Japan's MIC moves to end handset subsidies

06 Dec 2007

Japan's subsidy system with its zero-yen and one-yen handsets should slowly become a thing of the past as the Ministry of Internal Affairs and Communications (MIC) promotes the separation of handset and service charges as part of its new mobile business revitalization plan.

NTT DoCoMo was scheduled at the end of last month to introduce a new tariff package based on the MIC's guidelines. The handset will be paid for separately, typically by installment credit over two years. This means that subscribers choosing to keep their handsets more than two years will pay less than now and will not be subsidizing the handset purchases of others.

'The MIC wishes to have a mobile tariff system that is transparent and fair,' declared Shogo Matsuda, deputy director of the Telecommunications Policy Division in the MIC's Telecommunications Bureau. 'Many users haven't recognized that the cost of terminals is implicitly financed by the service price. The new tariff plan will make clear that the terminal price is separate from the service charge,' he said.

NTT DoCoMo will retain its traditional sales system in parallel but intends to make the new 'Value Course' package more attractive and to push it as a means of keeping its subscribers from defecting. As Japan's leading carrier, the costs of handset subsidies have long been a major financial burden.

KDDI has already launched a similar package, but it is a token gesture for the moment as the company is not promoting it and the traditional package offers better financial benefits. KDDI and Softbank focus their sales on getting new subscribers and the subsidies are key sales weapons.
Many wonder whether the new system will actually benefit NTT DoCoMo in the short term. 'The new system will be a bit confusing for the end-user and the timing is not good. Xmas is the second largest season for sales, and I think that many people will put off upgrades and so the market may shrink for a short time,' said Michito Kimura, senior analyst at IDC Japan. Kimura also thinks that makers will suffer. 'DoCoMo will not be ordering from vendors at the same scale as before. I think vendors are going to lose opportunities to expand handset sales,' explained Kimura.

The MIC's Matsuda, however, believes makers will be long-term beneficiaries. 'If the handset cost is separated from service charges, the substantial meaning of SIM locking will be lost. And if SIM unlocking is introduced, then handset makers can sell directly and users will get a bigger variety of handsets to choose from,' he said.

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