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Mar. 20, 2007

The current business model of carrier-subsidized handsets is hurting carriers and handset manufacturers alike, and needs to be rapidly changed, an NTT DoCoMo board member has suggested.

Noriaki Ito, head of strategy at NTT DoCoMo said the incentive system for mobile handsets is way too expensive for mobile operators as it exists today and cannot be sustained much longer.

Before mobile phones were so widely adopted, wireless carriers increased overall pricing competition by subsidizing the costs of handsets, which are recaptured, to some degree, during the life of the contracts.

In 2007, and because the Japanese market is fully saturated, this business model has become a financial burden to all mobile operators in Japan, costing them as much as $428 per phone.

Mobile users then abuse the system in order to get newer models at a lot lower price.

Ito added “to be honest, the incentive system is becoming a costly system for all of us.” “We believe the time has come for some drastic changes and these changes need to be implemented real soon."

However, Ito was quick to point out that asking consumers to pay the full retail price of handsets won’t work either.

Instead, Ito proposed a hybrid system whereby more of the handset price is recouped over the life of longer contracts through installment payments.

Industry observers say such a broad shake-up in Japan could also have strong implications in the U.S. as well, where cell network operators would also subsidize the cost of handsets.

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Source: Wireless Week