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KDDI launches “Simple Plan” – an end to handset subsidies

Forrester
October 7, 2007

October 5 – Nikkei Business Daily (Nikkei Sangyo Shinbun) article titled: After the removal of "subsidy money"… Handset Price War

The article concerns an announcment from KDDI that customers would be given a choice between "Full Support" plans and "Simple" plans. Those selecting "Simple" will pay full price for their handset (KDDI won't subsidize the handet), in return for which their charges for making calls will be substantially reduced – with the cheapest plan weighing in at 1510yen per month.

This move is not happening in isolation. SInce the introduction of number portability, which allows consumers to take their phone number with them if they move to another carrier, DoCoMo has also been reducing the subsidies that it pays for handsets.

The news should be welcome for the almost half of Japanese consumers who find their current phone bills burdensome – according to a new survey from My Voice (translated here by Seron).

Surely this spells the beginning of an inevitable consolidation for Japanese mobile handset manufacturers, who have survived so far because of the low risk relationships that they enjoyed with Japan's major carriers? In the past they only had to make the phones that the carriers told them to make – and they could survive.

I think the future presents more risk to hanset makers – carriers aren't going to accept the costs of handsets that don't sell and they aren't going to encourage customers to get the fanciest phones with the most features regardless of what  the customer wants. I expect to see a group of consumers – for whom 90% of their phone's current capabilities are surplus to requirements – decide that it's better to have a cheap, reliable phone with the cheapest possible running costs.

What does this mean for innovation? Does the rest of the world catch up to Japan? I believe that the innovation will increasingly take place in the software and services on phones – whether that means innovative pricing, innovative applications, innovative support. The carriers will differentiate themselves with the customer experience that they offer rather than by pushing features on users who don't always want them.

Please let me know if you agree – or if you think I'm missing something.

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