Wednesday, September 19, 2012

Japanese 2-year mobile contracts: the shrewdness of shibari

Misconceptions

A common misconception is that 2-year mobile contracts in Japan are for hardware subsidies, raising the ire of many because these contracts automatically renew, even if you continue using the same old phone. In actuality, the contracts have nothing to do with hardware.

Hardware in Japan is certainly subsidized. The full retail price of a new iPhone 5 is between ¥50,000 and ¥80,000. If you receive one for zero-yen up front and cancel service after only 12 months, you will be charged the remainder, upwards of ¥30,000, in addition to the ¥9,975 early termination fee (ETF) - nearly ¥40,000 or $500US in total!

Both repaying the subsidy and being accessed a penalty might seem excessive at first. However, as a customer of a Japanese carrier, it is a virtual certainty that you are receiving a discounted service rate that either provides 1) free calling to other subscribers or 2) a discounted - even completely waived - base voice fee. Without this discount, the monthly cost of service would be increased by about ¥1,000 and probably more in the case of free calling plans. Breaching the voice plan contract results in the above-mentioned ¥10,000 penalty - hardware never enters the equation.

Difference between voice plan prices without a 2-year contract
Voice Plan
Full Price
(no contract)
Discount Price
(2-year contract)
Difference
Months to
exceed ETF
Discount Plan
Smartphone
Type
Docomo type ss value
¥1957
¥980
¥977
11
ファミ割 or ひとりでも割
FOMA 3G
Docomo type Xi
¥1,560
¥780
¥780
13
タイプXi にねん
LTE
AU ss simple
¥1,961
¥980
¥981
11
誰でも割
3G
AU LTE
¥1,961
¥980
¥981
11
誰でも割
LTE (iPhone 5)
Softbank ss value
¥1,890
¥980
¥910
11
ホワイトプラン
3G
Softbank type X
¥1,560
¥780
¥780
13
タイプXにねん
LTE (iPhone 5)

Perpetually binding 2-year contracts

Furthermore, Japanese carriers have deftly adjusted the discounts and termination fees such that it is always cheaper to apply the discount - not doing so in order to be able to freely cancel at will, with no penalty, would cost more than the cancellation fee in typically less than a year. This creates a nearly constant financial disincentive to switch carriers, except for during those 30 days that roll around every two years. If you contracted service in October, you can only cancel it without ETF in October 2 years later or 4 years later (or 6 or 8 and so on).

THIS is shibari, literally to bind.

Regarding recurring contracts, a carrier's risk in subsidizing hardware is negated as soon as the subsidy is recouped. However if the risk is instead associated with subsidizing the cost of service, then the risk is ostensibly recurring and never abating. Thus, carriers are able to justify binding customers to automatically-renewing, 2-year contracts. It really is brilliant when you stop and think about it, especially considering that the full, undiscounted prices do not at all reflect the carrier's actual costs.

Of course these prices are are inflated. On paper, though, it is relatively easy to make them appear not to be. Given the cozy ties between regulators and industry, don't expect to see auto-renewing contracts banned.

Why we recommend MNVOs

Because Japanese carriers, especially Softbank Mobile, took advantage of MVNOs attempts to unbind their customers, Japan Communications, Inc was forced to add an ETF to their b-mobile voice SIMs. At first this was one year. Now it has been lowered to three months. There is most certainly an administrative overhead incurred by a new contract. Requiring a minimal commitment from the customer only makes sense.

The reason we here often recommend b-mobile SIMs is that the ETFs are for a reasonable period of time, and the contracts do not automatically renew. After 3 months with a b-mobile TalkingSIM, or 1 year with an AEON voice SIM, the contract is done and finished. Forever.

6 comments:

  1. So my contract is up this December with Docomo. Let's say I don't want to upgrade my hardware just yet and wait for the next batch of phones in mid-2013. Is the auto-renewal going to negatively affect my ability to upgrade to a new phone in mid-2013 even though my 2 year contract is up at the end of this year?

    ReplyDelete
  2. No, but as an existing customer, you might not be eligible for the best price. Often there are two prices listed on for new customers and one for loyal customers. Loyal customers always pay more.

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