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NTT Docomo faces 5G infrastructure investment balancing act with fee reductions

In this April 15, 2019 photo, NTT Docomo President Kazuhiro Yoshizawa speaks at a news conference to announce the mobile carrier's new fee structure launching in June, in Tokyo's Chiyoda Ward. (Mainichi/Junichi Sasaki)

TOKYO -- Mobile phone carrier NTT Docomo Inc.'s April 15 announcement that it would slash monthly fees and simplify contracts starting in June this year may be welcome news among consumers. However, it also sets the firm up for a delicate balancing act, with reduced charges on one side of the wire and the need for infrastructure investment on the other, particularly with the launch of 5G services in Japan just around the corner.

The defining feature of Docomo's new pricing structure is the clear separation of handset prices from monthly calling and data fees. For many years, Japan's mobile carriers have sought to boost subscriber numbers by folding device prices into a client's monthly fees, typically spreading the cost of the phone over a two-year contract. This system allowed consumers to get good deals on high-end handsets up front, but the carriers were in fact clawing back the cost and then some through monthly charges.

Docomo's strict division of device sticker prices from monthly data and call plans will likely mean significantly more expensive handsets. On the other hand, consumers will also have a choice between much simpler contract options: 5,980 yen per month for unlimited data, and 1,980 yen for those with lower data needs. With family and other discounts factored in, Docomo is cutting its monthly charges by as much as 40 percent.

"As we will be cutting the communications fees by so much, subsidies for new handset purchases will be reduced," NTT Docomo President Kazuhiro Yoshizawa said at the April 15 news conference to announce the new price structure. However, as buying high-end smartphones and other devices at full price would also be a burden on consumers, "we will devise ways to make it easy for clients to purchase the devices they want." Yoshizawa said the specifics of these new measures would be announced at a later date.

Docomo warned that its new fee structure will cut into the firm's profits by as much as 400 billion yen, and explained that this will be the primary cause of any future corporate income drop. And then there is the scheduled launch of 5G service in Japan in 2020, requiring spending on new base stations and other network infrastructure. Combined, these expenses spell a pressing need for the company to boost its business performance.

"We believe we will return to our present profit levels in fiscal 2023, but I would like to make efforts to move forward quickly," Yoshizawa said.

In response to Docomo's new fee announcement, telecoms competitor KDDI Corp. -- operator of major mobile carrier Au -- will apparently focus on customer retention and look at lowering fees further if necessary. Meanwhile, a SoftBank Corp. representative stated, "We will consider our next moves using both our SoftBank and discount smartphone Y!mobile brands, including whether to cut charges."

Meanwhile, in anticipation of increased demand for cheap handsets, the used mobile phone sales industry body is moving to create standards for rating the condition of secondhand smartphones. The system is expected to launch in October this year. However, the sector still faces pressing issues, including the need to get more used devices on the market.

(Japanese original by Arimasa Mori and Akiko Kato, Business News Department)

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