May 30, 2007

Japan: Cheap Cell Phones at What Price?

0529_mobile.jpg Subsidizing fancy handsets with high service fees is routine. It also stifles competition and hurts some clients. According to Business Week, Tokyo regulators are seeking a way out.

"Technology sells. That's NTT DoCoMo's rationale for ordering manufacturers to stuff cell phones with every gee-whiz feature possible. The latest handsets don't just e-mail, browse the Internet, and take digital photos; they double as global positioning systems, anti-theft alarms, bar code readers, music players, TVs, and portable gaming gadgets. The downside to all the high-tech goodies is that such handsets cost more than $600 each to make.

Then why do Japanese consumers rarely pay more than a couple of hundred dollars for a new cell phone? Because DoCoMo subsidizes the cost of every handset on its network. Japan's No. 1 wireless operator is willing to lose more than $300 per phone to make sure that consumers won't get spooked by exorbitant prices.

DoCoMo's rivals KDDI and Softbank spend as much as $70 more per phone than DoCoMo, according to the companies' own estimates. The fight over customers is so fierce that, for new subscribers, operators will even offer their year-old models for as little as a penny. The tab for subsidies alone can set the operators back some $16 billion a year.

Sounds like a bonus for the common man, right? Not necessarily. The operators recoup their spending by charging consumers steep prices for air time. Though Japanese wireless operators earn only slightly more from each customer per month than their U.S. counterparts in average revenue per user—or ARPU—Japan's per-minute connection fees can be more than five times higher.

Now the government is asking whether the subsidies do more harm than good. " ...

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