI Hong Kong, and more

• MobileVirtual Network Operator (MVNO) in USA
8

KDDI’S GROWTH STRATEGIES
13

JAPAN-DOMESTIC: 3M STRATEGY
• Multi-use

• customers can use applications and content on many devices, wireless and
ﬁxed/FTTH internet

• Camera, music-player, movies, games, radio &TV, books, money

• Multi-network

• FTTH

• CATV

• Mobile: 3G, LTE,WiMAX (UQ),WiFi

• Multi-device

• mobile phones, smart phones, tablets, e-books, PCs,TV-sets, FTTH-CATV
14

GLOBAL GROWTH STRATEGY
• ﬁrst consolidate strength in Asia, then move into key markets globally

• Global ICT business

• Cloud/SI: DMX

• networks

• date centers:TELEHOUSE

• Global consumer business

• business in emerging markets

• KDDI-mobile

• LOCUS

• Total Call
15

KDDI’S FINANCIALS
16

NET INCOME
• KDDI’s net income has increased steadily since recovering from net losses around FY1999/2000.
19
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
200
0
200
400
600
800
annualnet
incomeyearYENBillion
Annual net income of Japan's mobile operators in YEN Billion
DoCoMo
KDDI
SoftBankVodafone Japan
US$ 2 Bill
US$ 4 Bill
US$ 6 Bill
US$ 8 Bill
iPhone
SoftBank
July 11, 2008
iPhone 4S
KDDI
Oct 14, 2011
i Mode
Feb 22, 1999
iPhone 5
Softbank KDDI
Sept 21, 2012SoftBank acquires
Vodafone KK
March 17, 2006
c2014EurotechnologyJapanKK
www.eurotechnology.com

QUARTERLY FINANCIAL RESULTS
(REVENUE, OPERATIONAL INCOME AND
NET INCOME) FOR JAPAN’STOPTHREE
MOBILE OPERATORS
21

CHANGE OF OPERATORS’ BUSINESS
MODEL FROM HANDSET SUBSIDYTO
INSTALLMENT PLANS
• The jump in operating profits in the April-June 2008 quarter is to a change of Japan’s
mobile operators’ business model:

• In the past subsidized the sale of each mobile phone with an amount on the order ofYEN
30,000 (US$ 300).This subsidy was recovered by operators through monthly billing as part
of voice and data charges.

• From spring 2008, this subsidy was dramatically reduced. Instead of a straight sale at a
subsidized price, operators started to sell handsets under a installment purchase contract,
where customers pay for a much higher handset price in 12 or 24 monthly installments.

• As a result operators’ profits jumped.

• Softbank was first to introduce the installment plan modes, and KDDI was last
22

QUARTERLY NET (AFTER-TAX) PROFITS
25
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
100
0
100
200
300netincomequarterYENBillion
iPhone
SoftBank
July 11, 2008
iPhone 4S
KDDI
Oct 14, 2011
Quarterly net income loss of Japan's mobile operators
DoCoMo
KDDI
SoftBank
Vodafone Japan
US$ 1 Billion
US$ 2 Billion
iPhone 5
Softbank KDDI
Sept 21, 2012
SoftBank acquires
Vodafone KK
March 17, 2006

NET MARGIN
27
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
5
0
5
10
15
20
netmargin
net margins of Japan's mobile operators
DoCoMo
KDDI
SoftBank
Vodafone Japan
iPhone
SoftBank
July 11, 2008
iPhone 4S
KDDI
Oct 14, 2011
iPhone 5
Softbank KDDI
Sept 21, 2012SoftBank acquires
Vodafone KK
March 17, 2006
• While KDDI’s net margins have been steady since the successful turnaround around 2003,
KDDI’s net margins are now the lowest compared to SoftBank and Docomo

NEW BUSINESS 
UQ COMMUNICATIONS 
WIMAX
28

WIMAX
• In October 2007, KDDI has applied for a WiMax license in the 2GHz spectrum band.

• There will be two licenses awarded and there are four applicants:

• ACCA-Networks (backed by DoCoMo and a consortium including internet service providers)

• KDDI (and a consortium including Intel Capital)

• A consortium of SoftBank and eMobile/eAccess

• Willcom

• since there are four applications for two spectrum licenses it is not assured that the consortium including
KDDI will be awarded a license
29

UQ COMMUNICATIONS INC CAPITAL STRUCTURE
30
Investors
Voting
rights

Percent
Capital (YEN)

Aug. 29, 2007
US$ (approx.)

Aug. 29, 2007
Capital (YEN)

From May 21, 2009
US$ (approx)

After May 21, 2009
KDDI 32.26% YEN 5.48 Billion US$ 61 million YEN 20.71 Billion US$ 213 million
Intel Capital
Corp.
17.65% YEN 3.005 Billion US$ 33.5 million YEN 7.15 Billion US$ 73 million
JR-East 17.65% YEN 3.005 Billion US$ 33.5 million YEN 7.15 Billion US$ 73 million
Kyocera 17.65% YEN 3.005 Billion US$ 33.5 million YEN 7.15 Billion US$ 73 million
Daiwa Securities 9.80% YEN 1.666 Billion US$ 18.6 million YEN 3.97 Billion US$ 41 million
Tokyo Mitsubishi
UFJ Bank
5.00% YEN 0.85 Billion US$ 9.5 million YEN 0.85 Billion US$ 9 million
Total 100 % YEN 17.0 Billion US$ 190 million YEN 47.0 Billion US$ 482 million
Under the spectrum licensing rules by the Japanese Government, established incumbent operators were not allowed to own
33% or more in the new WiMax operators.

For this reason, KDDI is forced to own less than 33% in the new WiMax operator “UQ Communications)

INVESTMENTS IN UQ COMMUNICATIONS
• On May 21, 2009 investments in UQ Communications were increased by the original investors to around
US$ 500 million. Further investments will be necessary for additional network build-out.
31

NEW BUSINESS: JIBUN BANK
36
more about mobile payments, mobile banking and e-money in Japan:
http://www.eurotechnology.com/store/mobilepay/

JIBUN BANK
• Jibun Bank (Jibun =oneself) is a joint venture
between KDDI andTokyo-Mitsubishi-UFJ-Bank
focus on banking via the mobile phone.

• A mobile phone site allows most banking
transactions directly

• KDDI offers Jibun-Bank to subscribers of
competitor DoCoMo as well, and we expect in
the future offering to all Japanese mobile
provider’s customers
37

“KDDI -THE CARD” -> “AU JIBUN CARD”
• In response to DoCoMo’s DCMX credit card, KDDI created “KDDIThe Card” - a KDDI branded credit card.

• In Autumn 2008,“KDDI-The Card” was merged into the Jibun-Bank and became the “au JIBUN Card”
41

“CUSTOMER SATISFACTION”-KDDI’S
STRATEGIES
45

KDDI’S “CUSTOMER SATISFACTION” CAMPAIGN
• KDDI’s campaign during the
introduction of number
portability focused on
“customer satisfaction” - KDDI
argues that KDDI’s customers
are more satisﬁed than the
customers of their
competitors DoCoMo and
SoftBank.
46

KDDI’S POSITION IN JAPAN’S  
TELECOM MARKETS
49

THETOYOTA CONNECTION
53

KDDI’S WIRELESS BUSINESSES: 
 
AU  
 
(TUKA - SHUT DOWN IN MARCH 2008) 
(DDI-POCKET - SPUN-OUT,WILLCOM, UNDER CONTROL OF
SOFTBANK)
57

STRENGTHENINGTHE BRAND:AU BY KDDI
• AU consistently has the strongest proﬁt growth and the strongest net subscriber growth in the industry

• AU is the big winner following the introduction of mobile number portability
58

SPECTRUM LICENSES AND
BASE STATIONS
61
• we are periodically updating this section, subscribe to this report to receive latest versions

HOW MANY BASE STATIONS DOES KDDI/AU INSTALL PER MONTH?
• KDDI acquires between 200-1000 new base stations per month. Currently the increase is about
1000-1200 base stations / month.

• In addition, KDDI has repeaters and booster stations (for a full discussion of base stations and for
comparison with base station numbers of other operators see our J-COMM report: http://
www.eurotechnology.com/store/jcomm/ )
67
2005 2006 2007 2008 2009 2010 2011 2012
0
200
400
600
800
1000
1200
1400
1600
1800
changeinnumberofbasestationsmonth
Growth month of number of KDDI AU's basestations

AU’S MARKET POSITION
68

KDDI AND SOFTBANK WIN FROM NUMBER PORTABILITY, 
HOWEVER RECENTLY KDDI HAS BEEN LOOSING STEAM
• Japan’s mobile market is not saturated, as sometimes can be read, but is growing by approximately 400,000 subscribers/
month

• KDDI was the clear winner in the ﬁrst months after introduction of number portability (on October 24, 2006), and was
overtaken during 2007 by SoftBank, and recently is losing market share as the latecomer to smart-phones
72
Net growth month of subscriptions
DoCoMo
KDDI
SoftBank
eMobile
Willcom
UQ
WCP
iPhone 4S
SoftBank KDDI
Oct 14, 2011
iPhone 5
Softbank KDDI
Sept 21, 2012
Jan 2010 Jan 2011 Jan 2012 Jan 2013 Jan 2014 Jan 2015
100000
0
100000
200000
300000
400000
500000
600000
700000
netgrowthmonth

AU’S SETTINGTHE AGENDA 
 
NEW BUSINESS MODELSVS
COMPETITION ON PRICE
74

IMPACT OF FLAT RATE MOBILE
INTERNET ACCESS 
(INTRODUCED BY KDDI/AU)
79

AU’S WINNING STRATEGY
COCKTAIL
83

STRATEGICTOOL: STUDENT DISCOUNT (“GAKU WARI”)
• As the only operator KDDI/AU
offers 50% (half price) discount
(“Gaku Wari”) for students for
the basic fee, C-mail and
communication charges

• KDDI/AU thus has a great price
advantage for the student
segment in Japan

• The image shows a display of a
Japanese high school boy’s
uniform promoting the student
discount.
85

“INFOBAR”
• Infobar is KDDI’s ﬁrst phone in
the “Design Series”, and was a
huge success.

• In autumn 2006 KDDI
introduced Infobar-2 as a
prototype, collected customer
response, and we believe
Infobar-2 will come on the
market in 2007
88

INFOBAR2 - ON SALE FROM NOVEMBER 2007
• Infobar2- main characteristics:

• OLED display

• One-Seg mobileTV (see:
http://
www.eurotechnology.com/
store/mobile-tv/ )

• GPS and navigation

• Mobile FeliCa mobile wallet
services

• Full LISMO music services
90

KDDI DESIGNING STUDIO  
IN HARAJUKU
94

KDDI DESIGNING STUDIO IN HARAJUKU
• On March 4, 2005 KDDI opened the
“KDDI Designing Studio” inTokyo’s
fashionable Harajuku area

• The purpose of the “KDDI Designing
Studio” is:

• Promote the KDDI brand

• Collect customer feedback
95

• 1st Floor: Communication Studio

• Reception area

• Stage for events and Performance

• Shop for phone accessories,T-shirts etc, but no phones for sale

• Displays and events

• 2nd Floor: Presentation Studio

• au-wall: mobile phones to touch and try

• “the selection”: mobile phone exhibits

• “Contents card maker”: cards with info on mobile content

• “My message maker”: make messages and send to your friends (viral marketing effect)

• Electronic Commerce (EC) Corner: au-auctions and au-okaimono

• 3rd Floor: Creation Studio

• Display area (at the moment displays Aichi-Banpaku terminal)

• Display of cooperation project by KDDI with Universities and research labs

• Future lab

• FTTH content demonstration

• SECOM- security application of location based services

• 4th Floor: Collaboration Studio

• conference and workshop space or special exhibitions

• 5th Floor: Relaxation Studio

• Wired Café with 360 degree views onTokyo
96

97
Infobar
talby
penck

• The KDDI Designing Studio does not sell KDDI products - but instead is part of the
general marketing efforts
98

• Visitors can borrow working mobile phones for some hours and take the mobile phones
out of the Studio on the road for testing

• In Japan, visitors reliably return the mobile phones
99

AU COMPETITIVE MOBILE
PHONE DESIGN
100

SWEETS FORTHETEEN SCHOOLGIRL MARKET
105

EZWEB: MOBILE INTERNET
106

MOBILE SEARCH 
AND GOOGLE
113

MOBILE SEARCH
• AltaVista was the ﬁrst successful commercial search engine on
the internet.AltaVista was launched on December 15, 1995,
initially to showcase the power of DEC computers, and was
soon later overtaken by GOOGLE.

• While the commercial mobile internet started with I-Mode,
Ezweb and Jsky in 1999, commercial mobile search in Japan did
not come of age until summer 2006, when:

• KDDI/AU announced a partnership with GOOGLE,
whereby GOOGLE mobile search appears on the top
page of Ezweb

• DoCoMo a few weeks after the announcement of the
GOOGLE/KDDI partnership, announced a more complex
search solution for I-Mode which includes several different
search services for the open internet, as well as an internal
search service which searches I-Mode ofﬁcial sites only

• SoftBank announced thatYAHOO-Keitai will replace
Vodafone-Live!, and of courseYAHOO includes mobile
search
114

GOOGLE-KDDI/AU PARTNERSHIP
• GOOGLE search is positioned at the top of the EZ-top menue
115

MOBILE MUSIC AS A COMPETITIVE
ADVANTAGE FOR KDDI/AU
116

LISMO!
• LISMO! Is KDDI’s answer to iTunes
and iPod and directly competes with
both, however expanding the reach of
a PC based online system with mobile
phones

• LISMO! Provides an integrated music
system with PC based internet online
music shop (starting April 2006) very
similar to the I-Tunes Music Store, and
a mobile phone based music shop,
where payment for music is via the
mobile phone billing system
131

EZ.FM 
“ON-AIR CHECK APPLI”
141

EZ.FM “ON-AIR CHECK APPLI”
• SelectingTokyo-FM at 80.0MHz moving signage shows the songs playing now
145

EZCHANNEL
147

AU’S LOCATION BASED SERVICES: 
EZNAVIWALK
• More on location based mobile services in Japan:

• http://www.eurotechnology.com/store/location/
153

GPS AND EZ-NAVIWALK
• Subscribe and un-
subscribe

• Subscribe / changes / un-
subscribe

• Contract, conditions of use

• Check the subscription status

• Privacy policy
161

LOCATION BASED EMERGENCY SERVICES
167

EZBOOK LAND
169

EBOOKS FOR  
MOBILE PHONES
172

EZGAMESTREET
• More on Japan’s game industries:

• http://www.eurotechnology.com/store/jgames/
177

EZGAMESTREET
• ezGameStreet is KDDI/AU’s portal to BREW based JAVA games sold through a range of
ofﬁcial online stores
178

AU’S EZWEB STRATEGY:
• From:

• Commissions for Content

• to:

• M-Commerce Portal Portfolio
179

MOBILETV ANDVIDEO
• More aboutTerrestrial DigitalTV for mobile phones (“OneSeg”):

• http://www.eurotechnology.com/store/mobiletv/
190

FROM DUOGATE,AU-MY-PAGE AND DIONTO  
 
AU.ONE.NET
• For our overview of Japan’s telecom markets:

• http://www.eurotechnology.com/store/jcomm/
197

AU-MYPAGE -> AU.ONE.NET
• A wall dedicated to AU-Mypage
at the KDDI Designing Studio in
Harajuku explains the many uses
of AU-Mypage to customers

• Each board on this wall explains
one function of Au-mypage, and
gives details on speciﬁcations,
instructions and explanations

• To our knowledge neither
DoCoMo nor SoftBank offers a
similar service to customers at
this point.
201

FIXED LINE MARKETS
202

FTTH MARKETS
204
• for analysis of Japan’s ﬁxed, FTTH and DSL markets, see our JCOMM report
on Japan’s telecom sector: http://www.eurotechnology.com/store/jcomm/

FTTH MARKET SHARES (MANSIONTYPE, MAINLY APARTMENT COMPLEXES)
208
Source: http://www.eurotechnology.com/store/jcomm/
Mar 2007 Mar 2008 Mar 2009 Mar 2010 Mar 2011 Mar 2012
0
10
20
30
40
50
60
70
80
90
100
mansiontypeFTTHmarketshares
mansion type FTTH
market shares in Japan
NTT East 44.7
NTT West 26.8
UCOM 5.3
KDDI 9.6
Electricity Companies 5.4
Other 8.1

BASIC IP PHONE SERVICE 
“METAL PLUS”
209

KDDI’S BROAD BAND
BUSINESS AND STRATEGY
214

KDDI ASTHE CHALLENGER IN
FTTH
218

SUMMARY
221

SUMMARY
• Through a sequence of mergers and acquisitions, KDDI emerged from the former overseas monopoly carrier KDD,
as one of the most advanced integrated telecommunication operators globally.

• About 75% of KDDI’s business are highly profitable mobile services under the AU brand, while 25% are loss making
fixed line services, data centers and other business.

• Profit-making Mobile services

• 75% of KDDI’s income is from mobile communications, operated under the “au” brand.Willcom (PHS services)
has been largely divested to an investor consortium including Carlyle, KDDI retains a 10% stake.

• “au” is arguably one of the world’s most advanced mobile operators.“au” offers 2.4Mbps CDMA2000 1x-EVDO
Rev A wireless data services since 2003, and has converted all subscribers to 3G or higher.“au” has consistently
pioneered many services, such as CDMA2000 1X-EVDO, chaku-uta and chaku-uta-full mobile music services,
and flat rate data services. au contributes most of KDDI’s income.

• KDDI/AU is transitioning to LTE network technology

• Loss-making fixed line copper and FTTH broad band services

• KDDI was one of the first operators globally to have full converted to IP (internet protocol) over a national
optical fiber network.

• KDDI offers “triple play” (telephone, broadband internet andTV) over FTTH under the “Hikari Plus” brand, and
telephone + ADSL internet over leased “dry copper” under the brand “Metal Plus”

• With Jibun Bank KDDI pioneers mobile banking. Jibun Bank is a bank focused on offering banking services via the
mobile phone.

• In 2009 UQ Communications starts WiMax services
222

MORE INFORMATION:
• Blogs:

• http://fasol.com/blog/

• http://eurotechnology.com/blog/

• Reports:

• http://www.eurotechnology.com/store/
223

CONTACT
• Eurotechnology Japan KK

• http://www.eurotechnology.com/

!
• CEO: Gerhard Fasol PHD

• Fasol@eurotechnology.com

• Mobile: +81-90-8594-6291
224

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