And the Winner of Japan's iPhone Sweepstakes is...

Posted by: Kenji Hall on June 4, 2008

Softbank scored a major coup today with its announcement that it has signed on to sell Apple’s iPhone in Japan. The deal gives the country’s third-largest wireless operator the kind of must-have product that it needs to add to recent market-share gains and narrow the gap with NTT DoCoMo and KDDI. Apple is widely expected to show off a new 3G iPhone at the Worldwide Developers’ Conference in San Francisco next week.

But Softbank’s decision to issue a terse statement on its Web site rather than hold a news conference (a company spokesman also refused to elaborate) suggests that there’s more here than meets the eye. One possibility: This tie-up is non-exclusive. That would mean Apple could be using Softbank as a way to squeeze concessions out of DoCoMo. It could also be trying to send a message to Web developers in Japan who will need a few months to create applications that will work seamlessly on the iPhone.

And why not? Apple will be eager for success in one of the most sophisticated cellphone markets on the planet. Japan also happens to account for a quarter of global cellphone revenues, according to Eurotechnology Japan. Making the iPhone available to as many consumers as possible is its best shot of grabbing market share quickly.

Apple seems to have dropped the old business model of signing exclusive deals with operators. Earlier this month, it chose both Vodafone and Telecom Italia to sell the iPhone in Italy. Also, Apple typically has gone with a country’s largest operator. The deal with Softbank runs counter to that. Softbank has just 18.8 million of Japan’s 108 million mobile subscribers. Some analysts are skeptical that Japanese consumers will be willing to splurge hundreds of dollars on an iPhone that might not live up to their current pick of feature-rich handsets. The company will need DoCoMo’s 53.5 million subscribers (the majority of whom have 3G handsets) to make a splash in Japan and meet Steve Jobs’s ambitious global shipment targets for the iPhone this year.

At this point, it’s impossible to know what’s really going on behind the scenes. Neither Apple nor Softbank would comment, and DoCoMo officials only left open the possibility of further talks with Apple.

But Apple has resorted to hardball tactics when it wanted things done its way, according to former Apple insiders. Years ago, the company went off script and announced a new iMac desktop months before it had anything to show the public (as it appears to have done with the iPhone in Japan). But Apple wasn’t acting recklessly: It used the iMac as a carrot to get retailers globally to accept much lower margins than they were accustomed to. That helped Apple later when it decided to open its own stores.

Using Softbank as a pawn in a game of brinksmanship with DoCoMo—if that’s what Apple is up to—is risky. DoCoMo normally calls the shots in its dealings with handset manufacturers. It won’t easily agree to Apple’s demands for a cut of revenues from iPhone users and the activation of new subscriptions through the iTunes online store. The amount of money at stake isn’t likely to be small change, either. Caving to Apple would force DoCoMo to offer similar terms to the dozen or more tech companies whose handsets it connects to its network.

But DoCoMo isn’t in the best of negotiating positions. Its revenues have been falling, and Goldman Sachs predicts they will continue to decline through the fiscal year ending March 2011. And though it’s still adding new subscribers, DoCoMo is lagging behind rivals. In the past 12 months, DoCoMo’s share of the market has slid from 51.4% to 49.7%, while Softbank’s has risen from 15.8% to 17.5%.

There’s also a possibility that Softbank isn’t simply a pawn. When Softbank bought Vodafone’s mobile business in Japan in 2006, it inherited a 3G cellular network technology known as W-CDMA (which stands for wideband code-division multiple access). DoCoMo relies on the same technology but over the years it has periodically added new features to its network. Apple won’t likely have any compatibility issues with Softbank’s. But it might have to tweak its 3G iPhone to work with DoCoMo’s network, which could take time, industry execs say.

Reader Comments

iPhone unimpressive to Japanese

June 4, 2008 7:31 PM

The only Japanese people who will buy an iPhone will do so for the vanity factor. Sorry guys, but Japanese phones already have more features than an iPhone and some cost a mere 1 yen when the customer signs up for a contract. Is the Japanese iPhone going to come with a "wallet phone" feature to allow busy Tokyoites (arguably the biggest iPhone market in Japan) the ability to ride on trains and buy goods with the increasingly popular electronic money touch-and-go technology? Can you watch TV on your iPhone? Also, if you're a SoftBank customer, why make the expensive switch to the iPhone when you can buy a much less expensive 921SH that already has touch screen technology? Like I said, don't hold your breath.

KK Burns

June 5, 2008 2:15 PM

It's true. The iphone is no miracle in Japan if Apple launches as is. However, Apple may have taken its time for Japan specifically because it know how advanced the market already is. I am betting we will see a phone that has features we have not yet seen anywhere. Apple has no choice. With TV phones, advanced email and many cool Japan only features already available here, Apple will have to do more than just woo the Japanese consumer with touch screen tech. Softbank does appear to be hiding something. Maybe they are not ready for a full all out press conference since they may still be adding features. Well see.

KK Burns

June 5, 2008 2:16 PM

It's true. The iphone is no miracle in Japan if Apple launches as is. However, Apple may have taken its time for Japan specifically because it know how advanced the market already is. I am betting we will see a phone that has features we have not yet seen anywhere. Apple has no choice. With TV phones, advanced email and many cool Japan only features already available here, Apple will have to do more than just woo the Japanese consumer with touch screen tech. Softbank does appear to be hiding something. Maybe they are not ready for a full all out press conference since they may still be adding features. Well see.

Joe

June 5, 2008 9:29 PM

It's very unlikely that iPhone be a hit in Japan, because it already has a bored image there. It's not cool enough.

gulfbridge

June 7, 2008 9:23 PM

Is Apple about to engage in a sales strategy of "Pile 'em high, sell 'em cheap!" for the iPhone?

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Bloomberg Businessweek’s team of Asia reporters brings you the latest insights on business, politics, technology and culture from some of the world’s biggest and fastest-growing economies.

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