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Japan's DoCoMo holds out to iPhone mania, but at what cost?

The logo of Japan's biggest mobile phone operator NTT Docomo is seen at its shop in Tokyo July 3, 2013. REUTERS/Issei Kato
The logo of Japan's biggest mobile phone operator NTT Docomo is seen at its shop in Tokyo July 3, 2013. REUTERS/Issei Kato

By Sophie Knight and Maki Shiraki

TOKYO (Reuters) - NTT DoCoMo Inc, Japan's largest mobile provider and a pioneer of the mobile Internet, is one of just a few holdouts among the world's big mobile carriers not offering Apple Inc's iPhone to its 60 million customers.

It is paying heavily for that obstinacy - with a net 3.2 million users jumping ship to its two domestic rivals over the last 4-1/2 years - but is determined to protect the walled garden of services it has built around its own smartphones.

"We're trying to develop a lifestyle system," NTT DoCoMo CEO Kaoru Kato told Reuters in an interview this week.

While customers and even some executives increasingly clamor for it to relent and sign an iPhone deal, DoCoMo is showing no signs of softening towards Apple.

"The biggest problem is the impact on the services that we offer," Kato said.

DoCoMo's broad offering of exclusive features, however, is no longer attracting what has become the iPhone generation. It is expected eventually to either reach a deal with Apple or risk losing its crown at the top of its industry.

"Unit sales are doing quite well this year but they're still losing customers to other networks," said Hiroshi Yamashina, senior telecoms analyst at BNP Paribas. "If that's the case then they really have no choice but to go for the iPhone."

Japanese consumers favored DoCoMo's mode of integrated system back when it launched the world's first large-scale mobile web access service and introduced streamed TV to cellphone users. But its wide array of features - while retaining its share of fans - is not considered sufficient to counter the appeal of the iPhone.

"Its photo service, for example, is very difficult to use and I'm not sure anyone still bothers in the age of Instagram and Flickr," said Yamashina.

WALLED GARDEN

DoCoMo's resistance contrasts with holdouts in other markets that are giving in this year to the demand for iPhones.

T-Mobile US Inc's CEO said its April release of the iPhone filled a "huge void" in its line-up.

China Mobile Ltd, the world's largest mobile carrier by number of subscribers, is moving to upgrade its service with 4G technology to allow the 10 million of its customers who already own the iPhone to connect to its network, rather than being restricted to WiFi.

DoCoMo's stubbornness is particularly noteworthy in Japan, where the iPhone not only has established itself as the kingpin in the smartphone market, with a 42 percent share in the last three months of 2012, but is fending off Samsung Electronics Co Ltd's Galaxy series, which has found popularity in other major global markets. Samsung has 46 percent of Western Europe's smartphone market, but has reached only one-fifth of iPhone's sales in Japan.

DoCoMo's stance may also reflect strict contractual obligations imposed by Apple. While negotiations between the two have been a strictly guarded secret, Kato's predecessor made comments at a shareholder meeting last year suggesting the U.S. company was demanding iPhones make up half of its handset sales.

DoCoMo's requirement that its company logo be imprinted on all its devices also conflicts with style-conscious Apple's insistence that its products be left as manufactured.

For now, DoCoMo hopes to retain customers with smartphones running Google Inc's more flexible Android operating system. Its marketing efforts this summer are focused on Sony Corp's Xperia A and Samsung Electronics' Galaxy S4.

DoCoMo has moved 830,000 Xperia A handsets since their mid-May launch, already close to its target of 1 million by autumn, but the S4 is lagging with less than half of Xperia's total.

But DoCoMo is still hemorrhaging customers to its rivals, with monthly data on Friday showing a net loss of 146,900 existing users to other carriers in June, the 53rd consecutive month of such losses.

But with DoCoMo's total subscriber numbers up 630,000 in the first six months, as it gets a lift from overall smartphone demand even without the iPhone, and with its profits strong, it may opt for a waiting game with Apple.

There are no signs the iPhone's popularity might soon wane in Japan, while the breadth and reliability of DoCoMo's network could be a selling point.

"At some point, SoftBank and KDDI will reach a saturation point for iPhone sales," said an executive at a rival mobile carrier. "Apple may have no choice but to look to DoCoMo to sell more iPhones. Perhaps DoCoMo is just waiting."

(Additional reporting by Nobuhiro Kubo; Editing by Edmund Klamann and Jeremy Laurence)

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