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Thursday, July 30, 2009, 05:00 pm PT (08:00 pm ET)

iPhone helps keep Softbank competitive, profitable in Japan

Despite double-digit sales declines at rival NT DOCOMO and KDDI, Japan's Softbank, the exclusive carrier of the iPhone and third largest carrier in the country, continues to maintain the number one position in Japan for net new subscribers.

Softbank, posted a 9.7% year over year increase in its total number of subscribers for the most recent quarter ending in June 2009, along with improved handset sales during a particularly difficult sales climate.

Company president Masayoshi Son credited the allure of the iPhone, along with cost cutting measures, for the company's recession-defying results and its ability to attract customers away from other providers. Softbank has led mobile providers in net subscriber additions for the past two years.

While the Western media has celebrated the complexity and sophistication of Japan's smartphones, Son acknowledged that Japan's domestic handset manufacturers are struggling, in part due to being ghettoized by Japan's unique TDMA-based PDC standard in place for 2G mobile service. As the world converges upon UMTS as the 3G standard, Japanese phone makers will have a better opportunity to sell their phones outside of Japan, but they are already facing tough competition at home.

Japanese phone makers also face a carrier-dominated subsidy sales model similar to the US inside Japan, where subscribers are given expensive phones that appear to be free, and are then asked to pay huge phone bills to make up for it. In contrast, Softbank is selling the iPhone and its other handsets at more upfront rates, essentially marketing the phone using a 24 month installment plan.

In addition to the long term contracts that bind subscribers to their carriers, there are also fees involved with moving a phone number to another provider, something that US law forces carriers to do for free. Despite these barriers, Softbank continues to attract more net new subscribers and outperform its larger rivals in the Japanese market, something the advocates of more conventional Japanese phones are having a hard time explaining.