Softbank can no longer afford a price war

Japan's Softbank frightened telecoms operators when it was just an internet firm with ambitions to go mobile, but now that it's buying Vodafone's huge Japan business it may no longer be a big threat.

The aspiring communications powerhouse, which announced the deal this month, made a name for itself by selling cut-rate high-speed internet services, bringing the industry average price down to a fraction of that in the United States and Europe.

It has threatened to do the same in the mobile industry, but the notorious price competitor can little afford a price war after paying US$15.5 billion ($25.4 billion) for a troubled business that will require major investments.

Analysts believe the company is likely to make some price cuts, but its approach will be more conservative, alleviating a risk that has been looming over the industry's head for the past year.

Softbank's acquisition of Japan's third-largest operator makes it a major player in the country's $128 billion mobile market instantly, while it will also be inheriting a business that has lagged behind its competitors in network quality, services and handset design.

Vodafone's Japan unit currently has the highest customer turnover, lowest revenue per user and smallest number of high-speed third-generation (3G) customers among major operators.

"Softbank has essentially thrown itself into the sea with its hands and feet bound. They'll have no choice but to grow gradually with time." one analyst said.

Softbank's shares have fallen about 14 per cent since Reuters first reported on the talks between Softbank and Vodafone on March 3, while shares of DoCoMo and KDDI have both risen more than 5 per cent.

- REUTERS