Japan firms roll out new cellular models to stimulate market

By Miki Anzai
Bloomberg News Service

TOKYO — Vodafone Group Plc's bid to turn mobile phones into portable game players and digital cameras may be tested next year, judging from the experience of Japan's mobile-phone operators, investors say.

Nokia Oyj, Motorola Inc. and other handset makers are in the midst of releasing new models with larger color screens and built-in cameras in the hopes of stoking demand. In turn, phone operators such as Vodafone, the world's biggest mobile-phone company, and Sprint Corp. want to use the new services to offset shrinking revenue from voice calls.

In Japan, the introduction of picture messaging and video games two years ago proved new features could stem a slump in handset sales. Now, operators such as Vodafone's J-Phone Co., NTT DoCoMo Inc. and KDDI Corp. are finding new services aren't enough. Their answer: promotional campaigns to retain subscribers and to court consumers reluctant to buy new handsets.

"More and more, operators and handset makers are going to have to come up with new ideas in order to win the loyalty of their customers," said Nahoko Mitsuyama, an analyst at research company Gartner Japan Ltd. "They're going to face another tough year next year."

The global handset market shrank last year for the first time in its history. Sales sputtered again this year as economic growth slowed and consumers saw few reasons to buy new handsets.

While phones with color screens and cameras helped lift global mobile-phone sales by 7.8 percent in the third quarter — their biggest gain in 18 months — sales may run out of steam after rising this quarter and next, Gartner said last month.

Gartner expects global handset sales of between 415 million and 420 million in 2002, up from 400 million last year.

To appeal to fickle customers tired of downloading video games and browsing Web pages on tiny screens, Vodafone's Japanese mobile-phone unit started mailing a gift kit containing a neck strap and a diary with a Vodafone logo to 50,000 of its heaviest users on Nov. 1.

The effort was the result of a special marketing division J- Phone formed late last year to look at subscribers' billing trends and ways to reward those users who regularly have the highest phone bills.

J-Phone, a unit of the world's largest mobile-phone operator, DoCoMo and KDDI are wise to focus more on retaining their subscribers, analysts and investors say.

Six of every 10 people in Japan own a cellular phone, according to subscriber records.

One of the best hopes for phone operators to boost profits next year may be by identifying their heaviest users and making sure they don't defect to rivals offering cheaper calling rates.

"The growth period is over, so customer retention, or cancellation reduction, will be the key to success next year," said Michitaka Kato, who oversees $125 million in assets at Japan Investment Trust Management Co.

Subscriber bases at Japan's mobile-phone operators are already starting to erode. J-Phone's cancellation rate rose by 0.17 percentage points to 2.03 percent in the three months ended Sept. 30 from the previous quarter.