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SoftBank telecoms IPO faces headwinds from govt-backed upstarts

From Reuters - January 19, 2018

TOKYO (Reuters) - SoftBank Group Corps (9984.T) expected spin-off of its Japanese telecoms business will lure investors seeking exposure to a solid tech name, but the prospect of tougher competition in a mature industry may turn off those chasing higher returns.

SoftBank shares have risen about 3 percent this week since it said it was considering what would be the largest IPO by a Japanese company in nearly two decades, a deal that would accelerate the groups transformation into one of the worlds biggest tech investors.

The company aims to sell about 30 percent of SoftBank Corp, Japans No. 3 wireless carrier, for about 2 trillion yen ($18 billion), the Nikkei newspaper reported. The proceeds would be invested in growth assets such as foreign information technology companies.

While it could provide founder Masayoshi Sons global investment juggernaut with a cash boost, the domestic phone business is facing a concerted attempt by regulators to drive down telco fees and promote new entrants, threatening to crimp profits.

FROM UPSTART TO INCUMBENT

SoftBank no longer attracts the sympathy of regulators asthe young upstart that broke up the telecoms duopoly of NTT DoCoMo Inc (9437.T) and KDDI Corp 4433.T with lower prices and an initial, exclusive deal to carry Apple Incs (AAPL.O) iPhone.

The big three wireless firms are earning too much. We want to create a fourth pole, a senior Japanese telecommunications ministry official said on condition of anonymity last month.

Japanese regulators are backing new telecoms entrants such as Rakuten Inc (4755.T), an e-commerce, streaming and fintech firm that now aims to become the countrys fourth major wireless carrier.

Other government measures to promote competition include the removal of the sim lock from handsets, forcing carriers to alert users when contracts are up for renegotiation, and cracking down on cut-price handset deals that smaller players cannot compete with.

We want to create an environment (for Rakuten) that is as good as or better than in eMobiles time, the official said, a reference to a successful 2007 attempt by upstart eMobile to enter the wireless market offering pocket wifi devices. eMobile gained four million subscribers before SoftBank bought it in 2013.

SoftBank could be hedging the risk of more competition by considering an initial public offering, CLSA analyst Oliver Matthew said in note to clients.

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