Apple Aims iPhone at Japan

Following launches in the U.S. and Europe, Apple (Nasdaq: AAPL) has reportedly turned its attention to bringing its touch-enabled iPhone to one of the world's most competitive markets -- Japan. Apple CEO Steve Jobs has been shopping around to find a Japanese carrier for the iPhone, the Wall Street Journal reported Wednesday.

Citing sources familiar with the situation, the paper asserted that Jobs recently met with executives at NTT DoCoMo (NYSE: DCM), Japan's leading mobile carrier, and made several trips to chat with officials from Softbank, the No. 3 carrier.

Apple could not confirm the veracity of the Journal's report or comment on any further plans for the iPhone, according to spokesperson Simon Pope.

Opening Japan

Apple is keen to make the iPhone available to Japan's almost 100 million mobile phone users. Success in Japan could play a key role in achieving the company's goal to acquire 1 percent of the global mobile phone market by the end of 2008.

"Japan is very important to Apple because it is a large market with very advanced users, and the Apple brand is already quite strong there via the Mac and the iPod -- thus it could represent a significant sales opportunity for the iPhone," Charles Golvin, a Forrester Research analyst, told MacNewsWorld.

Not everyone agrees on Japan's significance for the iPhone. Gaining a toehold there isn't a vital step in the iPhone's path to success , according David Chamberlain, an analyst at In-Stat.

"It makes no difference at all. The iPhone was already a success before a single one was ever sold," he told MacNewsWorld.

That's not to say Japanese consumers would give Apple's smartphone the cold shoulder. When the iPhone does make it onto store shelves in Japan, the device will receive a welcome as warm as -- if not warmer than -- the one it saw in the U.S., according to Chamberlain.

"When I was there in September people were absolutely hyperventilating to get the iPhone," he stated.

In such a highly competitive market, though, Apple may have to offer jaded Japanese consumers a version of the iPhone that goes above and beyond what has been offered stateside and in Europe.

The device will have to be able to operate on one of Japan's 3G networks and serve as a robust delivery method for digital content such as TV shows -- features Japanese users have to come expect from their mobile handsets.

"The most sophisticated phones on the market are in Japan. Japan leads the world in different features and phone capabilities. The iPhone faces some stiff competition if it gets to Japan, because you have a large number of devices that have WiFi, that have large screens, that have full browsers and GPS (global positioning system) as well," said Chris Hazelton, an IDC analyst.

"It won't have the impact it did in the U.S.," he told MacNewsWorld.

Releasing an updated model in Japan is a must, Golvin stated. However, rolling out a pumped up version could in effect allow Apple to kill two birds with one stone.

"For the iPhone to be viable in Japan, it will have to be the next version -- one that includes a third-generation cellular modem," Golvin said. "This is true simply because of the network technologies used in Japan, but it further means that Apple would have an updated model to sell into the U.S. and Europe that addresses the current model's greatest weakness, which is slow data speed for Internet access."

Let's Make a Deal

Apple has successfully negotiated exclusive deals with mobile phone network operators in the U.S., the UK, France and Germany. Those agreements have been hard won for Apple, with carriers reluctant to submit the heretofore unheard of stipulation that has them sharing their profits with the handset maker.

In Germany, Vodafone (NYSE: VOD) launched a suit challenging the exclusive contract Apple signed with rival T-Mobile, claiming it was against German law. A court in Hamburg found in favor of T-Mobile on Dec. 4 and reversed an injunction prohibiting the sale of the iPhone.

The report of the negotiations in Japan comes about two weeks after talks with China Mobile and China Unicom, two of that country's leading mobile network operators, were slowed over Apple's demand for a share of the revenues generated from the iPhone, according to a November Reuters report.

As has been the case with their colleagues in China, the strength of Japanese network operators could put a kink in Apple's normal game plan of playing carriers against one another in order to strike a lucrative revenue-sharing deal with one.

"This is not the first time Apple is looking at two different carriers. China Unicom and China Mobile are both in negotiations with Apple. These are markets where a device vendor has never gotten to share revenue with a carrier. And so Apple's demands on the carrier far exceed any other device vendor's demands. It's tough in the U.S. market, so it was a surprise [that AT&T agreed to the deal], because carriers in the U.S. are very powerful," Hazelton explained.

"In Japan they are even more powerful. If Apple is able to [find a taker] for its demands, that will be impressive," he continued.

"That would be a very, very big change in Japan," Chamberlain explained. "The carriers, particularly DoCoMo, dominate the handset vendors. The vendors can't even put their own names on their phones, just a single letter.

"DoCoMo puts out a handset specification -- calls it, for instance, 'the 504' -- and then the S-504 is made by Sanyo, the P-504 is from Panasonic, NK-504 would be Nokia, etc.," he continued. "Impossible? I don't know, but it would be a very, very big change."

Eyes on Softbank

While negotiations with both DoCoMo and Softbank continue, Chamberlain expects the No. 3 carrier to wind up with the deal.

"I predicted [in September] it would be Softbank that would get it. The most interesting -- and important -- part of that announcement would be that none of the Japanese carriers offer GSM (global system for mobile communications) or EDGE (Enhanced Data Rates for GSM Evolution), the voice and data networks, respectively, that are on the current iPhone. Softbank has UMTS (universal mobile telecommunications system), which is 3G and uses the same 3G technology used in Europe and in the U.S. by AT&T. DoCoMo's version of 3G is not completely compatible with European and U.S. networks," Chamberlain pointed out.

If Chamberlain's prediction is correct, SoftBank, he believes, will be "very willing to deal" with Apple.

"Even though SoftBank has had the highest net subscriber addition in the past two months, they still have only 17 percent of the Japan market, compared with 53 percent for DoCoMo and 30 percent for KDDI [the No. 2 vendor]," Chamberlain noted.

"Softbank has added 191,600 subscribers in the past month, more than DoCoMo's 48,000 and KDDI's 65,000 combined. The iPhone would be a very important deal for Softbank," he added.

If Apple cannot reach satisfactory terms with DoCoMo, Golvin said, then it will strike a deal with "SoftBank, who is a very aggressive No. 3 in the market and hence much more motivated to meet Apple's demands."

Give Me 3G

Regardless of which company becomes Apple's exclusive Japanese carrier, the hardware maker still will have to bring all of its marketing skills to the table in order to penetrate the Japanese market.

"There really is very, very limited growth for new subscribers in Japan. And, in fact, Japan is almost 100 percent penetrated. So, what they are really looking at is stealing subscribers from other carriers. Softbank has done a pretty good job, and within the last year and a half has opened up the Japanese market with member portability, allowing it to pull a lot of NTT DoCoMo carriers to SoftBank," Hazelton said.

Despite challenges in Japan and other markets, Apple is almost guaranteed success with the iPhone and should have little trouble meeting its goal of owning 1 percent of the global mobile handset market.

"Give them time. Our forecast for 2008 is about 1.22 billion handsets, so that 1 percent looks like 12 million. One-point-five percent of our forecast handset sales in the Japan market alone would take the iPhone halfway to its goal of 12 million," Chamberlain concluded.

"Apple will meet their 10 million device target, though I believe that having a 3G version is necessary to achieve that goal," Golvin said.