More than 43 million 3G phones were sold in Japan last year as the country's phone buyers increasingly choose advanced features such as GPS and electronic payment systems.
Research firm In-Stat said that of 98 new handset models launched in Japan in 2006, 45 had built-in GPS and 49 had e-wallet capabilities.
Japan's saturated mobile market means that carriers must offer advanced new features to generate fresh revenue streams.
Competition is intense, and basic voice services are fast approaching loss-leader pricing.
NTT DoCoMo, the country's largest mobile operator, announced today that it would cut the price of some of its plans by up to 50 per cent.
Operators are striving to generate revenue by providing large-size attachment emailing and integrated mobile internet music player interfaces to push mobile data services based on camera and music functions, said the In-Stat report.
"The shipment of 3G phones exceeded 92 per cent of 47.8 million phones sold in 2006," said Allyn Hall, a director with In-Stat.
"The market is full of excitement as phones with brilliant displays, rich multimedia capabilities and various novel functions were introduced last year to gain customer acceptance and market share."
Payment, navigation and mobile internet services are proving so popular in Japan that mobile phone screens are being upsized to fit.
Almost all new handsets have large quarter-VGA sized (240 by 320 pixel) screens, and more than two thirds launched last year have screen sizes between 2.4in and 3in.
In addition, 19 of the new phones launched last year are equipped to received Japan's '1Seg' mobile TV broadcasts.
However, mobile carriers and phone makers are still preceding cautiously with TV phones because of what In-Stat describes as an "unclear business model for operators to make significant revenue from the free-to-air TV broadcasting service".
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