UPDATE 2-Softbank Q1 profit up 8 pct, cuts iPhone fees

(Adds comment, details)

By Sachi Izumi

TOKYO Aug 5 (Reuters) - Softbank Corp (9984.T), Japan's third-biggest mobile phone operator, reported an 8 percent gain in quarterly profit on Tuesday, helped by reduced subsidies on handsets and continued gains in new subscribers.

Softbank, which beat bigger rival NTT DoCoMo (9437.T) to be the first carrier to introduce Apple Inc's (AAPL.O) iPhone in Japan, said it would cut monthly fees for users of the gadget, less than a month after the launch, in the hope of attracting more users.

"For the (iPhone) price plan, we are changing it so it will be easier for so-called entry-level users to jump in," Chief Executive Masayoshi Son told a news conference.

"iPhone buyers tend to be heavy cellphone users and have a higher ARPU (average revenue per user) than users of ordinary handsets, so businesswise we will do well enough," he said.

Softbank trails NTT DoCoMo and KDDI (9433.T) in Japan's competitive mobile phone market but has outpaced rivals in adding the most new users for more than a year with its aggressive pricing and quirky marketing.

In addition to the gain in subscribers, many existing users held off buying new phones as they were stuck with instalment payment plans for their handsets that normally take a year or two to pay off.

That lowered the churn rate -- the percentage of customers cancelling services -- and shrunk Softbank's incentive payments, helping boost profits.

It logged a group operating profit of 85.1 billion yen ($786.5 million) in the three months that ended in June, against 78.75 billion yen a year earlier, also lifted by strong results at Yahoo Japan (4689.T), in which Softbank holds a 41 percent stake.

Its fixed-line operations became profitable in the first quarter, against a loss a year earlier.

Sales fell 2.4 percent to 647.3 billion yen in the April-June quarter due partly to a drop in per-user income.

The company does not provide earnings outlooks, but the average forecast of 13 analysts was for a 352 billion yen operating profit for the year to March, up 8.5 percent from 2007/08.

Softbank pioneered the sales strategy of higher phone prices in return for cheaper calling fees. DoCoMo and KDDI have since adopted the strategy, which reversed their traditional tactics of luring new customers with low-priced or sometimes free handsets.

With the early users of its two-year instalment payment plans starting to finish paying for their handsets later this year, analysts say Softbank faces the risk that some of these customers will cancel its services.

Although revenue from calling fees has been declining in recent years, income from data transmission is steadily increasing. The iPhone is expected to boost it further with its fast Internet connections and easy-to-use Web browsers.

Son declined to reveal how many iPhones it has sold since the July 11 launch.

In the first few weeks it was hard for customers to obtain iPhones, but Son said supply is now becoming stable and the company will start taking orders. Softbank lowered monthly charges for iPhone subscribers to as low as 2,990 yen from 7,280 yen. It had originally set a fixed rate for data usage, but after the change, monthly data transaction fees will be between 1,695 yen and 5,985 yen depending to the usage volume.

Shares in Softbank slipped 0.9 percent in the April-June quarter, against a 4.1 percent rise in the Tokyo Stock Exchange's information and communication subindex .ICOMS.T.

Before the announcement, the shares closed down 2.4 percent at 1,936 yen, underperforming a 1.6 percent fall in the subindex. ($1=108.20 Yen) (Editing by Michael Watson)