Japan's Liberated Mobile Market Worries Vodafone

Vodafone's embattled Japanese operation faces a serious challenge as the government prepares to open the door to two new players, escalating the price war that has ravaged the company's business over the past year.

Japanese internet companies Softbank and eAccess are expected to be given the go-ahead next month to become the country's fourth and fifth mobile phone networks.

Softbank is the country's biggest broadband company and eAccess an internet service provider.

Vodafone Japan's new president, Bill Morrow - the former head of the company's UK business who took over at the start of April - admitted yesterday that the move will have an impact. "New competition always changes the marketplace," he said. "We just have to move faster."

Enoki Kei-Ichi, the executive vice-president of NTT DoCoMo, the leader in the country's trillion-yen (£5bn) mobile phone market, added that "competition will become more severe" as a result of the awarding of two new licences to operate 3G services.

Prices have been driven down in the rapidly moving Japanese market by the introduction of new tariffs that allow consumers unlimited access to mobile internet services for a flat monthly fee of around £20.

The money made from such so-called data services was supposed to replace declining revenues from voice calls.

Neither NTT DoCoMo nor third-placed Vodafone is planning any formal objection to the arrival of the first new players in the mobile market for a period of 12 years.

Although the government will not formally award the two new 3G mobile phone licences until December, it will set out its plans for the use of the remaining part of the 3G spectrum in July, with Soft bank and eAccess as preferred bidders.

As well as two new national players, the government has a third slice of the airwaves, which only covers two thirds of the nation. This is likely to be offered up in a competition between the five networks.

The move adds to the pressure on Vodafone Japan, which was once one of the jewels in the company's crown but has lost subscribers for five consecutive months. It has seen its revenues drop as it struggles to compete with NTT DoCoMo and KDDI.

Vodafone Japan was unable to launch its new 3G service at the same time as its rivals, a setback which led fashion-conscious Japanese consumers to desert the company.

The company has always maintained that its delay in launching 3G was due to a lack of suitable handsets.

Japanese industry insiders, however, believe the company was hampered by an exodus of staff after Vodafone bought out the minority shareholders just over a year ago.

The company is believed to have lost as much as 20% of its 3,000 staff over the past year, some of whom have joined Softbank and eAccess as they prepare their own services.

BT Group today is launching a long-awaited cellphone service that switches between fixed and mobile networks in the battle to halt a tide of calls moving from landline to mobile networks.

The new mobile phones, codenamed Project Bluephone and made by vendors such as Motorola, are targeting consumers with a service that will hook on to its fixed-line network when they are at home or in the office but switch to a wireless network when they are on the move.

Britain's dominant fixed-line provider is hoping that the mobile phones, which will offer inexpensive calls over fixed lines, will help it resist a rising threat from a fiercely competitive mobile market.