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Wednesday, June 27, 2007

Pressure building for transparency in mobile fees

Staff writer

A government panel Tuesday urged mobile phone operators to introduce a new fee system by 2010 that clearly separates communications charges from the cost of handsets so consumers know what they're paying for.

Under the current system, cell phones themselves are sold at low prices — sometimes nearly free — because retailers are given hefty sales incentives from the mobile phone operators, which in turn pass on the cost to users in monthly subscription fees.

The system is problematic because subscribers are not clearly notified that they are paying for part of the handset costs in their monthly subscription fees, according to a draft report by the Internal Affairs and Communications Ministry's mobile business study panel.

The panel wants the government to push mobile phone operators into introducing the new system in 2008 on a trial basis and getting it in full swing by the end of 2010. The ministry is expected to revise a regulation on communications business through ministerial ordinance by the end of the current fiscal year.

In fiscal 2006, major carriers such as NTT DoCoMo Inc. and KDDI Corp. spent an average of about 37,000 yen in incentives per handset. This allowed retailers to sell a new 60,000 yen model to users for 23,000 yen. Older models sometimes are given away for free.

The mobile carriers recoup their expenses in about two years by adding about 1,500 yen to monthly subscription charges.

The practice is believed to benefit customers who go through new handsets frequently, but users who hang onto the same phone year after year end up paying the added charges even after the operators have recovered the costs of the incentives.

The purpose of the new fee system is to ensure transparency for consumers, said a ministry official who briefed reporters. The panel plans to compile its final report in September after gathering public opinion through July 30.

The panel also wants mobile phone operators to abolish the SIM, or subscriber identity module, lock, which prevents SIM cards from being transferred between different carriers' handsets.

Doing away with the SIM lock would allow handset makers to sell phones directly to consumers, instead of through mobile phone operators, the draft report says.

At a regular news conference earlier in the day, NTT DoCoMo President Masao Nakamura said the sales incentive system allowing customers to purchase handsets at a low cost was effective when consumer interest in mobile phones was starting to explode.

But now the incentives are becoming a burden as the market becomes saturated, Nakamura said, indicating his company is ready to reconsider the practice.

He said an end to the sales incentives would be a heavy blow for handset manufacturers because users may become reluctant to pay higher prices for new models.

"But because we introduce new models every now and then, younger people may not care about the cost and just purchase new models as they wish," he said.

For related stories:
Who's paying for those free cell phones?

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