A Curious Tale from Japan, But Prepaid Lives On
By Steve Wallage, Wed Feb 02 08:00:00 GMT 2005

Back in November, the notion that prepaid could be banned in Japan suddenly became deadly serious. Fortunately, common sense seems to have prevailed, but cynicism continues to abound about the true motives behind the move.

Prepaid is clearly a success. According to Yankee Group figures, over 50% of Asian subscribers are prepaid, and this rises to over 60% if Japan and Korea are excluded. Yet, Japan has been typically a little different from the other countries.

NTT DoCoMo did not launch a prepaid service until May 1998. At its peak in March 2001, it had 210,000 subscribers, and by November 2004, it had 81,000 subscribers, just 0.2% of its installed base. NTT DoCoMo offers a few limited handsets for prepaid and only offers voice services, and all its prepaid users are encouraged to move to a contract. Other carriers had also been deterred from prepaid by such concerns as increased churn, lower ARPU and low data penetration.

Ironically, the penetration of mobile in Japan is not that high by global standards, at around 70%, and Vodafone particularly picked up on this when the acquired J-Phone. The new Vodafone K.K. has around 11% (over 1.5 million) of its user base on prepaid. Interestingly, it hasn't gone specifically for the youth market so loved by prepaid companies the world over, but for pensioners, newlyweds and the parents of young children. For Japanese operator TuKa (a unit of KDDI), prepaid is about 20% of its installed base.

The Story So Far

Then the politicians got involved. The basic charge was that the prepaid mobile was at the root of much of Japan's crime. The Japanese police suggested that in the first half of 2004, prepaid mobile phones were used in 93% of phone frauds where criminals posed as relatives in urgent need of money, and in 66% of cases where fraudsters charged victims for services they did not receive. The former is a delightful scam known in Japan as "ore, ore" ("it's me, it's me"), in which a caller, posing as a friend or relative in distress, asks for a transfer of cash in order to avoid jail or a beating by gangsters. The cost of this was estimated to be over $75 million. A police spokesman was also happy to link prepaid phones to drug trafficking, murder and robbery cases.

The suggestion was then made to the Japanese parliament that prepaid could be banned. This is where the story starts to get a little murky. NTT DoCoMo seems, with very little to lose, to have supported this proposal. It was quoted as saying it would stop selling prepaid phones from March 2005, but NTT DoCoMo's official response is that it is "still deciding this internally and nothing precise has been decided at this moment."

The other operators were naturally up in arms, as were non-Japanese trade bodies who thought both non-Japanese corporates and citizens (who typically use prepaid) were being discriminated against.

Finally, a compromise has been reached in the Japanese parliament. There will be much more stringent security checks on the use of prepaid. A bill is going through parliament which will prohibit the transfer of prepaid phones to third parties, with violators facing prison terms of up to two years or a maximum fine of 3 million yen ($28,500).

For Vodafone K.K, this has meant three things: one, it has begun unilaterally terminating services for prepaid mobile phones that have been used in fraudulent billing and other crimes (estimated to be around 200 accounts). Two, for new users it has been asking for proof of name and address, which it has checked before supplying the phone. Three, it will soon start checking the identities of its entire prepaid user base.

Some Japanese commentators had suggested that NTT DoCoMo would be happy to see this legislation as it would deter the prepaid plans of rivals but this does not seem to be happening. Vodafone K.K is planning to extend its range of prepaid handsets and packages in 2005. It will also offer picture messaging to prepaid users for the first time.

Other Countries

Although Japan is a unique market (something often forgotten when trying to guess future mobile trends) there was some concern that other countries may start looking at the link between prepaid and crime. There were some precedents, for example, in 2002 the governor of Sao Paulo asked the Brazilian president to ban prepaid phones as they were "popular among criminals." Again, common sense prevailed and stricter registration procedures were instead brought in.

A couple of other countries, including Singapore and the Philippines, have also been reported to have been worried about the links between crime and prepaid. But the fact that Japan finally saw sense on the issue is a good sign that future bans will not happen.

Along with all the obvious reasons to support prepaid, there is a good example from India on why developing countries would never ban these phones.

Reliance did a major campaign for contract users in July 2003 with a bundled handset. Such was the demand it could not do all the proper credit checks and it has since faced continuing problems with payment defaulters and also in sorting out billing. Now it is offering incentives and promotions to get its contract users to move to prepaid.