New Mobile Tarifs in Japan Telecommunication Service

As a mature market, Japan's mobile telecoms sector is no stranger to disruptive pricing. The entry of Softbank, which acquired Vodafone's domestic operations last year, helped dent the country's notoriously high calling charges. Now operators are preparing for a potentially bigger upset to pricing: one that would reverse Japan's traditional model of high tariffs and low handset costs.

The telecoms regulator is proposing the shift to improve transparency and eliminate the effective subsidy by long-term handset users of more fickle subscribers. Operators are taking pre-emptive action. KDDI Corp, the second biggest operator, is expected to unveil its new pricing model this week, with industry giant NTT DoCoMo (NYSE:DCM) following suit later in the year. According to local reports, the operators plan to slash calling charges by around 20-30 per cent.

Should shareholders head for the exits? Lower pricing plans typically hurt profitability. Recent discounts are expected to shave Y40bn and Y20bn off this year's revenues at, respectively, DoCoMo and KDDI. Both the dominant players' share prices are already well below peaks reached earlier in the year.

It is, however, too early to say how much damage will be wreaked. For one thing, higher handset charges will offset at least some of the lost revenues from calls. Handset subsidies typically absorb around a third of Japanese mobile operators' operating expenses, compared with under one-fifth in Europe, according to HSBC. In addition to reduced subsidies, operators will also have more incentive to reduce handset costs, for example through more standardised models. Better still, higher handset charges should help lock in more subscribers for longer periods - nearly one-fifth of all users now replace their handsets within two years. Buying patterns will also play a part: much will depend on what proportion of subscribers choose to switch payment plans. It would be jumping the gun to bail out of mobile operators now: the only glaring sell are Japan's long-suffering handset manufacturers.