NTT DoCoMo Inc, Japan's biggest mobile phone operator, will offer 24-hour free calls between family members as it fights to keep users from switching carriers.
The move is likely to hurt profit at DoCoMo, already struggling to keep pace with a price war triggered by No. 3 Softbank Corp, analysts said.
Softbank, which bought Vodafone's Japan unit in 2006, has gone on the offensive by slashing rates, forcing bigger rivals DoCoMo and No. 2 KDDI Corp to match its prices.
DoCoMo twinned the discount with a monthly fee hike to 315 yen from 210 yen for its popular i-mode wireless Internet service. The moves together would drag down annual operating profit by 3 to 4 percent, said Lehman Brothers analyst Tetsuro Tsusaka.
If DoCoMo and KDDI follow Softbank's lead and offer student discounts, that would be another 4 to 5 percent decline in operating profit, he said.
Softbank plans to scrap monthly basic fees for three years for students signing up with the carrier for the first time.
KDDI last week said it would offer round-the-clock free calls to registered family members that also subscribe to KDDI, and analysts had said they expected DoCoMo to follow suit.
But mimicking others' discounts is unlikely to lift subscription numbers at DoCoMo, which controls over 50 percent of Japan's 9 trillion yen mobile market, said Credit Suisse analyst Hitoshi Hayakawa.
We are nearing the end of a series of fruitless one-upmanship on rates, said Credit Suisse analyst Hitoshi Hayakawa. The battle will shift to handset quality and services next.
Softbank has outrun both DoCoMo and KDDI, logging the most new users in net terms since May with a marketing blitz and offers of free calls between Softbank users.
DoCoMo, whose new discount plan begins on April 1, previously discounted calls to family members by 30 percent.
The telecom giant, which has half of Japan's 100 million mobile phone users on its books, also said it would offer fixed-rate calls for corporate users at 945 yen per line.
DoCoMo posted a 1.4 percent drop in quarterly revenue as it cut monthly fees and rates.
Prior to the announcement shares of DoCoMo closed up 1.3 percent at 153,000 yen, while KDDI ended down 0.3 percent and Softbank rose 0.5 percent. (Reporting by Mayumi Negishi and Taiga Uranaka; Editing by Chris Gallagher)