Business

With changes to phone sales in Japan threatening its bottom line, Apple hits out at 'unfair' rules

by Kazuaki Nagata

Staff Writer

Apple has been riding high in the Japanese smartphone market, enjoying the largest share of any company, but changes to the discounts mobile carriers can offer on devices starting in October could put an end to that, and the firm has strongly pushed back against the government’s move.

The U.S. tech behemoth is apparently concerned that its iPhones will lose price competitiveness and called the new rules “unfair,” as they will ban carriers and smartphone shops from significantly cutting handset prices unless they meet certain conditions — which Apple looks unlikely to meet.

In a move to lower the country’s relatively high and complex mobile phone charges, the government has decided to cap handset discounts at ¥20,000, effectively ending the practice of heavily discounting devices to prevent excessive benefits going to certain users. The new regulations will also force operators to drastically cut cancellation fees for users who quit in the middle of a two-year contract.

Ahead of implementation of the policy, the communications ministry collected public comments in June and July. Apple submitted its opinion questioning the move.

If the new rules are introduced as proposed, “it will take away choice from Japanese customers and result in diminished competition and higher-priced (handsets) in the market,” Apple says in a document disclosed last week that contains public comments from 67 companies, organizations and individuals.

Despite the discount cap, the new policy will allow up to a 50 percent discount on devices 24 months after their final procurement day. If production of such smartphones is discontinued after that point, stores can sell them with an up to 80 percent discount. A 50 percent discount can be applied to phones that remain unsold for 12 months and are no longer being produced.

This would be problematic for Apple because its products do not typically meet those conditions.

Apple’s current lineup not only consists of pricey cutting-edge models, such as the iPhone XS and XS Max, but also earlier generations, including the iPhone 8, that are often sold with a considerable discount at carrier shops.

Apple says selling models that vary in price expands user choice.

It adds that some other smartphone-makers frequently provide new devices and discontinue production of unpopular models, as opposed to Apple, which focuses on providing a few models each year.

The new rules will only benefit makers that end up with a troubling amount of inventory and “will damage companies that provide only high-quality products and possibly lead consumers to choose low-performance products,” Apple says, calling the move “unfair.”

Apple proposed a discount condition that factors in the time since the product’s first unveiling, instead of how long it has remained unsold.

Apple strategically markets its past models and they are still selling well in Japan.

According to BCN Inc., a Tokyo-based electronics market research firm, the iPhone 8 from KDDI Corp. was the best selling handset from Aug. 12 to 18.

“IPhones have been top-selling smartphones in Japan. One of the factors is that they’ve been promoted with quite a bit of a financial incentive,” said Hideaki Yokota, an executive analyst at MM Research Institute, a Tokyo-based firm that tracks the mobile industry.

Some SoftBank shops in Tokyo currently offer an iPhone 8 with an ¥80,000 discount to subscribers who switch from other carriers and agree to sign a multiyear contract, making the handset price effectively zero.

But this sales method will also be banned in October, as the carriers will be obliged to refrain from offering a huge handset price discount along with a long-term commitment. Without a discount, the iPhone 8 is priced at around ¥70,000 while the XS costs more than ¥100,000.

Yokota said it is highly likely that the sales of expensive smartphones will slow down due to the new discount rules.

“Apple’s smartphones are basically expensive, so Apple will probably be affected most (by the new policy),” Yokota said.

Globally, Apple ranks behind Samsung Electronics Co. and Huawei Technologies Co. in terms of smartphone sales, so Apple may be worried over its performance in the Japanese market, where it has been able to maintain a high share, said Yokota.

According to smartphone shipment data for fiscal 2018 compiled by MM Research Institute, iPhones dominated the market with a 49.6 percent share. Sharp Corp. came second, albeit with a share far behind Apple’s at 13.3 percent.

Japan is the fourth-biggest market for Apple following the United States, Europe and China, accounting for about 8 percent of Apple’s total sales last year

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