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Tuesday, Oct. 24, 2006

Number portability means options for users, headaches for carriers

Staff writer

An annoying procedure that mobile phone users have had to go through when changing to a different carrier was to notify all their acquaintances about their new number, and fret whether someone may have been left out.

News photo
Customers check out new handsets at the Yurakucho branch of Bic Camera Co. ahead of the Tuesday introduction of number portability for cell phones. YOSHIAKI MIURA PHOTO

But subscribers will no longer have to go through all that hassle, at least for phone numbers. Starting Tuesday, the new mobile number portability service will give the roughly 90 million mobile phone users in Japan the option of changing carriers and keeping the same number. Phone e-mail addresses, a key way many people communicate, will not be transferable.

While number retention may be good news for users, carriers face tough competition, heavy sales promotions and ad campaigns that eat into their profits.

Attention has focused on how mobile number portability will enable KDDI Corp, with its au service, and Softbank Mobile Corp. to wrest market share from the nation's No. 1 carrier, NTT DoCoMo Inc.

NTT DoCoMo holds 56 percent of the market, while KDDI has 28 percent and Softbank 16 percent.

DoCoMo has been cool about introducing number portability from the beginning because it will need to invest vast sums to install a new system for the service, while it cannot expect as much profit in return. The government estimates it will cost the mobile phone industry up to 140 billion yen to build the system.

Chisa Uematsu, an official at the Internal Affairs and Communications Ministry, said the government decided in 2004 to introduce number portability due to a growing number of complaints from users who face having to change phone numbers whenever they switch carriers, a move often made to get a cheaper subscription price or more functions.

"The (number portability) system is also aimed at facilitating competition among carriers so subscribers can get better services," Uematsu said.

All three mobile carriers have offered similar discount services, including for families and for long-term use, making it hard to determine which offers the best rates.

But on Monday, Softbank announced it was offering cheaper packages than DoCoMo and KDDI. Under the new plan, which will take effect Thursday, subscribers will be able to call and send e-mail to each other for a flat rate of 2,880 yen, the company said.

However, it is also a risky decision for Softbank, which currently holds 16 percent of the market share. The company is likely to boost its subscribers, but the discount will eat into its profit.

With Softbank's new strategy, competition among the three carriers is likely to enter a new stage. But whether Softbank's plan can lure more subscribers remains uncertain.

Until Softbank's announcement of a new discount, analysts have claimed that few customers will actually switch -- largely because their phone bills probably will not go down.

To boost customer loyalty, the other two carriers have been offering up to 50 percent discounts based on the number of years they have subscribed. Users will lose such discounts if they change carriers.

Some discount services require a certain length of subscription, often up to two years. If users want to change carriers early, they may face a cancellation fee.

Customers will also need to pay a roughly 5,000 yen paperwork fee when switching carriers, and change their e-mail addresses. Also, points earned with the previous carrier as well as music and other data downloaded on previous handsets will be lost.

The three carriers have been readying for number portability by increasing their handset lineups, adding new functions and offering better privileges and discounts to long-term subscribers.

But with Softbank opting to enter a rate war, KDDI and DoCoMo are likely to be forced to review their strategies, observers say.

When Softbank announced its buyout of Vodafone K.K. in March, there was speculation the company would sharply reduce phone rates as it did when it launched its broadband service in 2000. At the time, its affiliate, Yahoo Japan Corp., offered a monthly rate of 2,280 yen, or about half the price of other providers.

Number portability, which other economies debuted in the late 1990s, has triggered fierce competition among mobile phone carriers in those markets in terms of calling rates, sales incentives and advertisement campaigns.

Shigeyuki Kishida, chief researcher of InfoCom Research, Inc., a private think tank dealing with the information and communications industry, said competition became especially fierce in Hong Kong and South Korea.

In Hong Kong, he said, "When one carrier cut its phone rates, many others followed suit."

However, a carrier that maintained higher rates but offered better communication quality ended up earning higher profits than its rivals, Kishida said.

In South Korea, where number portability debuted in 2004, carriers offered flat calling rates and privileges for long-term users, Kishida said. Sales promotions got so intense carriers offered incentives that were illegal.

Amid the aggressive sales push, however, the net profit of South Korea's three mobile carriers fell considerably. In 2004, LG Telecom's net profit dropped by more than half, while KTF saw a 30 percent fall and SK Telecom 23 percent.

Analysts warn that Japanese carriers may face the same competitive pressures, and the cost of lower discount rates, sales promotions and development of new mobile functions could impose a heavy burden on their short-term finances.

"Since customers will likely switch carriers if there are more attractive services and handsets in other companies, mobile phone operators need to make efforts" to ensure their subscribers remain satisfied, said Nishimura of Daiwa Institute of Research. "It will bring on extra costs and eat into their profits."

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The Japan Times

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