Apple asks Japan to bring back carrier subsidies for 5G

Journalist Tsutsumu Ishikawa posted an interesting article covering the May 17 Ministry of Internal Affairs and Communications (MIC) industry workgroup meeting examining fair competition in the Japanese smartphone market. Specifically it was a review of the effects from the October 2019 rule changes that eliminated JP carrier subsidies.

What other media outlets didn’t pick up was that Ann Rollins, Senior Director of Government Affairs at Apple attended the meeting and gave a presentation. Rollins pointed out that the MIC rule changes eliminating carrier locked devices and 2 year contracts, haven’t helped the industry (Rollin’s comments translated from Ishikawa san’s Japanese article):

Since the October 2019 rule changes, customer MNP switching between carriers has (seriously) declined instead of increasing, contrary to the objective of the rule changes…

While the smartphone penetration rate is rising, the number of shipments is sluggish. This is due to various factors, such as the lengthening of the handset replacement cycle and the use of used handsets, but from the perspective of the new handset market, despite the big event of switching to 5G, the situation is stagnate…

Unfortunately, the penetration of 5G devices accounts for only 3% of the total number of (Japanese) mobile phone subscribers. For example, there is official data that the penetration rate in South Korea is 17%. In order for customers to actually enjoy the benefits of new technologies and services through 5G, the spread of compatible devices is indispensable, but at present, the spread of 5G is generally sluggish…

Infrastructure and devices can be said to be two wheels. No matter how much you build a highway, it doesn’t make sense if you don’t have cars running on it. Now that the separation of mobile carrier contract plans and smartphones has been achieved, it may be necessary to make an exception for 5G purchases from the viewpoint of promoting the growth of 5G smartphones…

Measures are needed to prevent delays in the growth of 5G. What is important for users is the total cost of mobile phones. Now that complete separation has progressed and low-priced plans have appeared, it is desirable to leave what should be left to market competition to market competitively, which can be expected to further reduce total costs. We request that you (MIC) scrutinize the need to maintain a uniform device purchase subsidy and consider exceptions for 5G in order to provide users with a variety of options.

In other words Apple is asking Japan to let carriers subsidize 5G smartphone contracts…a little. I suspect Rollins was also there to discuss getting the MIC My Number ID card digital initiative coming to Osaifu Keitai devices by 2023, on Apple devices.

Unfortunately the MIC 2019 rule changes came just in time…for the COVID pandemic. iPhone 12 was not even a upgrade consideration for me because NTT docomo switched to 3 year contracts. My iPhone 11 Pro will be paid off by October 2022. When my partner upgraded his iPhone in December, the docomo representative said a lot of customers were taking a wait and see approach. The 5G network is still building out and there is the Face ID with face mask problem. He went with an iPhone SE2 because of price and the ease of Touch ID, the SE unfortunate success factor. I think lots of people did the same which matches another finding of the MIC workgroup: high-end smartphone upgraders have migrated to the middle range.

While there no guarantee MIC will consider Apple’s suggestion, allowing carriers to discount ‘up to ¥20,000’ would help the 5G transition. The market is still repositioning with recent carrier ‘budget brand’ initiatives like NTT docomo ahamo KDDI povo and Rakuten Mobile gaining 1st tier iPhone carrier status. Things are in flux but Apple asking MIC for 5G carrier subsidies does say something about the state of things.

Mobile FeliCa will drive the My Number digital ID card on Osaifu Keitai devices using NFC B, MIC is in discussions with Apple to bring the initiative to iPhone and Apple Watch

Sitting out the super upgrade cycle

We are in a 5G super upgrade cycle but I’m sitting this one out. 3 year carrier contracts without subsidies are the norm in Japan now, technically I have until September 2022 to pay off my iPhone 11 Pro but 5G by itself isn’t enough reason to pay it off faster. If foldable smartphones are the super upgrade in 2023, I’m probably going to sit out that super upgrade too.

Why? After buying into the iPhone X hype and getting badly burned by the iPhone X NFC problem, I was badly burned again by Face ID in the COVID face mask era. And no, iOS 14.5 Unlock with Apple Watch is no magic solution. I’m not done with new cutting edge technology but sharp edges hurt. Less is more in the long run. Let’s just say I’m going to choose my next iPhone upgrade very carefully.

What will Apple do about the 10% iPhone sales drop in Japan?

The writing was on the wall when Docomo dropped the price of iPhone XR shortly after it went on sale. Shortly after that Tim Cook explained the Japanese market situation in the 1Q 2019 earnings call:

In Japan, iPhone purchases were traditionally subsidized, bundled with carrier contracts. Today, local regulations have significantly restricted those subsidies as well as related competition. We estimate less than half of iPhones sold in Japan in Q1 this year were sold via subsidy.

One year later Apple announced record earnings for Q1 2020 but Japan iPhone sales with down 10% y/y. Luca Maestri only explained the situation at the end of the earnings call, answering the very last analyst question:

So Japan was down 10 percent during the December quarter. It was primarily due to iPhone performance, which was challenged because there were some regulatory changes that took effect on the 1st of October, where essentially the regulators decoupled the mobile phone pricing from the two year contracts and they’re capping the maximum amount of carrier discounts that can can be made. At the same time, I would say that within a more difficult macro environment, iPhone did incredibly well during the quarter. Six of the top seven selling smartphone models in Japan during the December quarter were iPhones. So it was a very strong performance by iPhone in a difficult environment. Also in Japan, we had very strong double digit growth from services, stronger than company average, and very strong double digit growth in wearables, also stronger than company average. So we feel very good. You know, Japan is is a country where historically we’ve had great success. The customers are very loyal and very engaged. And we have a very strong position there and we feel we have a very good momentum.

Six Colors

I don’t think Japanese iPhone customers will stay loyal and engaged if Apple sticks with the same old sales strategies now that the era of carrier bundling is over. A new approach is needed. Maestri alluded to one clear advantage remaining for Apple in the Japanese market: Apple Pay Suica on Apple Watch, an advantage no other device manufacturer has matched yet. That advantage along with the golden opportunity of the Tokyo Olympics this year are market opportunities which Apple is not taking advantage of.

I said it before: Apple Pay Suica on global NFC iPhone/Apple Watch is a great way for inbound visitors to get around town during the Tokyo Olympic games this summer and Google Pay Suica is still not available for inbound Android users. It’s weird Apple isn’t marketing that.

NTT Docomo rolls out 4G LTE Gigabit service

In case you missed it, try this if you are a Docomo iPhone customer: open the Docomo Speed Test app and tap the Area Map button. The previous red area has been replaced by yellow. The app needs to be updated but the red now indicates the areas with 1288Mbps~988Mbps Gigabit-class ‘Premium 4G‘ service, just in time for the iPhone 11 and iPhone 11 Pro release.

I am fortunate to live in a red 4G Gigabit speed area and my iPhone XS 4G speed is faster than my NTT East FLET’S HIKARI ‘mansion type’ VDSL service. It’s an older apartment building where telephone lines and VDSL are the only way to connect to the internet. That’s depressing to think about, but it will have to do until I can move to a place with direct fiber connection service. At least my iPhone XS 4G LTE is fast and will get faster if I upgrade to iPhone 11 Pro.

KDDI au is offering similar 4G LTE Gigabit-class carrier aggregation service for iPhone 11 customers. Be sure to check details and coverage with your carrier.

iOS 13 NFC for Japanese Individual Number Cards

No sooner than Apple announced iOS 13 with enhanced Core NFC read/write support than developers are quickly preparing to use it. Engadget Japan and Nikkei both report that the Japanese government will add support for iPhone NFC tag reading Individual Number Cards this fall. Individual Number Cards are a fairly recent development for the Japanese national and local governments to gradually tie various social services and income tax filing to a single personal ID number for better management and control. It’s evolving into a general purpose national ID card.

Individual Number Cards are supported by card readers that require a personal computer and additional software. FeliCa NFC tag reading with a smartphone is much easier because it can work out of the box and an app. Android Phones are supported but limited to select AQUOS, Galaxy and Xperia smartphone models. iPhone NFC tag support in iOS 13 will considerably widen the user footprint.

Masanori Kusunoki Japan Digital Design CTO tweets confirmation of Japanese government support for Individual Number Card NFC tag reading with iPhone iOS 13 NFC this fall