Shares of KDDI (TSE:9433, Financial), a Japanese telecom, had declined in recent years following the introduction of a fourth competitor in Japan’s mobile-phone market. However, the new entrant, Rakuten, has been slower than anticipated in building out its network. Moreover, KDDI reached an agreement to partner with Rakuten in roaming, so it stands to benefit from Rakuten’s potential growth. In addition, declining sovereign rates made KDDI’s shares more attractive as a bond proxy, a purpose for which some investors use KDDI given its relatively steady cash flow and the yen’s standing as a defensive currency. The rollout of 5G network infrastructure in Japan represents a risk, as it could challenge the pricing power of KDDI and other Japanese telecoms.
From First Eagle Global Value Team's fourth-quarter 2019 commentary.
