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Smartphone contracts in Japan cited as antitrust risk

Four-year plans impede customers from switching companies

Japan's antitrust watchdog regards fees to remove SIM card locks as one of several restrictive practices by the largest mobile carriers.

TOKYO -- The Japan Fair Trade Commission warns that four-year payment plans that cellphone providers offer in exchange for bringing down handset prices could be in violation of antitrust law, saying that the restrictive contracts can prevent consumers from changing carriers.

In a report issued Thursday, the antitrust watchdog took issue with four-year smartphone plans that let users trade in for an update after two years -- waiving the remaining installments for the old device and starting a new four-year deal.

But customers who want to keep their phone beyond two years can actually end up paying more when accounting for both the device and service. 

These restrictive contracts "virtually deprive consumers of their right to choose by discouraging them from changing plans," the report said.

This type of plan appeared in response to the previous FTC report that warned about restrictive contracts in the smartphone market in August 2016.

NTT Docomo, KDDI and SoftBank Group -- Japan's three major mobile network operators -- each said they would review the report and consider how to proceed.

The watchdog also took issue with two-year binding contracts that offer discounts in exchange in the previous report. In response, carriers now offer contracts that waive cancellation fees after two years but are effectively shunned by consumers for their high prices. This new option "fails to serve as a real choice for consumers," said the report issued Thursday.

Plans that combine service and phone payments for a discount are also cited as problematic. The FTC thinks only the largest carriers have the financial wherewithal to offer them.

The report also touched on the practice of SIM locks. Though carriers agree to unlock the phones under certain conditions, their mobile retailers are charging fees to do so and will not unlock used devices. The FTC says this obstructs customers from switching companies. 

"The ability to eliminate competition is enhanced when combining these methods, further raising the possibility of [antitrust] issues," the report said.

Connection fees that low-cost mobile operators pay to larger carriers for access to their networks drew a mention for the first time. The basis for calculating these fees "is unclear and may impede competition," said the FTC, which called on major providers to make related costs public.

Japan's communications ministry said the connection fee system will continue to be assessed and revised as necessary."

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