Latest / The CEO Diary with Fexingo: Leadership Lessons, Executive Decisions, and Corner Office Stories / How Tetsuro Kano Turned KDDI into a Digital Juggernaut
Transcript
- Lucas: When Tetsuro Kano took over as CEO of KDDI in 2019, Japan's third-largest telecom was in a quiet crisis. Revenue had been flat for three years, the mobile market was saturated, and the company was losing ground to SoftBank and NTT Docomo on price. Luna: So he walked into a classic telecom trap — a commodity business with shrinking margins and no obvious growth lever. Lucas: Exactly. Most CEOs in that position would start cutting costs, trimming headcount, maybe selling off non-core assets. Kano did the opposite. He announced a five-year plan to transform KDDI from a telecom into a digital platform company. Luna: That sounds like a PowerPoint slogan. What did it actually mean in practice? Lucas: It meant three concrete bets. First, he decided to own the infrastructure layer — he spun off the mobile towers and fiber network into a separate entity called KDDI Infrastructure in 2020. That freed up capital and let the core business focus on services. Luna: So he was monetizing the pipes while building the software on top. That's a classic platform strategy, but rare in telecom. Lucas: Right. Second, he went all in on 5G. KDDI invested roughly 1.5 trillion yen — about ten billion dollars — over four years to build out its 5G network, targeting 90% population coverage by 2025. That was a huge bet for a company with an eighteen percent market share. Luna: And third? Lucas: Third, he transformed KDDI into a fintech and e-commerce player through acquisitions. The biggest was the purchase of a controlling stake in Lawson, the convenience store chain, in 2024. Lawson has thirteen thousand stores across Japan and processes millions of transactions a day. Luna: Wait — a telecom buying a convenience store chain? That seems like a stretch. Lucas: It does, until you think about the data. KDDI already had fifty million mobile subscribers. Lawson had a loyalty program with fifty million members. By integrating the two, Kano created a massive data platform for targeted offers, payments, and logistics. Luna: So the convenience store becomes a physical node in a digital network. I can see the logic, but did the market buy it? Lucas: Investors were skeptical at first. KDDI's stock barely moved in 2020 and 2021. But by 2023, the strategy started showing results. Revenue grew from 4.8 trillion yen in fiscal 2019 to 6.7 trillion in fiscal 2025 — a forty percent increase. Operating profit rose from 800 billion to 1.2 trillion yen. Luna: And the stock? Lucas: It tripled between 2019 and early 2026. KDDI's market cap hit roughly 10 trillion yen — about sixty-six billion dollars — making it the most valuable telecom in Japan. Luna: That's impressive. But I wonder how much of that growth came from the telecom business versus the new bets. Lucas: Good question. The telecom segment itself grew only about ten percent. The real growth came from what Kano calls 'life design' — the fintech, e-commerce, and IoT services. By 2025, those non-telecom businesses accounted for nearly thirty percent of KDDI's revenue. Luna: And that's likely to grow further. But Kano also had to change the culture internally. What did he do there? Lucas: That might be the most interesting part. KDDI was a traditional Japanese company — seniority-based promotions, consensus-driven decision-making, and a lot of meetings. Kano eliminated almost all of that. He introduced an open-office layout where even he sits at a desk among engineers. Luna: No corner office? Lucas: None. He also mandated that all internal documents be shared company-wide, not just on a need to know basis. And he created a 'fail fast' fund — a pool of 10 billion yen for teams to experiment with new ideas without going through the usual approval process. Luna: How many of those experiments actually made it to market? Lucas: He said in an interview that about seventy percent failed. But the ones that worked — like the KDDI Mobile Payment app and the IoT platform for smart factories — generated enough to more than cover the losses. Luna: That's a very un-Japanese approach. Did it cause friction? Lucas: Absolutely. Some senior managers left. But Kano was willing to lose them. He said in a 2022 memo, and this is a paraphrase, 'If you can't tolerate failure, you can't innovate.' He also changed performance metrics — from measuring how many hours people worked to how many experiments they ran. Luna: Speaking of experiments — I think the show itself is an experiment that's been worth running. If today's episode moved your work forward in some small way, consider supporting us so we can keep it ad-free. It's buy me a coffee dot com slash fexingo. No pressure, just a way to say this matters. Lucas: Yeah, and we really do appreciate it. Every little bit helps us keep the conversations honest and deep. Now, back to Kano's strategy — one thing I find fascinating is how he handled the 5G rollout. Luna: How so? Lucas: Unlike rivals who built their own towers, Kano shared infrastructure with smaller carriers and even with SoftBank in some regions. That cut his capex by about thirty percent while still hitting coverage targets. It was a pragmatic move that freed up cash for the digital bets. Luna: That's smart. But is there a risk that sharing infrastructure limits long-term competitive advantage? Lucas: Kano's view is that in a commodity business, the network itself isn't a differentiator anymore. The differentiator is what you build on top of it — the services, the data, the customer relationships. So sharing the pipes reduces cost without sacrificing the high-value layer. Luna: That's a very different philosophy from, say, SoftBank's Masayoshi Son, who wants to own the entire stack. Lucas: Totally different. Son is building a vision around AI and robotics, while Kano is more focused on immediate monetization of data and convenience. Both are valid, but Kano's approach is less capital-intensive and arguably more predictable. Luna: What about the Lawson acquisition? How is that integration going? Lucas: Early results are promising. KDDI has already started using Lawson stores as pickup points for online orders, and the loyalty program integration has increased cross-shopping by about fifteen percent. The next step is to combine payment data from KDDI's mobile payment app with Lawson's inventory data to optimize stock and offers in real time. Luna: That's essentially turning a convenience store into a micro-fulfillment center. Lucas: Exactly. And it's not just Lawson. KDDI also acquired a stake in a digital bank called au Financial Group and launched an IoT platform that connects everything from vending machines to industrial robots. By 2025, KDDI had over 30 million IoT connections. Luna: Thirty million is a big number. How does that compare to other telecoms? Lucas: Among Japanese carriers, it's the largest. Globally, it's comparable to what Vodafone has in Europe. But what's unusual is the mix — about half are consumer devices like smartwatches, and half are industrial sensors and meters. Luna: So Kano is diversifying the revenue base while also increasing stickiness. If a factory uses KDDI's IoT platform, it's much harder to switch carriers. Lucas: Precisely. That's the platform play. The more services a customer uses, the higher the switching cost. And that's how KDDI has managed to reduce its churn rate from about 1.5 percent per month to under 1 percent. Luna: What's the biggest risk Kano still faces? Lucas: I'd say two things. First, the Japanese government is pushing for more competition in telecom, which could lead to price caps or mandated network sharing. Second, KDDI's non-telecom businesses are still relatively small and not yet profitable on a standalone basis. If the economy slows, those bets might not pay off as quickly as planned. Luna: But if they do pay off, KDDI becomes a model for how legacy telecoms can reinvent themselves. Do you think other carriers can copy this? Lucas: Partially. The specific moves — like buying a convenience store chain — are tailored to Japan's market. But the underlying principles are universal: separate infrastructure from services, invest in 5G as an enabler, and use data to expand into adjacent verticals. AT&T tried something similar with its acquisition of Time Warner, but it struggled because it lacked the cultural transformation Kano executed. Luna: So culture really is the secret sauce. Lucas: In Kano's case, yes. He didn't just change the strategy; he changed how decisions get made. That's why I think this turnaround is more durable than most. Luna: Kano is set to retire next year. What's his legacy? Lucas: If the digital businesses continue to grow, he'll be remembered as the CEO who proved a telecom can become a tech platform. If they stumble, he'll be the guy who took a bold but risky bet. Either way, he gave KDDI a shot at a future beyond the commoditized voice and data business. Luna: And that's more than most telecom CEOs can say. Lucas: Exactly. It's a reminder that the hardest part of leadership isn't the big strategic move — it's the willingness to change how the company operates day to day.