Excessive Discounts Causing Variety of Serious Problems

Editorial

15:54 JST, March 20, 2023

The practice of selling handsets at an excessive discount is once again widespread in the smartphone market, and telecommunications fees are reportedly being used as a source of funding for the scheme. It is feared that the excessive discounts could push up telecommunications charges, and major mobile phone companies should expedite efforts to rectify the situation.

The Japan Fair Trade Commission has released the results of its fact-finding survey about the practice of selling smartphones at extremely low prices, such as ¥1. The survey covered four mobile network operators — NTT Docomo, Inc., KDDI Corp., SoftBank Corp. and Rakuten Mobile, Inc. — as well as about 300 sales agents.

Smartphones sold for ¥1,000 or less accounted for about 15% of the total units sold in the January-June period last year. Many agents said in the survey that they conducted discount sales because they were instructed to do so by the major mobile phone operators. Many of the models were in the red as a result, and three operators were using telecommunications fee revenues to make up the difference, according to the survey.

In some cases, new phones were available at lower prices than secondhand handsets, and this kind of sales method harms not only businesses that sell used smartphones but also other companies that sell their products at fair prices. It is reasonable that the commission demanded that the practice be corrected, citing fears that it could lead to dumping, which is prohibited by the Antimonopoly Law.

The sale of mobile phones at excessively low prices has long been viewed as a problem. This is because the system of effectively waiving the cost of the handset to lock in clients and then charging relatively high telecommunications fees to compensate for the discount became common practice, and as a result, telecommunications fees remained at a high level.

In 2019, the government enacted a law that caps discounts at ¥20,000 when a handset is sold as a package deal with a telecommunications contract, and subsequently, excessively low prices temporarily subsided.

However, under this law, there are no restrictions on discounts on the sales of handsets alone. As a result, the sales tactic of selling a handset for ¥1 is said to have become widespread, in which a very low price is set for a handset and then an additional ¥20,000 discount which is available under a package deal with a telecommunications contract is applied to the low price.

With the sellers exploiting loopholes, the regulations can be said to have become only nominal. It is necessary to devise restrictions on discounts for smartphones alone.

Japan’s telecommunications fees used to be relatively high by international standards, but they have come down to a certain degree after the major mobile phone companies established low-cost plans at the request of the government. However, if competition to discount handsets escalates among operators, it could cause telecommunications fees to stop falling or they could go up.

Heavy discounting of handsets lacks fairness because the benefits are skewed toward users who frequently change their mobile phones, and disadvantageous to those who continue to use the same device. It also brings about rampant reselling by people who buy handsets at low prices and sell them at high prices, causing various problems.

The excessive discounting of mobile phones is believed to be due to the quotas imposed by the mobile phone giants on retailers and incentives paid for acquiring new subscribers, among other business practices. Each company must review the current situation.

(From The Yomiuri Shimbun, March 20, 2023)