Unlocking carriers' SIM hold on cellphones: Will competition heat up?

In October, the Internal Affairs and Communications Ministry announced new guidelines on removing the SIM lock on cellphones, saying carriers will be required to unlock handsets starting next May.

The ministry believes removing the SIM lock will make cellphones more convenient for users because they will be able to keep using them when they switch carriers while also intensifying competition among carriers.

Experts and industry officials, however, doubt the SIM-free move will yield such results.

Following are questions and answers about ending the SIM lock in Japan:

What is the SIM lock?

A SIM (subscriber identity module) card is a small chip card inserted inside a cellphone that enables users to access a carrier’s networks and store data.

Carriers issue dedicated SIM cards that at present are only compatible with the handsets they offer.

Thus, even if someone removes a SIM card from a smartphone purchased from SoftBank Corp. and inserts a SIM card issued by NTT Docomo Inc., the phone still won’t be able to access Docomo’s networks.

Can carriers remove the SIM lock now?

Yes, but Docomo is the only major carrier that will do so. The customer has to request it and pay a fee of ¥3,000. Docomo does not unlock iPhones.

Ymobile, the fourth-largest carrier in the domestic market and part of the SoftBank group, sells phones that come unlocked.

Why do carriers lock the phones?

The SIM lock has been a vital part of the carriers’ strategy to retain customers.

Unlocking handsets would remove a significant disincentive to stay with the same carrier.

In general, Japan’s major carriers offer monthly fee discounts to customers who remain loyal for two years, and it is assumed the SIM lock reinforces this business model.

Why is the communications ministry requiring carriers to unlock their phones?

“We’re not seeing real competition in the current industry arrangement,” said Risa Uematsu, assistant manager of the ministry’s division overseeing communications service fees.

The ministry, having scrutinized the industry’s competition policies, concluded that “removing the SIM lock is one of the policies that we think should be implemented,” Uematsu said.

Indeed, competition among the major carriers — Docomo, KDDI Corp. and SoftBank — has been stagnant, as monthly fees for voice calls and mobile Internet have basically been static.

The carriers all charge around the same monthly fees, which many users feel are too high, particularly for smartphones.

The SIM lock is meanwhile “impairing the users’ convenience,” the ministry points out in its latest guidelines.

Removing the lock will allow users to use their handsets overseas by inserting a SIM card issued by a local carrier.

Uematsu also noted that because of the SIM lock, users have to buy new phones when they switch carriers.

Will all phones sold from next May be unlockable?

Yes, but the ministry will let the carriers decide when to unlock the phones.

Uematsu said the ministry wants the carriers to unlock their phones several months after consumers purchase them. Also, while Docomo currently charges ¥3,000 to unlock its phones, the ministry wants the carriers to provide this service for free.

Will competition among carriers increase?

Opinions are split among experts.

Uematsu said that if the SIM lock is removed, competition will heat up because budget carriers, known as mobile virtual network operators (MVNOs), will have more opportunities to attract users.

MVNOs lease communications networks from major carriers and provide budget SIM cards with cheaper monthly plans.

For instance, Japan Communications Inc., a Tokyo-based MVNO that uses Docomo’s network, provides a budget SIM card plan that offers unlimited access to the Internet for ¥1,980 a month, while major carriers charge ¥5,000 for 5 gigabytes of data a month.

If SIM-free phones are more readably available, more people will choose MVNOs. As a result, the major carriers will have no choice but to lower their fees, the ministry believes.

Some experts, however, say consumers should expect little change.

“I think the impact of removing the SIM lock on the industry and customers will be limited,” said Yasutoshi Kikuchi, a partner in the German consulting firm Roland Berger who monitors the communications industry.

“Docomo, KDDI and SoftBank provide similar services, similar handsets and similar monthly plans,” and under such circumstances, users have little incentive to change carriers, Kikuchi said.

SIM-free phones were in greater demand several years ago when SoftBank was the only carrier to offer iPhones, he said. At that time, iPhone users wanted to tap Docomo’s network because SoftBank’s network quality had a bad reputation.

Kikuchi also doubts that competition between the major carriers and MVNOs will intensify.

Budget SIM providers and major carriers target somewhat different customer segments, he said.

For instance, MVNOs are not really a good choice for people who make many voice calls.

Docomo, KDDI and SoftBank now all offer unlimited voice calls at a fixed price, but MVNOs’ voice call fees are pay-as-you-go. Thus, even though MVNOs’ Internet fees are cheaper, monthly fees that include voice calls could be more expensive than major carriers’.

Some industry officials, including SoftBank chief Masayoshi Son, say the need for SIM-free phones in Japan is limited in the first place, so the impact of the SIM-free environment will be small.

“The iPhone is the most popular handset in Japan, and SIM-free iPhones are (already) sold at Apple stores. . . . But they are not really selling well,” said Son, adding that many Japanese users are not interested in SIM-free phones.

Will user convenience really improve?

Kikuchi said it is true that customers will be able to use their phones abroad by inserting SIM cards issued by overseas carriers, saving on the cost of international roaming services.

But users will have to manually set the phones themselves when they go abroad because handsets won’t automatically connect to a network just by inserting another carrier’s SIM cards. This process requires some computer literacy that not everyone may have, Kikuchi said

Another possible positive effect of removing the SIM lock is that it could prevent carriers from stopping the “cashback” war.

“When people change carriers, they have to buy new handsets, which are quite expensive. But the carriers have been offering refunds to lower that hurdle,” said Uematsu.

The competition for rebates heated up earlier this year, with carriers offering anything from ¥20,000 to more than ¥100,000 to users who switch from a different carrier.

They can offer such refunds because the users sign a two-year contract for a locked phone.

However, the capital for these rebates comes from longtime users, and it is often pointed out that this is unfair because people who switch carriers often are treated better than loyal customers.