Starting September 13, 2019, Softbank abolished two-year mobile contracts in favor of rate plans. New subscribers will be able to start with the rate plan straight away while current subscribers who want to switch from their current two-year binding contract can do so without charges.
In this article, we are going to examine the reasons before such a move from Softbank and the prospects of the new policy.
Two-year binding contracts in Japan
Softbank was not the only provider who sold two-year mobile plans to subscribers. Many other companies do so, including other leaders in telecommunication like NTT docomo and KDDI. It used to be regular practice in Japan to sell a device with a locked SIM-card along with a two-year contract. Used data and voice calls must be paid at the end of monthly billing cycle while handset can be paid in full at the beginning or in installments over the validity term of a contract.
Costs for wireless connection in Japan can be 40% less.
This option is available only for residents of Japan and requires one to show an ID to conclude a contract. While such two-year mobile contracts cover both data transmission, voice calls via mobile network, and offer significant discounts, they also impose a cancellation fee of JPY 9,500 (USD 88). Many subscribers argued that such term and conditions make it very difficult to switch operators.
In case of SoftBank, the only way to make a subscription to a different provider without paying cancellation fees was to wait until the last month of the current contract or during the first two months of the new two-year contract.
Why change contracts now?
Firstly, last year, the Fair Trade Commission expressed concerns about three major operators in Japan controlling 90% of the market which may conflict with antitrust laws. To create more competition, the government of Japan allowed Rakuten to build their own network to lower the entrance threshold for other operators. However, Rakuten has postponed the launch of the network for an undefined period.
Secondly, mobile fees in Japan are higher than in New York, Seoul, and London reported the Japan Times. A typical household spends about 4% of the total expenditures to pay for mobile connection, where 20 GB of data cost around JPY 7,000 (USD 65).
Thirdly, in June 2019, the government ordered to lower cancellation fees to a maximum of JPY 1,000 starting October this year. Yoshihide Suga, Chief Cabinet Secretary, argues that the costs for wireless connection can be 40% less. Thus, mobile operators are encouraged to stop giving steep discounts for devices but then impose very high charges on data transmission and voice calls. This, too, should help smaller players on the market to enter the competition and grow their userbase.
What is next?
It seems that changes in contract policies at SoftBank are an attempt to retain users before upcoming enforcement of a law that caps cancellation fees at JPY 1,000 (USD 9). The new subscription plans with no end-date will be available to new and existing customers. The company will later announce what will happen to two-years mobile contracts provided by its subsidiary Y!mobile.
We are yet to see how will other providers react to the move by SoftBank. KDDI announced that they will keep the two-year contract policies and drop cancellation fees to the new limit of JPY 1,000. At the same time, NTT docomo did not make any comments about how they are going to go about new regulations.
"Otsumami" - a bite size snack:
SoftBank may become a trend-setter making two-year mobile contracts a thing of the past.