Removing SIM lock not so simple

Consumers won't benefit immediately

by Kazuaki Nagata

While the government has been raising expectations that removing the SIM lock on cell phones will enable consumers to switch carriers but keep the same handsets, it will give virtually no immediate benefits to users under the current network environment, according to people in the industry.

But in the long run, experts also say, a SIM-free environment could increase market competition here and the competitiveness of Japanese firms abroad.

The Internal Affairs and Communications Ministry aims to draft guidelines on removing the restriction on subscriber identity modules (SIM) early this month and come up with a final plan in June.

A SIM is a small chip inside a cell phone that enables the user to access a carrier’s network and to store data. Each carrier’s SIM cards are only compatible with its own handsets, so consumers currently have to buy new handsets when changing carriers.

Masamitsu Naito, senior vice communications minister, is positive about removing the lock, writing in his blog April 5 that although there will be some restrictions, users will be able to freely change carriers because they will be allowed to keep their phones. It will also allow new firms, including foreign manufacturers, to enter the Japanese market, which will increase competition and lead to better service.

Yet some people in the industry warn the effect will be limited even if consumers can use SIM-free handsets.

“It is a meaningless discussion under the current 3G situation,” Takeshi Natsuno, a professor at the Graduate School of Media and Governance at Keio University, said during an online debate on the SIM lock broadcast April 16 on the Nico Nico Douga video-sharing Web site.

This is because, Natsuno said, most of the benefits people think they will be getting won’t be available due to differences in carriers’ communications networks and frequency levels.

NTT DoCoMo Inc., Softbank Mobile Corp. and Emobile Ltd. use the same network system, called W-CDMA, while KDDI Corp.’s au service uses a different system, CDMA 2000.

Thus, consumers won’t be able to use DoCoMo, Softbank or Emobile phones on au’s network even if the SIM lock has been removed.

Moreover, carrier-hosted Internet services can’t cross borders, meaning that DoCoMo’s i-mode service can’t be used on Softbank phones.

Likewise, carrier-hosted e-mail addresses and address book data can’t be transferred among different carriers.

Basically, the only functions that will be transferable are regular talking on the phone and short text messaging, Natsuno said, adding even the basic function of talking and listening can be unstable in some areas due to differences in frequencies.

“This is what will happen if carriers remove SIM locks in Japan now. So, I think there will be hardly any effect,” said Natsuno, who used to work at DoCoMo and is known as the “father of i-mode.”

He added that the communications ministry has not thoroughly explained what users will and won’t be able to do right away with SIM-free phones.

The ministry has said it is positive about removing the lock, but it has no intention of making SIM-free phones mandatory by law.

Each of the major cell phone service providers, meanwhile, have their own take.

Softbank has been especially vocal in the SIM lock discussion.

“There are so many misunderstandings,” Softbank Senior Executive Vice President Tetsuzo Matsumoto said in the Nico Nico Douga debate.

Ending SIM locks would increase handset prices by as much as ¥40,000, Softbank points out.

Currently, it is common for carriers to offer sales incentives to retailers to lower prices on handsets or offer monthly discounts on communications charges on condition users agree to keep the phone for at least two years.

“We can provide discounts because we know that customer will stay with the phone for a certain period of time,” Matsumoto said.

Without a SIM lock, users can switch carriers and still keep the phone, so it will make offering discounts more difficult, he added.

Softbank President Masayoshi Son said at a news conference April 27 that if makers were to create W-CDMA and CDMA 2000 compatible phones, it could drive up handset prices. Yet Softbank will be ready to make about 20 percent of its handsets SIM-free in the future to meet consumer demand, Son said.

Matsumoto said he understands the desires of customers who travel frequently and want to be able to use their phones overseas by simply replacing the SIM card.

Yet he added that replacing the card is not as easy as just taking a chip out and placing it in a different handset. It will cost money and users will have to file additional paperwork, so it would be more realistic to provide cheaper roaming fees, he said. Currently, some handsets can be used overseas by paying higher fees.

Koji Furukawa, managing director of DoCoMo’s regulatory affairs office, said it is true that various limitations and restrictions on unlocking SIM cards haven’t been thoroughly understood by the public.

As for handset price increases, Furukawa said that while unlocking the SIM card might be a factor, it would be going too far to say it will lead to an increase in handset prices. “SIM locks and sales strategy are two different things,” he said.

The communications ministry says another aim of removing the SIM lock is to change the carrier-dominated business model, in which nearly all cell phone services from handsets to software are currently overseen by the carriers.

Asked if removing the SIM lock will lead to such a change, Furukawa said “that will depend on users’ response.”

If the majority want a SIM-free environment, the carriers’ marketing strategies will need to be reviewed, he said.

While the immediate benefit is likely to be limited, some observers say that in the long run unlocking SIM cards could help boost the international competitiveness of Japanese firms, such as handset makers.

Japanese companies dominate the domestic market but have little international presence compared with foreign handset makers like Samsung Electronics Co. and Nokia Corp.

The Japanese makers develop handsets that provide each carrier’s unique services, so the carriers are deeply involved in the manufacturing process. The network providers also buy handsets from makers and sell them under their own brands.

Naohisa Fukuda, chief operating officer of Japan Communication Inc., said during the debate on Nico Nico Douga that the removal of SIM locks will make it easier for makers to manufacture phones that can be used globally and export them to other countries. It will also lower the hurdle for foreign handset makers to enter the Japanese market, he said.

“The current system is not sustainable” when looking at the next five to 10 years because the domestic market will keep shrinking, said Fukuda, who stressed that SIM locks should be removed now.

Atsuro Sato, a communications and technologies analyst at Gartner Japan Ltd., said just removing the lock won’t necessarily increase international competitiveness, saying firms also have to focus on marketing and distribution strategies.

Keio University professor Natsuno said he agrees with Fukuda’s point, but removing the SIM lock under current conditions won’t really solve the issue, and it should be considered with frequencies and networks as a package.

KDDI Corp. President Tadashi Onodera agrees.

He said foreign handset makers won’t necessarily enter a SIM-free Japanese market, because Japanese cell phones operate on a different frequency from those in other countries.

“I’m not saying that I’m against removing the lock. I’m just saying there will hardly be any impact on us,” Onodera said at a news conference in late April.

He also criticized the government’s intervention in the private sector, saying handset sales fell when the government encouraged carriers not to use incentives on phone prices.

“I think good things have never happened when the government gets involved with the private sector’s business,” Onodera said.