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Thursday, Oct. 6, 2011

ANALYSIS

Softbank looks to take hit via KDDI's iPhone entry


Staff writer

Ever since June 2008 when Apple Inc.'s iPhone debuted in Japan and sparked a smartphone boom, Softbank Corp., Japan's third-biggest carrier in subscriber numbers, has enjoyed its status as the only carrier providing iPhone services in Japan.

But the announcement by Apple Inc. late Tuesday in the United States about the introduction of the latest model, the iPhone 4S, could be a major game-changer.

Apple said KDDI Corp., the second-biggest carrier, will also provide the iPhone under the au brand.

Experts said that while KDDI could get a huge boost from the iPhone, it will be a big blow to a Softbank sales strategy that has depended heavily on the iPhone.

They also said that as Apple has widened sales routes for the hugely popular iPhone, domestic handset makers will face tougher competition at home.

"In terms of attracting new subscribers, the situation will possibly change the market in a drastic way," said Hiroshi Sakai, chief analyst at SMBC Friend Research Center.

Not many existing iPhone users will probably switch to KDDI by going through the hassle of filling out new paperwork and paying penalty fees if they are still under their two-year contract, but KDDI is likely to attract more new users, Sakai said.Softbank often gets complaints from users about its network quality due to slow or unstable connections, while KDDI's au has a good reputation for network quality, which is one of the reasons Softbank is expected to find itself in a tough position.

Tsutsumu Ishikawa, a journalist covering the mobile phone industry, explained that Softbank's network traffic doesn't flow smoothly compared with KDDI's because many of Softbank's customers use their iPhones to process huge amounts of data.

The iPhone 4S will hit Japanese store shelves on Oct. 14 from both Softbank and KDDI. As of Wednesday, the carriers hadn't officially announced their prices for the new iPhone or whether they will offer any special monthly plans for the services.

Riding on the iPhone's popularity, Softbank has been enjoying steady growth in subscribers. It has held the No. 1 position in terms of increasing new subscribers for the past 17 months, and its number of subscribers totaled about 26.62 million as of the end of August.

On the other hand, KDDI, which has around 33.53 million subscribers, has fallen behind in the smartphone market after misreading the high desire for smartphones and being slow to commit seriously to the market.

For the past year, KDDI has been playing a desperate game of catchup by mainly pushing smartphones based on Google's Android operating system.

Last week, the company also unveiled smartphones that can connect to the Internet through the high-speed WiMAX network operated by KDDI affiliate UQ Communications Inc. With the addition of the iPhone to its lineup, KDDI appears ready to cut into its rivals' market shares.

"KDDI has been trying hard to sell its Android phones, but it has struggled to attract new subscribers and also lost users. Considering that point, I think KDDI has gained a strong weapon with the iPhone," Ishikawa said.

But KDDI will face a challenging time recalibrating its sales strategy, Ishikawa said.

"Sales of the Android phones will drop (because of the iPhone), so it will be a challenge for KDDI on how to balance the sales strategy," Ishikawa said, adding the burden on its network due to the expected huge data traffic also poses a risk.

With the iPhone no longer an exclusive product, Softbank will have to change its sales strategy as well, and the prelude was seen in its event last week to unveil its latest product lineup.

Until recently, Softbank had somewhat distanced itself from strongly pushing Android phones, but its new lineup consists of a variety of Android handsets ranging from high-spec and high-speed to those strictly for young women.

"It is true that we did not necessarily promote Android phones in an aggressive way in the past," but the Android handsets have improved a lot recently, Softbank President Masayoshi Son said.

As for the impact on NTT DoCoMo Inc., journalist Ishikawa said it could be quite big. "If KDDI's iPhone sales surge, some DoCoMo users will probably switch to KDDI. Then DoCoMo may have to think about getting the iPhone for itself," he said.

The iPhone boom is likely to affect not only carriers but also handset makers, as the iPhone share of the entire mobile phone market is expected to increase.

As Android ups its global market share, Apple is getting more aggressive to stay on top.

"Apple seems to be adopting a strategy of selling the iPhone more widely around the world by expanding sales routes," Sakai of SMBC Friend Research Center said, noting Japanese makers, top players in the domestic market, were slow to join the smartphone boom and haven't caught up with Android-based phones.

"It's a tough situation for domestic manufacturers. The growth of the domestic market is limited, and at the same time, Apple and other foreign firms are increasing their presence in Japan," Sakai said.



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