Love-hate relationship: The iPhone is a curse for telecoms carriers

medium_3187770478When NTT Docomo, the biggest mobile operator in Japan, begun offering the iPhone to its subscribers last September, the idea was that it would stop its competitors from eating away at its market share. The plan worked, but now Docomo is struggling with a different problem resulting from this move – the iPhone is hitting its revenues hard, and the carrier now says that it has to lower its full year forecast in the wake of an iPhone price war with rivals KDDI and Softbank.

Docomo’s initial resistance to the iPhone stemmed from its desire to protect its dmarket music and video store, which it feared might be hurt by Apple’s iTunes. Finally though, Docomo relented once it saw that the iPhone’s popularity in Japan was costing it customers. Last August for example, KDDI and Softbank signed up ten times more new subscribers than Docomo, but the tables were turned once it began offering the iPhone. By December, with Docomo offering discounts for fanbois, the carrier was back on top and adding new subscribers at a much faster rate than any of its rivals.

But it proved to be a costly victory for Docomo. Feeling threatened with their main advantage gone, KDDI and Softbank hit back with even bigger discounts on the iPhone to tempt customers back into their fold.

“Competition got extremely tough in February and March,” said Hitoshi Hayakawa, a Credit Suisse analyst, in an interview with Bloomberg. He added that Docomo would almost certainly respond with greater discounts as it battles to win over new subscribers, even if doing so hurts its bottom line. Problem is that the iPhone is so popular in Japan right now that it accounted for three out of every four smartphones sold in that country last October, and so none of the major carriers can ignore it.

It’s not only Japan’s carriers that have this problem – China’s mobile operators were in a similar position, engaged in a months-long price war before finally exhausting themselves. Last September, when the new iPhone 5s came out, China Telecom gave up and slashed its iPhone subsidies by 15%. This made things much easier for China Mobile, the country’s biggest carrier, which only started selling the iPhone this year.

US carriers also have to deal with headache – the more iPhones they sell, the more it costs them in subsidies, and the more it hurts their bottom line. In its first annual earnings report following its decision to start selling the iPhone in 2012, Sprint posted $1.3 billion losses – a large part of which was due to iPhone subsidies. T-Mobile and AT&T were also losing money on the iPhone too, until last year when both carriers made the decision to stop offering subsidies and provide cell service discounts instead.

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