Telco/Internet specialist

Kirk Boodry

Redex Research

Thematic (Sector/Industry)

The Ministry of Internal Affairs and Communications (MIC, the regulator) should announce policy changes by the end of the month that make it easier for users to switch mobile carriers. That probably leads to modestly higher customer churn although service bundles/loyalty plans mute the impact. It is also an implicit recognition that the lower pricing levels found at MVNOs and Rakuten are acceptable and that improving the ability to change carriers is what is important. As a result, greater clarity on regulator intensions and near-term price reductions led by Softbank should be enough to ease recent political/regulatory pressure. A proposal to move to eSIMs is of special benefit to Rakuten which developed its provisioning systems with technologies like that in mind.

The Ministry of Internal Affairs and Communications (MIC, the regulator) should announce policy changes by the end of the month that make it easier for users to switch mobile carriers. That probably leads to modestly higher customer churn although service bundles/loyalty plans mute the impact. It is also an implicit recognition that the lower pricing levels found at MVNOs and Rakuten are acceptable and that improving the ability to change carriers is what is important. As a result, greater clarity on regulator intensions and near-term price reductions led by Softbank should be enough to ease recent political/regulatory pressure. A proposal to move to eSIMs is of special benefit to Rakuten which developed its provisioning systems with technologies like that in mind.  

Japan Telecom Sector: Regulator Policy Changes Address Tactics Not Price

IPO and L/S equity, 2015 Starmine top stock picker, Global Equity Research Ltd

Rickin Thakrar

IPO and L/S equity, 2015 Starmine top stock picker

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Event-Driven

NTT (Nippon Telegraph & Telephone) / Event-Driven

We have been historically negative on the <a href="https://www.smartkarma.com/entities/nippon-telegraph-telephone-corporation" target="_blank" data-smartkarma-citation="entities:623:1" rel="noopener">NTT (9432 JP)</a>  stub (Note here: <a href="https://www.smartkarma.com/insights/ntt-why-we-would-avoid-the-ntt-stub" target="_blank" data-smartkarma-citation="insights:25834" rel="noopener">NTT: Why We Would Avoid the NTT Stub</a> ) and its recent announcement to buy out its remaining stake in <a href="https://www.smartkarma.com/entities/ntt-docomo-inc" target="_blank" data-smartkarma-citation="entities:1089:1" rel="noopener">NTT Docomo Inc (9437 JP)</a> in our view may reflect the weak fundamentals at the NTT stub. Our updated view on the stub and implications for the deal are below

We have been historically negative on the NTT (9432 JP)  stub (Note here: NTT: Why We Would Avoid the NTT Stub ) and its recent announcement to buy out its remaining stake in NTT Docomo Inc (9437 JP) in our view may reflect the weak fundamentals at the NTT stub. Our updated view on the stub and implications for the deal are below

NTT Buyout of Docomo - Shoring up a Weak Stub?

Regulatory concerns in Japan have returned as the new Prime Minister has made mobile pricing a key talking point. And it now appears likely that Softbank will carve out a new 20-30GB data tier at ¥5,000/month to address that. We expect that DoCoMo and KDDI (to a lesser degree) will have to follow. NTT is the most exposed as DoCoMo was late to the game in moving up to offering extra-large data bundles and its Gigaho 30GB plan is priced at ¥7,150/month. On the surface, this move gives the Prime Minister a win and should ease regulatory pressure and whilst mobile revenue erosion will accelerate, tiered pricing should help manage the downside. The main issue heading into reporting season is how much of a return to customers this is and whether the political and regulatory pressure will ease.

Regulatory concerns in Japan have returned as the new Prime Minister has made mobile pricing a key talking point. And it now appears likely that Softbank will carve out a new 20-30GB data tier at ¥5,000/month to address that. We expect that DoCoMo and KDDI (to a lesser degree) will have to follow. NTT is the most exposed as DoCoMo was late to the game in moving up to offering extra-large data bundles and its Gigaho 30GB plan is priced at ¥7,150/month. On the surface, this move gives the Prime Minister a win and should ease regulatory pressure and whilst mobile revenue erosion will accelerate, tiered pricing should help manage the downside. The main issue heading into reporting season is how much of a return to customers this is and whether the political and regulatory pressure will ease. 

Japan Telecom Sector: Softbank Moves First on Pricing

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Mega buyouts for cash are rare. Mega buyouts for cash in Japan are even rarer. On 29 september, some 16 hours after the Nikkei published articles suggesting <a href="https://www.smartkarma.com/entities/nippon-telegraph-telephone-corporation" target="_blank" data-smartkarma-citation="entities:623:1" rel="noopener">NTT (Nippon Telegraph &amp; Telephone) (9432 JP)</a> would buy out minorities in <a href="https://www.smartkarma.com/entities/ntt-docomo-inc" target="_blank" data-smartkarma-citation="entities:1089:1" rel="noopener">NTT Docomo Inc (9437 JP)</a>, the deal was announced. It is, as deals, go, a very big deal. It is, as deals go, generous in price, with a very low threshold for success, and an extraordinarily good quality buyer. It doesn't get much easier than this. Since the announcement, the stock has traded $6.5bn in volume, with the last six days basically trading ¥3875-3877 with the last four days seeing most volume on the bid side at ¥3876.<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/164/851/original/Screenshot%202020-10-13%20at%207.27.49%20AM.png?1602545297" class="editor-image img-responsive" data-smartkarma-image-id="164851"></figure></section>This sounds like small potatoes but if one pays 5bp commission, buying today at ¥3876 nets you 5.16% annualised. Lever that up a bit and you get a decent return, and in you can get some size on.This is about the easiest pure balance sheet arb trade one is going to find if you are an arbitrageur, but there are much more interesting trades afoot. I expect that out of the US$40bn of stock in the float, some $12-15bn is going to change hands then tender those shares, another $5-10bn will tender their shares, and then another $15+bn of shares will not tender and will instead be squeezed out. This number is surprisingly large and it means some very interesting flows will occur. Much more below the fold. <hr>Previous insights in the series are:<ul>
<li><a href="https://www.smartkarma.com/insights/ntt-docomo-shocker-nikkei-says-parent-ntt-to-buy-out-docomo-minorities" target="_blank" data-smartkarma-citation="insights:43676" rel="noopener">NTT Docomo SHOCKER - Nikkei Says Parent NTT To Buy Out Docomo Minorities</a></li>
<li>
<a href="https://www.smartkarma.com/insights/ntt-deal-for-docomo-not-going-gentle-definitely-raging-against-the-dying-of-the-light" target="_blank" data-smartkarma-citation="insights:43686" rel="noopener">NTT Deal for DoCoMo - Not Going Gentle, Definitely Raging Against the Dying of the Light</a> </li>
</ul>

Mega buyouts for cash are rare. Mega buyouts for cash in Japan are even rarer. On 29 september, some 16 hours after the Nikkei published articles suggesting NTT (Nippon Telegraph &amp; Telephone) (9432 JP) would buy out minorities in NTT Docomo Inc (9437 JP), the deal was announced. It is, as deals, go, a very big deal. It is, as deals go, generous in price, with a very low threshold for success, and an extraordinarily good quality buyer. It doesn't get much easier than this. Since the announcement, the stock has traded $6.5bn in volume, with the last six days basically trading ¥3875-3877 with the last four days seeing most volume on the bid side at ¥3876.This sounds like small potatoes but if one pays 5bp commission, buying today at ¥3876 nets you 5.16% annualised. Lever that up a bit and you get a decent return, and in you can get some size on.This is about the easiest pure balance sheet arb trade one is going to find if you are an arbitrageur, but there are much more interesting trades afoot. I expect that out of the US$40bn of stock in the float, some $12-15bn is going to change hands then tender those shares, another $5-10bn will tender their shares, and then another $15+bn of shares will not tender and will instead be squeezed out. This number is surprisingly large and it means some very interesting flows will occur. Much more below the fold. Previous insights in the series are:
NTT Docomo SHOCKER - Nikkei Says Parent NTT To Buy Out Docomo Minorities

NTT Deal for DoCoMo - Not Going Gentle, Definitely Raging Against the Dying of the Light 


NTT Docomo: The Three Arbs and the Great Re-Allocation Trade

David Blennerhassett

Last Week in Event SPACE: Northern Star/Saracen, Vedanta, Toyota, Swire

Japan

Nippon Telegraph and Telephone Corporation provides a variety of telecommunication services, including telephone, telegraph, leased circuits, data communication, terminal equipment sales, and related services. The Company provides both local and long distance telephone services within Japan.

NTT (Nippon Telegraph & Telephone) (9432 JP)

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NTT (Nippon Telegraph & Telephone) (9432 JP)

Japan Telecom Sector: Regulator Policy Changes Address Tactics Not Price

The regulatory is expected to announce policy updates that address how users change to cheaper priced options. Churn could rise but service bundles...

Kirk Boodry

NTT Buyout of Docomo - Shoring up a Weak Stub?

We have been perpetually negative on the NTT (9432 JP) stub and its recent announcement to buy out its remaining stake in NTT Docomo Inc (9437 JP)...

Rickin Thakrar

Japan Telecom Sector: Softbank Moves First on Pricing

Softbank's response to regulatory pressure should be enough if sector follows suit. NTT is most exposed after announcing a premium bid for DoCoMo

Kirk Boodry

NTT Docomo: The Three Arbs and the Great Re-Allocation Trade

Really big deals create really big arb opportunities. The details are worth looking at. They also create really big "exhaust". Here that means...

Travis Lundy

Last Week in Event SPACE: Northern Star/Saracen, Vedanta, Toyota, Swire

Last Week in Event SPACE ... Plus, other events, CCASS movements and Mood Spins. (This insight covers specific insights & comments...

David Blennerhassett

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