On October 31, the market value of Japan's wireless operators, NTT DoCoMo, KDDI and SoftBank, took a hit of more than $30 billion after NTT DoCoMo announced that it will cut its mobile phone charges by 20% to 40% starting in the second quarter of 2019.
Subscribers in Japan have long complained about unreasonably high service charges, especially compared with prices elsewhere. According to the Organisation for Economic Co-operation and Development, Japanese customers pay close to an average of $70 per month for their mobile service.
Earlier in 2018, the country's Ministry of Internal Affairs and Communications established a panel to investigate the wireless communication market. In August, chief cabinet secretary Yoshihide Suga suggested that wireless service charges should be slashed by 40%.
Japanese regulators have no mechanism to directly set prices, but the government can pressure operators by altering general market conditions, for example, by making it easier for new rivals to enter the market. In fact, changes are already underway. In 2017, e-commerce company Rakuten announced plans to become the fourth major mobile operator and was swiftly granted a licence in April 2018 to start operations in 2019. Rakuten said it sees an opportunity to compete with existing operators on price.
The Japanese government has been heaping pressure from several different angles. Regulators have pushed to limit device subsidies and for operators to help customers distinguish service fees from device charges. Officials have also campaigned to end SIM locking, the practice of restricting handset use to a specific operator's network.
NTT DoCoMo claimed that its looming price cuts will save its customers about $3.5 billion each year. It also promised to make its charges clearer, separating service fees from hardware costs. Rivals KDDI and SoftBank have yet to announce similar moves, but market forces will certainly prod them to lower prices to match DoCoMo if they wish to avoid losing subscribers.
The price drops can also be expected to affect sales of premium smartphone makers such as Apple and Samsung, which have benefited from the big three operators' focus on making it easier for consumers to get the latest smartphones. The end of subsidies could mean that subscribers hold on to their existing devices longer.
Like wireless service providers in many markets, Japanese operators have successfully used a blend of device subsidies and access to popular content such as games, video and social media. And like in other countries, saturation is changing the chemistry of the market.
In recent years, other markets have seen significant impact from the arrival of new competitors. In our view, Japan appears ripe for disruption in the same way France did in 2012, before Iliad's assertive pricing strategy changed the market irrevocably. More recently, Reliance Jio has torn up the rule book in India on its way to recruiting 250 million customers in about 24 months, while Iliad has been wreaking havoc in Italy since launching in May 2018 (see, for example, Quarterly Market Analysis: Mobile Operators, Europe, 2Q18).
Raghu Gopal has more than 20 years' research and operational experience
This article originally appeared onCCS Insight