WW-168 -- The Smartphone Market in Japan

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Commentary on the Business of Wireless in Japan

Issue No. 168
Thursday November 15, 2007

How do you create a smartphone market in one of the world's most
sophisticated mobile countries?

Smartphones are on the march in Japan. Device makers, Sharp and
HTC, are behind the push of Windows-based smartphones in the
Japanese market. HTC is a Taiwanese company that started out
doing ODM and OEM for Personal Digital Assistants (PDAs) in the
nineties, before making its entry into the global smartphone
market. Since 2006, its handsets have been launched in Japan -
two on SoftBank, one on DoCoMo and two under HTC's independent
brand as SIM-lock free devices.

What actually is a smartphone? For many people in Japan, a
'smartphone' likely has the image of a slide-type large, heavy
hard-to-use handset with a QWERTY keyboard. 'A smartphone is not
defined by whether it possess a QWERTY keyboard, a ten-key, or a
touch panel, but is defined by the ability of a device to serve a
specific set of user needs,' says Jennifer Chang, President of
HTC in Japan. She has been working with SoftBank and DoCoMo to
create the smartphone market in Japan. 'More than 50% of
smartphone users are new subscribers for the carrier, and
therefore generate incremental revenue. The data ARPU from
smartphone users is between 8,500 and 10,000 yen which is higher
than that from other devices,' according to Mrs. Chang. HTC
targets the user segment of innovators and early adaptors in the
age group between 25 and 45 years old.

Some functions of HTC's global smartphone portfolio sold locally
are customized for the Japanese market. Besides Japanese language
functions and a slightly different keyboard, HTC added the
'manner mode' button to switch the phone to silent mode - very
important in Japan where making noise in public is still 'not

What are the challenges in Japan? Traditionally, Windows Mobile
is not very easy to use - you have to go through many menus to
operate the phone. Next spring, HTC will launch their Touch phone
with DoCoMo featuring a user-friendly touch panel interface
making life much easier. Another hurdle to overcome is battery
life. Several heavy users reported that batteries ran out of
power within one hour when using Skype or instant messaging. HTC
also needs to educate the market about smartphone benefits. 'It
is rather easy to educate the carrier and end-user, but our
biggest challenge is to convince the distribution and retail
channels,' according to Mrs. Chang.

Will content, application and service providers be interested in
tailoring their products for smartphones with a small market
share? Carriers could help by making their billing interface
available for third parties like they did with their mobile
portals. Security concerns and very limited control over the
Windows Mobile platform will make Japanese carriers reluctant to
do this, thereby missing an important part of the value chain.

For 2009, HTC expects a 2-2.5% market share for smartphones in
Japan - still behind the current 9% global share but not bad for
this sophisticated market where the introduction of new devices
and technologies is largely dictated by the mobile carriers.

By Arjen Van Blokland

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