NTT DoCoMo Inc, Japan's top mobile phone operator, said on Wednesday its quarterly profit rose 45 percent after it slashed incentives on handsets, and it kept its full-year forecast for a small growth that is below market expectations.

Profits at DoCoMo, whose once-dominant market share has been eroded by smaller rivals KDDI Corp and Softbank Corp, were helped by a new sales model that raised handset prices in return for lower calling fees.

For years, Japanese wireless carriers doled out subsidies to retailers to keep handset prices low so that customers would sign up for services, recouping some of those costs later through call and other fees.

But any earnings benefits from the new strategy could be short-lived as DoCoMo battles in a fiercely competitive environment to keep customers from defecting to rivals in a saturated market of more than 108 million mobile users, or 85 percent of the population.

Softbank's launch of Apple Inc's popular iPhone this month will further ramp up pressure on the industry leader, which lost out in the race to be the first carrier to introduce the iPhone in Japan.

DoCoMo said April-June group operating profit rose to 296.5 billion yen ($2.75 billion) from 203.9 billion yen a year ago.

It was also helped by lower procurement costs as consumers held off from buying or upgrading their handsets, using a new instalment payment plan that normally takes one to two years to pay off or waiting for new models in June. For the year to March, DoCoMo kept its operating profit forecast at 830 billion yen, up 2.7 percent from a year earlier.

That compares with a forecast for 860 billion yen in a poll of 16 analysts by Reuters Estimates. 

Second-ranked KDDI has also started offering cheaper plans, and last week posted a 12 percent drop in quarterly profit. Softbank announces its April-June earnings next week.

Shares in DoCoMo rose 3.3 percent in April-June, lagging a 4.1 percent gain in the information and communication subindex .

Ahead of the results, DoCoMo closed up 3.2 percent at 171,700 yen. The subindex was up 1.8 percent.

Source:reuters