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Tuesday, September 16, 2008, 07:00 am PT (10:00 am ET)

Apple finding it difficult to crack Japanese cell phone market

Apple's iPhone, a runaway success in the US and parts of Europe, is struggling to see similar success in Japan, where consumers who've long been privy to some of the world's most advance cell phones are passing over the touchscreen handset for cheaper and more familiar offerings.

After selling about 200,000 units during the first two months, sales of the iPhone 3G have fallen to a third of what they were immediately following launch, according to the Wall Street Journal. Analysts now believe Apple will be hard pressed to sell 500,000 units, a far cry from their 1 million unit predictions earlier in the year.

Part of the problem is that Apple and its exclusive Japanese carrier Softbank are marketing the handset at high prices and touting features such as 3G internet access. While 3G access is relatively new for US customers, the technology has been a staple on Japanese cell phones for years.

The 16GB model is priced at approximately $320 for new customers who sign up for a two-year contract, slightly above the $299 asking price from US carrier AT&T. Softbanks existing 19.5 million subscribers aren't offered the same subsidy, however, and must pay $540 for the same model on top of Internet service fees that scale as high as $60 per month.

Although the carrier has lowered data fees since the launch of the iPhone 3G in July, the vast majority of consumers are still opting for one of the many handsets that are consistently on sale for lower prices, the Journal said.

Another barrier to adoption is that the iPhone lacks features that are familiar to Japanese consumers, such "emoji," a form of clip art that can be inserted in sentences to spruce up email messages. The iPhone also lacks other capabilities found on most Japanese cell phones such as digital television, satellite navigation service, and chips that let owners use their phones as debit cards or train passes.

Apple's App Store, one of the iPhones standout features, has also been largely passed over by Japanese users who are both unfamiliar with its advantages and cautious of making purchases online.

"Japanese users don't know what to do with an iPhone," said Takuro Hiraoka, an analyst for GfK Marketing Services Japan Ltd. "Sales could grow if Apple provides specific examples of how it can be used."

Apple isn't alone in its struggles. The Journal notes that "more than 10 domestic handset manufacturers compete for a slice of Japan's cellphone market," but even the global leader, Nokia, hasn't found a way to garner a 1 percent share. Sharp, based out of Tokyo, is the market leader with a 25 percent share.