Warm reception may not await iPhone in Japan

Unlike much of the rest of the world, Japan is unlikely to embrace the iPhone, Apple Inc.'s Internet-enabled multimedia mobile phone, said Nahoko Mitsuyama, a telecom analyst at Gartner Japan who attended the Mobile World Congress in Barcelona, Spain, in February.

Apple Inc.'s iPhone, combining the features of a mobile phone and an iPod music player, is shown last June 29. AP PHOTO

While she noted that foreign cellular phone makers are taking the iPhone threat seriously and rushing to release their own versions, most Japanese consumers are more likely to remain content with what they already have.

The iPhone, which combines the features of a mobile phone and the popular iPod digital music player, also boasts a full-scale Web browser, a touch screen with colorful icons and a virtual keyboard as well as a camera.

Apple released the iPhone in the United States in late June under an exclusive licensing deal with AT&T Inc., the nation's biggest phone service provider.

It took Apple, based in Cupertino, Calif., only 74 days to hit the 1 million mark in iPhones sold. In contrast, it took two years for the millionth iPod to sell, according to Apple.

Outside the U.S., Apple has struck similar deals with O2, Britain's largest telecom operator, German's T-Mobile and France's Orange.

Charles Golvin, an analyst with Forrester Research Inc., said iPhone sales in the U.S. are "very strong" but "mildly disappointing" in Europe.

Apple said the iPhone will be available in Asia sometime this year. Media reports indicate NTT DoCoMo Inc., Japan's leading wireless firm, and No. 3 operator Softbank Corp. are in talks with Apple to release the iPhone in Japan. Both firms declined comment.

But Japanese analysts are doubtful whether the iPhone will catch on in markets like Japan, where consumers favor smaller and sleeker multifunctional handsets. They also question whether Japanese carriers will accept ceding to Apple tight control over handset design and agree to its demand for a certain share of subscription fees.

Current iPhones won't work in Japan, where the faster third-generation network has become the mainstream. Industry watchers believe 3G iPhones will be released in the latter half of this year.

Apple hopes to reach an agreement with a Japanese mobile phone operator to achieve its goal of selling 10 million iPhones worldwide by the end of 2008. It sold some 3.7 million iPhones throughout the world in 2007.

Japan is a "very attractive market" for Apple, Golvin of Forrester Research said, because the company has established itself here as a user-friendly, fashionable and cutting-edge innovator through the sales of its Macintosh personal computers and iPod products.

"Japan is a leader in mobile communications and success there will reinforce Apple's position as influential in this market," he said in an e-mail from California. "Japanese consumers desire cutting-edge devices so success there will reinforce the supremacy of the iPhone's design."

Noritaka Kobayashi, an information and communications consultant at Nomura Research Institute in Tokyo, said: "Most of the world's Internet users via mobile phone are Japanese, so success in mobile services here can be applied to other markets."

Japanese consumers have fallen in love with the iPod, which controls 54.5 percent of Japan's digital portable music player market — well above Sony Corp.'s Walkman with 26.2 percent, according to market research firm BCN. The iPhone could benefit from an emotional attachment to Apple among Japanese.

"Japanese like anything new and trendy, so the thing is how many customers can Apple attract beyond Apple fans," Gartner's Mitsuyama said, noting that Japanese on average change their handsets every two years.

Still, Japan is expected to be a difficult market. Here, mobile phone carriers control the release of new handsets and dictate specific features and functions of new cell phones to satisfy consumers who are picky about product usability, design and quality. Foreign makers account for only about 10 percent of the roughly 50 million handsets sold annually in Japan, although their market share is on the rise, according to Yano Research Institute.

Many Japanese like small, multifunctional clamshell handsets because they fit easily in the hand or a pocket and allow for Net-surfing and e-mailing with a thumb in crowded and small places, said Yutaka Shimbo, executive director of Japan Research Institute.

He noted that the iPhone's touch screen virtual keypad is not convenient for writing a message with just a thumb.

Munehisa Kamio, a product developer at Softbank, agrees.

Ease of writing by thumb matters as many Japanese today rely on e-mailing with mobile phones as a key communication tool, he said.

"The point is how quickly they can type a message," he said. "The Japanese language is rich in terms of kinds of signs — hiragana, katakana and kanji. Many Japanese also use symbols in their messages rather than just plain text. When coming up with an idea for a new handset, being able to switch between writing systems is an important factor."

When the iPhone was announced, many Japanese were excited about its interface, which allows users to move content by a dragging motion of the finger, notes Kobayashi of Nomura Research. However, because the latest version of the iPod operates the same way, some of the excitement surrounding the iPhone has worn off, he added. "The situation would have been different if iPhone had (hit the Japanese market) earlier."

Because Apple has been keen to sign licensing deals with No. 1 carriers in other markets, analysts believe DoCoMo is Apple's likely first choice.

For DoCoMo, the deal is important as a possible way to curb the customer defections it has suffered since the number portability system was introduced in 2006. In January, DoCoMo dropped to fourth place in net gains in the number of new subscribers, while Softbank Mobile Corp. remained the No. 1 winner for the ninth consecutive month, according to industry group data.

Apple may even turn to Softbank, which has been taking customers away from its larger rivals, analysts and industry executives say.

"(Softbank chief) Masayoshi Son is now one of the most respected mobile phone businesspeople after turning his company into the most vigorous mobile phone company. He made a big impression in his keynote speech delivered at the Mobile World Congress," said Takuya Miyata, chief executive of a company providing mobile phone content who also took part in the conference.