Shaking Up Japan’s Mobile Phone Market

Ishikawa Tsutsumu [Profile]

[2014.07.29] Read in: 日本語 | العربية |

As the iPhone sweeps Japan’s smartphone market, NTT Docomo has shifted the competitive focus to calling plans with its new unlimited-talk arrangement. Meanwhile, pending changes in telecommunications regulations promise either to strengthen the position of the former NTT monopoly or to blow the mobile market wide open. Ishikawa Tsutsumu reports.

Since Japan’s leading mobile operator NTT Docomo joined its two major competitors in offering the iPhone last September, the nation’s mobile phone market has fallen into a state of virtual homogeneity, with little to distinguish the three main carriers in terms of handsets or services. This has set the stage for the kind of price war that all the providers are anxious to avoid.

Playing “Chicken” with Cash-Back Offers

According to data compiled by market research company Kantar Japan, iPhones accounted for 68.7% of smartphones sold between November 2013 and January 2014. With Docomo, KDDI (which offers mobile service under the Au brand), and SoftBank all offering the dominant iPhone along with Android handsets, customers were no longer choosing a mobile carrier on the basis of its lineup of devices.

That said, there was little to distinguish the Big Three in terms of rate plans or service quality, either. This situation set the stage for a “cash-back war,” as carriers sought to lure customers from each other with increasingly generous money-back offers. Some of these rebates amounted to tens of thousands of yen; an early campaign offered an unbelievable ¥70,000 back on each device. People were boasting of going on family vacations using the money they had earned by buying smartphones for the whole household.

The truth is that all the carriers would have liked to scale back these profit-eating giveaways, but none of them dared to as long as their competitors were providing generous incentives. What started as a short-term stimulus designed to boost new contracts had become a means of survival.

From the customers’ viewpoint, cash-back campaigns are great incentives for signing up with a carrier, but they offer no reward for staying with the same company over the long haul. In fact, as these offers escalated, longtime customers voiced growing resentment at being cut out of the action.

In March 2014, at the height of the cash-back battle, word spread over the Internet that the Ministry of Internal Affairs and Communications (MIC) had “instructed” mobile phone carriers to suspend their rebate campaigns. These rumors of government intervention threw cold water on the cash-back frenzy and gave the Big Three the opportunity for a simultaneous withdrawal. The cash-back war was at an end.

NTT Docomo Leads the Pack with Unlimited Talk

In mid-April this year, during the calm following the cash-back battle, NTT Docomo took the opportunity to announce the June rollout of two discount service plans, Kake-hōdai and Pake-aeru. Under the first plan, subscribers can make unlimited calls to any phone in the country for a flat rate of ¥2,700 per month. The second plan allows for family sharing of monthly data quotas. Meanwhile, the company moved to give loyal users service discounts based on the length of time they have held contracts with NTT Docomo; the company boasts a large number of longtime individual and household subscribers who have never used another carrier.

The inauguration of Japan’s first flat-rate unlimited calling plan was a bold move by NTT Docomo to reverse the flow of subscribers toward its competitors, a trend that had continued even after its launch of iPhone sales last September. The announcement sent ripples through the industry, and the new pricing system proved a huge hit with customers. In mid-May, when the new plans became available, customers rushed to shops to sign up in advance, producing three-hour waits at some outlets. The largest response came from frequent callers, such as younger users and businesses, with a fair number of new customers jumping ship from rival carriers.

The new flat-rate plan allows frequent callers to save big on mobile charges, but it deprives the company of a major source of revenue in the process. To break even, NTT Docomo also needs to sign up light to moderate telephone users, who will end up paying more than under the ¥743 basic plan. It is still unclear how many will make the switch, but with over 5 million new contracts signed in the first 50 days, NTT Docomo’s gamble appears to be paying off.

SoftBank and KDDI Struggle to Keep Pace

Of course, KDDI and SoftBank have not sat idly by. The nation’s second- and third-ranking carriers have rolled out their own plans in a desperate bid to prevent further defections to their rival.

Speaking at a press conference, KDDI president Tanaka Takashi said that his sales department begged him to take action to respond to NTT Docomo’s new rate plan, which was having a huge impact on sales. Under pressure, KDDI hastily bumped up the kickoff of its new low-cost calling plan from December to August 2014. The plan was originally scheduled for launch in tandem with KDDI’s new VoLTE (voice over LTE) service, which allows the company’s high-speed Long-Term Evolution network to carry high-definition voice calls as well as large amounts of data.

SoftBank also struggled to regain its footing. Back in January 2014 it had announced its own new rate plan, billing it as “a plan for the coming VoLTE era.” Scheduled for rollout in mid-April, the plan would have allowed 1,000 calls of up to five minutes each and seven gigabytes of data for ¥6,980 a month. The plan’s cost immediately came under fire from customers and Internet commentators, and SoftBank scrapped it in April 2014 prior to implementation in response to NTT Docomo’s flat-rate announcement. In June, SoftBank announced a plan similar to NTT Docomo’s. (SoftBank’s flat-rate plan was launched in July.)

New Smartphone Rate Plans

  NTT Docomo KDDI SoftBank
Launch date June 1, 2014 August 13, 2014 July 1, 2014
Unlimited calling (domestic) ¥2,700 ¥2,700 ¥2,700
Network access fee ¥300 ¥300 ¥300
Mobile data (2GB) ¥3,500 ¥3,500 ¥3,500
(3GB)   ¥4,200  
(5GB) ¥5,000 ¥5,000 ¥5,000
(8GB)   ¥6,800  
(10GB) ¥9,500 ¥8,000 ¥9,500
(13GB)   ¥9,800  
(15GB) ¥12,500   ¥12,500
(20GB) ¥16,000   ¥16,000
(30GB) ¥22,500   ¥22,500

(Prices do not include consumption tax.)

  • [2014.07.29]

Journalist specializing in the cellphone and smartphone market. Born in 1975. After graduating from Chūō University, worked as an editor at Nikkei Trendy before going freelance in 2003. Published works include iPhone 5 de hajimaru! Sumaho saishū sensō (The Smartphone War that Began with the iPhone 5) and Gūguru vs. Appuru kētai sekai taisen (The Global Cellphone Battle Between Google and Apple).

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