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Handset Sales Shrink and Consumer '3G Fatigue' Hits Japan

Handset Sales Shrink and Consumer '3G Fatigue' Hits Japan

Mobile-phone handset sales in Japan fell 2.4% last year to 40.6 million units according to Gartner, the private research firm. The news coincided with NTT DoCoMo's warning that it expected a 30% decline in new subscriptions this year. The slowdown in growth stems from a lack of attractive new handsets and services that encourage users to replace their existing handsets. J-Phone has also reacted to the decline.

J-Phone, the Japanese mobile phone subsidiary of Vodafone in the UK, is pushing back the start of its 3G services in Japan from June to December, to ensure that specifications are in line with changes made by the international 3G standardization body - a delay that follows similar moves in Europe.

The announcement highlights the difficulties operators are facing with the advanced technology. "3G technology is very complicated, and no matter how good a software company is, tremendous effort is required. It's very difficult," said Darryl Green, president of J-Phone. This is the second delay for J-Phone, which had planned to start a commercial service in Tokyo at the end of June and in other big cities in October. Instead, the company will now start a trial service in Tokyo in June and commercial services in major cities in December, with approximately 60% population coverage.

Green emphasized that the delay stemmed from changes imposed by the 3G standardization body in September and March. However, the technical challenges posed by 3G, the success of J-Phone's 2.5G service, and the lack of interest in Japan so far, provide little incentive for the operator to rush into the new service.

"Consumer sentiment on 3G could not be any lower at this stage, so the advantages of launching early are now minimal at best," said Bruce Kirk, Jtelecoms analyst at Commerzbank Securities.

J-Phone said its 3G network was ready and it was developing handsets with NEC and Sanyo, and, possibly, Nokia. Japanese mobile-phone handset sales last year shrank for the first time in more than a decade, however, signalling that the market is nearing saturation. Exciting new offerings, particularly Java-enabled handsets, have not been able to offset the slowdown in demand due to the saturation of services, such as mobile Internet and color displays, which had supported a strong replacement market in the past, says a recent Gartner report. 3G Stalls for the 'Big Three' Operators

3G services, which DoCoMo pioneered last year, just haven't attracted strong interest. While all three of Japan's leading mobile-phone operators will have a 3G service by the middle of this year, Gartner says demand from early adopters is unlikely to materialize until later this year at the earliest.

When NTT DoCoMo replaced a cute actress with a funky popstress to star in its advertising campaign, it hoped that the powerful youth sector would flock to download the pop diva's songs on its advanced FOMA phones, but the star, who sells millions of albums, has failed to whip up sales.

DoCoMo's initial forecast of 150,000 subscribers by the end of March amounted to only 90,000. Such figures are particularly disappointing when matched against numbers for i-mode, DoCoMo's mobile Internet service running on an older network, which signed up more than 10 times as many subscribers in March alone. Part of the problem is the high cost and limited area coverage: FOMA can be used only in major urban areas. In addition, early adopters complain that the handsets are too heavy and the battery life too short.

2.5G 'Sha-Mail' Beats FOMA's 3G 'Visual Phone'
Many are at a loss to explain why anyone should have 3G in the first place. "It's a toy for maniacs," says Yugou Ishijima, who recently bought a FOMA visual phone, which allows users to see each other on their screens. Ishijima praises the voice quality and the downloading speed, but he finds the problems - such as being cut off suddenly - frustrating. Although his chunky handset was more than three times the price of other mobiles, he doesn't use it for much more than phone calls and messaging. Hiroaki Hara, who also bought a FOMA visual phone, says he doesn't use it often because "there's nobody else to use it with and it's expensive."

Even more problematic may be the lack of any "killer application" to encourage users to pay the high price and endure the inconvenience of 3G in its current state. And while early 3G adopters are finding more to praise than the voice quality, one service on the good old 2.5G network is proving that it only takes a good idea to revolutionize the way mobile phones are used. J-Phone's "Sha-Mail" camera-embedded phones have been selling like hotcakes, helping to boost the mobile operator from third to second place in the most recent monthly subscriber numbers. A year-and-a-half after the launch, J-Phone has over 4-million Sha-Mail subscribers.

Not surprisingly, DoCoMo has been watching Sha-Mail, and is considering bringing out a camera phone of its own.

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