Current News Mobile Phone Market Welcomes First Entrants in 12

Current News (C) JETRO Japan Economic Monthly, November 2005

Current News

Mobile Phone Market Welcomes First Entrants in 12 Years

Japanese Economy Division

The Ministry of Internal Affairs and Communications on November 10, 2005 granted entry into the mobile phone industry to BB Mobile, a subsidiary of Softbank; eMobile, a subsidiary of eAccess; and IPMobile. The three carriers will launch services in October 2006. The mobile phone market has not had a new operator since the Digital Phone Group (now Vodafone) and the TU-KA Group (KDDI) in 1994.

Limited radio bandwidth Until the mid 1980s, the mobile phone market was under the monopoly of the Nippon Telegraph and Telephone Public Corporation, but then it was privatized as NTT in April 1985. Several companies, including DDI (Kyocera), IDO (Toyota) and Digital Phone (Japan Telecom) subsequently entered the mobile market. Later, some players integrated with others through merger or changes in major shareholders, forming the current oligopoly of four players, namely, NTT DoCoMo, KDDI under the “au” brand, TU-KA as a subsidiary of KDDI, and Vodafone. The market has not had a newcomer since the Digital Phone Group (currently Vodafone) and the TU-KA Group (currently KDDI) arrived in Table 1. Frequencies Used by Mobile Phones 1994. One of the problems has 800MHz 1.5GHz 1.7GHz 2GHz been the limited availability of NTT DoCoMo ●● ● Existing KDDI ●●radio frequencies. carriers Vodafone ●● TU-KA Group ● The Ministry of Internal Softbank ● New eAccess ● Affairs and Communications carriers IPMobile ● initially appropriated the 800 Source: Media reports MHz and 1.5 GHz bands for second-generation mobile phones, and then the 2 GHz band for third-generation mobile phones in 2000. As the number of mobile phone subscriptions skyrocketed, however, the assigned frequencies became in such heavy demand that it became impossible for additional companies to enter the market without the allocation of new bandwidth. To correct this situation, and thereby promote the continuing development ubiquitous connectivity in Japan, the ministry decided to allocate the 1.7 GHz band for new mobile carriers (Table 1).

New entrants intensify competition The ministry allocated a number of frequencies in the 1.7 GHz band to new arrivals BB Mobile and eMobile, which are subsidiaries of Softbank and eAccess, respectively, and frequencies in the 2 GHz band to newcomer IPMobile.

Current News (C) JETRO Japan Economic Monthly, November 2005

Softbank will be offering services using wireless LAN in collaboration with Yahoo! Japan, another Softbank group company. The firm eAccess, a major ADSL operator, plans to form a capital tie-up with Yoshimoto Kogyo to offer users content on their mobile phones. IPMobile will offer high-speed data services via mobile terminals mounted in vending machines and motor vehicles beginning in October 2006, which would make it the first of the three new carriers to launch commercial operations. It has set a target of 11.6 million subscribers by 2011 (Table 2).

Table 2. Business Plans of the Three Entrants

Parent Softbank eAccess IPMobile Mobile subsidiary BB Mobile eMobile N/A Services Voice / data Voice / data Data Protocol W-CDMA W-CDMA TD-CDMA Expected service launch date Apr. 1, 2007 Mar. 15, 2007 Oct. 1, 2006 Number of base stations in FY 2010 15,960 15,210 6,603 Expected subscribership at end FY 2011 6.69 million 5.05 million 11.60 million Source: Ministry of Internal Affairs and Communications

Telecom costs expected to fall The three new carriers will intensify competition, which should result in users enjoying lower telecommunication costs. The NTT DoCoMo group abolished

Fig. 1 Trends in Mobile Phone Call Rates 300 its phone deposit system in 1993 and (Yen)

250 introduced the outright sale of mobile

200 handsets to consumers the following

150 year. Mobile carriers slashed their base

100 subscription charges (Fig.1). The group 50 then abolished the practice of 0 collecting a large one-time startup fee 88/1 89/1 90/1 91/1 92/1 93/1 94/1 95/1 96/1 97/1 98/1 99/1 00/1 01/1 02/1 03/1 04/1

Notes: 1. The rates shown above are for 800 MHz digital communications (and analog communications before digital service commenced) of NTT DoCoMo. in 1996, resulting in substantial growth 2. The rates apply to a three-minute call to an NTT fixed line in the same prefecture. Source: Telecommunications Carriers Association in mobile phone subscriptions.

In recent years, however, call charges have not changed. This is because (1) charges have already declined sufficiently, (2) there is inadequate competition, (3) costs have increased and (4) consumer interest has shifted from price to service quality. Although mobile phone charges in Japan are not necessarily high from an international viewpoint (Fig.2). The number portability system is due to be introduced in 2006, to allow mobile phone users to keep their phone numbers even after changing their carriers. The result is that both new and existing mobile phone operators are expected to cut their call rates and launch an array of new services in the competition for subscribers.

Current News (C) JETRO Japan Economic Monthly, November 2005

Fig. 2 Comparison of Mobile Phone Charges (based on avg. 106 minutes of call time per month)

70 65 (Hundred yen/month) 60

50 44 38 39 40 37 36

0 Tokyo New York London Paris Duesseldorf Geneva Notes: 1. Based on survey conducted in January 2005. 2. For details on charging schemes in different countries, see Ministry of Internal Affairs and Communications, Heisei 16 Nendo Denki Tsushin Service ni Kakaru Naigai Kakakusa ni Kansuru Chosa (Survey on the Difference in Telecommunications Service Charges between Domestic and Overseas Markets in Fiscal 2004). 3. The charges cover voice communications only. Source: Ministry of Internal Affairs and Communications

References: • Ministry of Internal Affairs and Communications, Heisei 16 Nendo Denki Tsushin Service ni Kakaru Naigai Kakakusa ni Kansuru Chosa (Survey of Differences in Telecommunications Service Charges between Domestic and Overseas Markets in Fiscal 2004), 2005. • Ministry of Internal Affairs and Communications, Heisei 16 Nendo Denki Tsushin Bunya ni Okeru Kyoso Jokyo no Hyoka (Assessment of Competition in the Telecommunications Sector in Fiscal 2004), 2005.