Many smartphone users are no doubt looking forward to next month, when Japan’s telecom giants will launch new monthly plans that are considerably cheaper than current deals.

But for the wider industry, it will be the dawn of a new price war.

With the three megacarriers — NTT Docomo Inc., KDDI Corp. and SoftBank Corp. — making bold new offers, smaller rivals known as mobile virtual network operators (MVNOs) are likely to face an uphill battle.

MVNOs, which lease mobile networks from the major carriers, are often labeled budget SIM card providers because their advantage has been in low-cost plans, but the three carriers are dropping the cost of 20 gigabytes of monthly data to ¥2,980 — as cheap as what MVNOs have offered.

As a result, some industry observers have voiced concerns that those budget SIM providers may not be able to keep up with competition, leading to the continued dominance of the three giants.

Yet some MVNOs are preparing themselves for the battle and say this will actually be an opportunity for them to entice subscribers to switch to their services.

“Price-cut momentum is being built up in the market, which is basically welcome. It means more competition and will prompt consumers to consider” what plans will really be the best for them, said Naohisa Fukuda, president of Japan Communications Inc., a Tokyo-based firm known as a pioneer of the MVNO business model.

Under normal circumstances, not many users think hard about exactly how much they are paying and for what services, or how they can save money, Fukuda said. This is demonstrated by the fact that the market share of MVNOs is still largely overshadowed by the three carriers. As of September, MVNOs accounted for just 13% of the market, although they have been providing cheaper plans for years.

But as NTT Docomo, KDDI and SoftBank have finally lowered their fees, “consumers will actually think about changing their plans,” Fukuda said.

Japan Communications was quick to announce its new counterplan, which will charge ¥1,980 for 20GB, just a day after NTT Docomo initiated the price war on Dec. 3 with its new 20GB plan costing ¥2,980.

In fact, Fukuda said Japan Communications was going to unveil its new plan, ¥2,980 for 20GB, on the same day that Docomo unveiled their cut-price plan. After it turned out that Docomo’s deal was the same, the firm decided to lower the price to ¥1,980.

Fukuda said Docomo’s price slashing was still within the range of what he expected, but he was “surprised” that Docomo, which boasts the largest number of subscribers, was the first to make the move.

He added that Japan Communications is seeing a growing number of users subscribing to its new ¥1,980 plan. Although the firm declined to disclose the specific figure, it has topped the number of subscribers using another plan that Japan Communications had been promoting as its main offering.

“We are seeing an influx of users wanting to subscribe to the ¥1,980 plan. It’s a level that we have never seen before,” said Fukuda. “If it had been just us offering a ¥1,980 plan, I don’t think this would have happened.”

Japan Communications launched its MVNO business in 1997, but budget SIM services have only become somewhat popular in the past seven or eight years, with a raft of companies jumping into the market.

The number of MVNOs that had 30,000 or more subscribers totaled 55 as of September, according to data released by the Internal Affairs and Communications Ministry.

While Japan Communications and some other MVNOs are gearing up to seize an opportunity amid the changing industry climate, uncertainty still clouds their fate.

Lobbying body the MVNO Committee filed a request to the Internal Affairs and Communications Ministry last month for the charges the companies face to be lowered, saying that the new plans by the three carriers will be a threat to their survival.

The lobbying body says that the major carriers’ new plans “will ease the financial burden on households, which is desirable for consumers.”

“However, since the prices of these cut-price plans are close to what many MVNOs offer, it is possible that they will bring a substantial impact on MVNOs, so that they must come up with new services to compete,” but it is difficult considering the current costs that MVNOs shoulder in leasing the carriers’ networks, the group said.

The ministry has said that it aims to lower the data network connection charges that MVNOs pay by about half in three years. MVNOs also need to pay the carriers fees for voice calls, and the ministry plans to cut the costs for those, too.

But the MVNO committee has asked the ministry to bring the schedule forward for these policies.

Internal Affairs and Communications Minister Ryota Takeda, who has relentlessly prodded the three megacarriers to slash prices, admitted Tuesday that their new plans “might significantly affect competition in the market including MVNOs.” He said that the ministry will speed up the efforts to ease the costs for MVNOs.

The government has actually long tried to promote MVNOs to stimulate competition in the market. Yet some experts have said that the government pressure on the major carriers will possibly make MVNOs’ survival more difficult.

Hironori Amano, analyst at MCA Inc., a Tokyo-based mobile industry researcher, said a raft of smartphone users will indeed change to new cheaper plans. But that will most likely happen within the same carriers, as their prices are pretty much the same, meaning Docomo users will switch to the new Docomo plan.

“I don’t think (the price cut) will facilitate many users switching to different carriers” including MVNOs, he said.

“This time the Suga administration has directly pushed the megacarriers to slash prices. And the price did drop, but it’s questionable whether it’s healthy competition,” said Amano.

NTT Docomo is already seeing the impact of the new offer, as it has said the number of users switching from other carriers to NTT Docomo in December exceeded those leaving for other rivals for the first time in 12 years. Although the new plan’s rollout takes place in March, users are probably waiting for it and have decided to stick with the carrier, NTT Docomo said.

Like it or not, the situation has changed, and MVNOs will need to provide more attractive plans to win the hearts of users.

Osaka-based budget SIM provider Optage Inc., which is wholly owned by Kansai Electric Power Co., is girding for the tougher race, saying it will target users who use a rather small amount of data.

Makoto Araki, president of Optage, which runs the Mineo brand, said some surveys show that many smartphone users do not even use 10GB monthly, so 20GB is a bit excessive for their purposes.

“MVNOs like us can still provide value to these users” who only need a light amount of data, said Araki, adding that the firm will still be able to post a profit in fiscal 2021.

Last month, Optage, which as of September had the fourth-largest market share among the MVNOs at 8.9%, renewed its price plans — ¥1,180 for 1GB, ¥1,380 for 5GB, ¥1,780 for 10GB and ¥1,980 for 20GB.

While NTT Docomo, KDDI and SoftBank have introduced 20GB plans and cut the price for their unlimited plans, they have not changed prices for the low-data plans provided by their main brands.

In that sense, focusing on users who do not use a lot of data seems to make sense, Amano said.

He added that another key aspect would be how they can come up with their own unique services. For instance, U-Next Co., a budget SIM operator, runs a video content streaming service, which it could somehow package with its plans.

Japan Communications is developing a SIM card service called FPoS (Fintech Platform over SIM) that can handle data transmission for finance-related online services in a more secure way.

“Basically, MVNOs need to have technology to create services that are different from the carriers and other MVNOs. That will add more variety to services and give more choice for users,” said Fukuda of Japan Communications.

Whether they focus on prices or technology, “those that can effectively differentiate themselves will grow and those that can’t, won’t,” he said.

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