Aug. 5 (Bloomberg) -- Softbank Corp., Japan's third-largest mobile-phone company, posted profit that missed analyst estimates because of discounts to lure customers.

Operating profit, or sales minus the cost of goods sold and administrative expenses, climbed 8.1 percent to 85.1 billion yen ($788 million) in the first quarter ended June 30, Softbank said today. That missed the 86.1 billion yen projection of analysts, based on the median of four estimates in a Bloomberg survey.

Discounts and installment payment plans helped Tokyo-based Softbank attract more users than NTT DoComo Inc. and KDDI Corp. for 14 straight months at the expense of profitability. Softbank, Japan's only provider of Apple Inc.'s iPhone, is seeking to bolster earnings through the touch-screen handset, which it began selling in July.

``Expectations for a profit decline have risen as the company enters its second year after introducing the handset- installment plan,'' said Shinji Moriyuki, a Tokyo-based analyst at Mitsubishi UFJ Financial Group Inc. ``The market will appreciate the profit gain'' in the first quarter, said Moriyuki, who has a ``strong outperform'' rating on Softbank.

Net income dropped to 19.4 billion yen from 25.1 billion yen a year earlier, when earnings were boosted by 13.5 billion yen of gains from share sales and lower taxes. Profit lagged behind the 20.9 billion yen projection by JPMorgan Chase & Co.

Sales fell 2.4 percent to 647.3 billion yen, missing the 656.1 billion yen estimate in the survey.

Softbank lost 2.4 percent to close at 1,936 yen in Tokyo trading before earnings were reported. The stock has dropped 16 percent this year, in line with the decline by the benchmark Nikkei 225 Stock Average.

IPhone Models

Softbank is offering the 8-gigabyte iPhone model for 23,040 yen and the 16-gigabyte version for 34,560 yen for new users, with existing customers paying more. Subscribers have the option of paying for the handset over two years.

The company will probably sell 1 million iPhones in the first year, helping increase its lead in subscriber gains, Hiroshi Yamashina, a Tokyo-based analyst at Nikko Citigroup Ltd., wrote in a report on June 11. JPMorgan Chase & Co. estimated 1 million units by the end of 2008.

``IPhone 3G will make a positive contribution to Softbank's subscriber base and to an increase in'' data revenue, Hironobu Sawake, a Tokyo-based analyst at JPMorgan, wrote in a report on July 22.

The operator today said customers began paying as little as 2,990 yen per month in August for services on the iPhone, down from the 7,280 yen charged for unlimited access when it first introduced the handset.

Softbank added 525,500 subscribers in the quarter, more than double the 241,000 additions at Do Como, Japan's largest mobile- phone operator, according to numbers compiled by the Telecommunications Carriers Association. KDDI, the country's second-largest wireless-phone company, lost 34,300 users after discontinuing a slower service.

To contact the reporter on this story: Pavel Alpeyev in Tokyo at palpeyev@bloomberg.net.

Last Updated: August 5, 2008 05:11 EDT