Mobile Number Portability System Starts in Japan

The new MNP system, which starts to take effect today, allows mobile customers to switch service providers without changing their phone numbers. The country's three mobile operators, NTT DoCoMo, KDDI and Softbank Mobile (renamed from Vodafone KK) have set switching charges at roughly the same level - ¥5,000 (US$41.8). In addition to the charges, customers are required to purchase new handsets if they switch operators. E-mail addresses used by mobile phone subscribers and long-term fee discounts available to them cannot be transferred under the system.

In addition, Softbank Mobile, the smallest of the three, yesterday introduced a cheaper flat-rate plan, hoping to grab a bigger market share on the introduction of the MNP system. The new calling plan, which will begin this Thursday, will be limited to customers who buy handsets in instalments. The carrier's basic monthly charge is set at ¥9,600. Customers who conclude contracts by 15 January 2007 will enjoy a rate at ¥2,880, a 70% discount. In addition, for communications within the Softbank Mobile network, subscribers will be able to make unlimited calls and send short text messages of up to 250 characters at no additional charge.

The plan, however, contains numerous conditions and restrictions. Users will be required to enrol in additional services amounting to ¥1,000 a month, including handset insurance and voice mail. Calling minutes from 9 pm to 1 am will be restricted to 200 a month, with average charges incurred thereafter. The cost of calls outside the Softbank Mobile network will be relatively higher than the comparable rates offered by NTT DoCoMo and KDDI.

Softbank Mobile is also introducing a new rate framework, under which call minutes will be priced the same as the two rival carriers, but the basic monthly fee will be ¥210 lower. It will also take over long-term fee discounts tied to subscription length, a feature that was to be unavailable to users that switch carriers.

Masayoshi Son, president of Softbank and of Softbank Mobile, said at a news conference yesterday that if DoCoMo and KDDI decided to cut their service fees as a countermeasure, his company would announce additional discounts within 24 hours.

Outlook and Implication

• Softbank Fee Reduction Might Trigger Price Wars: Before Softbank Mobile introduced its rate reduction, it was expected the new MNP system might not trigger a big shift in subscribers from one service to another, as customers will need to pay high switching costs and lose discount deals and e-mail addresses if they decide to switch. Among the customers who planned to change carriers under the new rule, KDDI's "au" offering was their top choice, thanks to its popular music download service. The market had therefore expected KDDI to be the biggest gainer of MNP, winning users from rivals DoCoMo and Softbank.
  However, the surprise announcement by Softbank Mobile yesterday has complicated matters significantly. The former Japanese unit of British mobile operator Vodafone Group had lost its competitive edge under the management of Vodafone, which failed to offer phones and services that appealed to Japanese consumers. Its new owner, internet conglomerate Softbank, which has a precedent of slashing internet prices against NTT, is determined to start a price war against its rivals.
• Operators' Profitability to Suffer: At the end of August, DoCoMo and KDDI garnered 56.8% and 26.4% of Japan's total mobile market respectively, with their 3G market shares standing at 50.5% and 41.8%. Softbank, which was left a long way behind, controlled 16.8% of the total market, with its share of the 3G market at 7.7%. In Japan, where more than half of the mobile subscribers are 3G users and the usage of data services is the one of the highest around the world, the mobile operators should ideally be focused on service quality, such as enhanced data offerings. Nevertheless, price remains the key criterion when mobile customers choose services. Facing Softbank's aggressive promotion, DoCoMo and KDDI are unlikely to give no response.
  For Softbank Mobile, price slashing seems to be the only solution that could enable it to compete with larger rivals after the introduction of MNP. This, however, is unlikely to create a win-win situation for all three operators. Further fee cuts, higher marketing costs and handset subsidies will result in lower ARPUs (average revenue per users), margins and profits for the operators. Although MNP will benefit customers, it has previously been notable for triggering fierce price wars when introduced. For example, in South Korea, operators spent around US$2 billion in an advertising war. SK Telecom's margin fell to 42% in 2004, when number portability was introduced, from 49% in 2003. In Hong Kong, call rates dropped as much as a third, pushing some carriers close to bankruptcy. In Japan, DoCoMo's operating profit in the April-June quarter already dropped 5.2% from same period of the previous year, due partly to the increasing sales costs to prepare for MNP.