VZCZCXRO2104
PP RUEHFK RUEHKSO RUEHNAG RUEHNH
DE RUEHKO #1270/01 0810809
ZNR UUUUU ZZH
P 220809Z MAR 07
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC PRIORITY 1906
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RUEHKSO/AMCONSUL SAPPORO PRIORITY 1284
RUEHNAG/AMCONSUL NAGOYA PRIORITY 9689
RUEHOK/AMCONSUL OSAKA KOBE PRIORITY 3843
RUEHFK/AMCONSUL FUKUOKA PRIORITY 0329
RUEHNH/AMCONSUL NAHA PRIORITY 2795

UNCLAS SECTION 01 OF 02 TOKYO 001270 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EAP/J, EAP/EP 
USDOC FOR ITA, NTIA 
 
E.O. 12958: N/A 
TAGS: KIPR ECON JP
SUBJECT: KDDI WINS IN JAPAN'S MOBILE MARKET IN 2006, BUT 3-WAY 
OLIGOPOLY CONTINUES TO STIFLE COMPETITION 
 
 
¶1.  (SBU) SUMMARY: With music download services and handsets 
designed to appeal to the young, KDDI was the clear winner of the 
first round of competition since customers were allowed change 
mobile operators without having to change phone numbers starting in 
late October 2006.  Nonetheless, the dowdy but still dominant NTT 
DoCoMo should be able to maintain its dominance as Japan's largest 
mobile carrier for several more years.  The upstart Softbank, which 
had hoped to shake up the mobile phone market after buying out 
Vodafone in 2006, stopped Vodafone's losses, but was mired in 
self-made troubles over its ads and the inability of its systems to 
handle new orders.  Japanese subscribers benefited from the 
heightened competition with rebates and new discount calling plans. 
The Communications Ministry (MIC) has set up several study groups to 
consider ways to bring more competition into Japan's mobile phone 
three-way oligopoly.  End Summary. 
 
 
 
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Everyone wins, but KDDI wins more than others 
--------------------------------------------- --- 
 
¶2.  (SBU)  In 2006 all mobile phone operators gained subscribers, 
but KDDI outperformed its competitors by picking up more than two 
and a half million new subscribers.  DoCoMo picked up less than two 
million subscribers for the first time in years.  All three saw 
their stocks soar to record highs in early 2007, but, again, KDDI 
outpaced DoCoMo and Softbank with gains of over 40 per cent since 
the end of 2005, according to Nikkei figures. 
 
¶3.  (SBU) The market shares and number of subscribers of the three 
companies in early 2007 were:  NTT DoCoMo 55% with about 52 million 
subscribers; KDDI almost 29% with over 27 million subscribers; and 
Softbank with only 16% and about 15 million subscribers.  Nearly all 
KDDI subscribers use its more advanced and more expensive 3G 
service, while only about 60% of DoCoMo's subscribers and less than 
half of Softbank subscribers pay for 3G service. 
 
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More focus on new services than on new subscribers 
--------------------------------------------- ----- 
 
¶4.  (SBU) The increased competition afforded by number portability 
did not lead to a price war in the mobile phone market as some 
expected, but rather to new calling plans and fancier handsets. With 
subscribers reaching about 100 million, Japan's mobile market may be 
reaching the saturation point.  Japan's mobile carriers realize that 
the best way to boost revenues now is by selling more content and 
services, such as music, videos, games, manga, and internet and 
financial services.  At this point, KDDI provides the most popular 
entertainment services, including Japan's most popular music 
download services.  KDDI also began providing Google search at the 
top of its internet connection service last year, making it easier 
for users to navigate web pages on their mobile phones.  Softbank's 
tie-up with Yahoo also provides its subscribers with a wealth of 
content. 
 
¶5.  (SBU) DoCoMo realizes it needs to attract more young subscribers 
and is cutting prices on its cell phones and on internet access, and 
providing more content aimed at the young, such as MTV videos. 
DoCoMo is still far ahead of the other mobile carriers in financial 
services, especially the "keitai saifu" or wallet phone which allows 
subscribers to use their DoCoMo phone as a credit card in over 
70,000 retail stores. 
 
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GOJ looks at ways to increase competition 
------------------------------------------ 
 
¶6.  (SBU) Opening up Japan's mobile market with number portability 
is just one of the ways the Communications Ministry (MIC) has been 
trying to increase competition in the last couple of years. MIC 
opened the mobile market and offered some limited spectrum to a few 
new entrants in 2005, but the biggest of these, Softbank, opted 
instead to buy out Vodafone, the third largest mobile operator. 
 
¶7.  (SBU) When eMobile, the first new entrant in over a decade, 
starts service at the end of March 2007, it will not even try to 
compete for regular subscribers but instead focus on providing 
high-speed data services for businesses.  Thus eMobile will largely 
be competing with another small carrier, Willcom, which also offers 
flat rates for data transmission. 
 
 
TOKYO 00001270  002 OF 002 
 
 
¶8.  (SBU) One Communications Ministry study group is now looking at 
how it can change the structure of Japan's mobile phone market in 
which the three main carriers control everything from handset design 
to marketing.  In addition, the Ministry recently introduced new 
guidelines which would permit new entrants by Mobile Virtual Network 
Operators (MVNOs).  (Note: A Mobile Virtual Network Operator is a 
company that does not own its own spectrum or network infrastructure 
but resells wireless services under its own brand name, such as 
Disney or MTV.) 
 
¶9.  (SBU) MIC is also studying other obstacles that discourage 
consumers from changing carriers, including certain sales incentives 
and Subscriber Identity Module (SIM) locks.  Japan's mobile phone 
manufacturers currently produce handsets that can only be used with 
one mobile carrier and prevent consumers with SIM locks from 
transferring SIM cards to the handset of another carrier.  (In 
theory, the SIM card should allow users to change phones easily by 
removing the SIM card and inserting it into another mobile phone, 
thereby eliminating the need for activation of the new mobile phone 
on the network.) 
 
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Comment: 
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¶10.  (SBU)  Number portability did provide a boost for KDDI and 
increased competition in Japan's mobile market, but only among the 
established members of the oligopoly.  The Communications Ministry 
realizes that Japan's mobile carriers and manufacturers need to open 
up to more competition or they may be doomed to become rather minor 
players within the global market.  Tokyo-based U.S. observers of 
Japan's telecoms market believe that only by opening up the 
structure of the domestic market will Japan's telecoms carriers and 
manufacturers be able develop and compete overseas.  However, 
Japan's mobile carriers and manufacturers, who work hand-in-hand in 
the current system, fear that the changes MIC is contemplating would 
open the domestic market to foreign competitors. 
 
¶11.  (SBU)  At this stage, neither Japan's mobile phone operators 
nor manufacturers seem to have a working strategy that would enable 
them to expand beyond the Japanese market to emerging markets where 
the real growth potential lies.  Instead, they remain locked into a 
fierce battle for the slow-growing Japanese market using technology 
that cannot be used in other countries.  Mobile phone payment 
systems or e-money is one of the few areas where Japan now has 
world-leading services and offers its mobile carriers some real 
growth potential within Japan. 
 
 
SCHIEFFER