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March 19, 2007 2:00 am
A senior official at Japan's biggest mobile carrier has warned of a possible shake-up in the way the industry charges consumers for handsets.
Noriaki Ito, head of strategy and NTT DoCoMo board member, told the Financial Times in an interview that the long-standing incentive system for mobile handsets was too expensive for the carriers and needed changing.
Mr Ito's comments suggest the industry might be dropping its resistance to government pressure to modify the system, for years the cornerstone of Japanese carriers' business model. At its previous meeting, a new government mobile reform study group heavily criticised the carriers for selling handsets to the consumer at knock-down prices and bearing the heavy costs themselves. It is scheduled to meet again today.
This cut-throat price competition made sense back when huge waves of consumers adopted mobile phones for the first time every year. But in today's mature market, the incentive system - which can cost carriers as much as Y50,000 ($428) for a handset - is mainly exploited by existing customers to switch models cheaply. They can get a new handset at subsidised prices after only a few months with a network, without having to refund any of the cost of the original handset.
Mr Ito said: "To be honest the incentive system is becoming a costly system for us . . . We believe it is time for some change."
Some officials in Japan's telecommunications ministry have said the incentives are also detrimental to the country's handset makers. They say that the low-profile the country's handset makers have overseas is disappointing, given their products are highly sophisticated compared with those generally available outside Japan. They argue the incentive system makes Japanese handset makers uncompetitive overseas, by allowing them to produce handsets inefficiently and expensively in the knowledge that the cost will be borne by the mobile carrier.
Mr Ito warned, however, that it would not be practical for carriers to sell handsets at prices that reflected their true cost. Such a move could place any company making the first move at a huge competitive disadvantage.
He suggested a hybrid system, blending the current incentive system with an instalment plan model which locks customers into longer contracts to recover a greater share of handset costs through regular payments.
Mr Ito also warned such a change "would shrink the market size" in Japan, where consumers acquire about 50m new handsetsa year.
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