Telecommunications

August 2005

Renesas Develops System Chip For Dual-Mode Mobile Phones
Renesas Technology Corp. has begun sample-shipping a mobile phone chip that is 30-40% cheaper than existing comparable models and can accommodate 2G (second-generation) and 3G (third-generation) standards widely used in Japan, Europe, the U.S. and Asia. Founded in 2003 by Hitachi Ltd. and Mitsubishi Electric Corp., Renesas sees the new semiconductor as a strategic product to gain the upper hand over U.S. rivals Texas Instruments Inc. and Qualcomm Inc. The new chip, which can handle data transmission and image processing, integrates functions previously executed on separate chips. Renesas expects it to become a core next-generation chip and is eyeing a commercial launch next summer. The new product, which can process images with a resolution of 5 million pixels and supports videoconferencing, accommodates DoCoMo's FOMA 3G technology and GSM/GPRS. DoCoMo subcontracted Renesas to develop this chip under a 7 billion yen development deal. Renesas has already started shipping samples to makers of mobile phones that support DoCoMo's services. It plans to sell the new chip to domestic and overseas manufacturers. (The Nihon Keizai Shimbun, August 25, 2005)

Cybozu Prepares To Become Mobile Virtual Network Operator
Cybozu Inc. has begun market surveys with the aim of entering the market as an MVNO (mobile virtual network operator), which develops mobile phone services without any of its own equipment. Cybozu is currently carrying out market surveys with the aim of beginning MVNO operations in January 2007. Prior to beginning the operations the company plans to begin on Sept. 1 through a subsidiary outsourcing operations for fees and billing of telecommunication service firms. Cybozu has yet to decide on a mobile phone company from which to lease communication infrastructure. However, to enter the market, the company will have to be engaged in services for fee assessment and billing and so the company has decided to place these operations in motion first. In response to MVNO needs, Cybozu will create bills, issue them and handle payment, including bank transfers. The company aims to be able to provide communication services as an MVNO in as quickly as a month from the time an outsourcing application is made. System development and operations will cost 500,000-600,000 yen a month. The company will aim for orders from about 15 companies in a year on the basis of low prices and a fixed-fee structure. (The Nikkei Industrial Daily, August 24, 2005)i

Japan, China To Team Up In 4G Cell Phone Technology
The Japanese and Chinese governments have finalized plans to cooperate in developing technology for 4G (fourth-generation) cellular phones expected to come into practical use around 2010, The Nihon Keizai Shimbun learned Tuesday. By combining the technical expertise of Japanese manufacturers with the world's largest cell phone market, the two nations aim to take a leading role in setting industry specifications for handsets and other segments. Japanese cell phone makers' share of the Chinese market is only several percent, taking a back seat to such European counterparts as Nokia Corp. The Japanese contingent seeks to increase its presence there by teaming up with China from the development stage. High-level representatives from relevant ministries of both governments will meet in Tokyo on Friday. They are expected to sign an agreement to cooperate in research and development, as well as efforts to secure a global standard. Ministry bureau chiefs from both sides will meet periodically. A bilateral forum of representatives from industry, academia and government will also be launched. Handsets using the new technology are slated to replace third-generation models, such as NTT DoCoMo Inc.'s (9437) FOMA phones. They will feature data transmission rates comparable to those of optical fiber, and high-quality streaming images that can be sent and received even when the user is traveling at high speeds. A global standard for the spectrum available to 4G cellular technology will be established in 2007, at which point the development race is likely to intensify worldwide. Through the alliance, Japan and China seek to gain a leading role in not only handsets, but also in such areas as communications infrastructure and data-processing technology. China had 334.82 million cell phone users as of the end of 2004, representing 25.9% of its population. With clearance for third-generation cell phone service expected to be granted as early as this year, international handset manufacturers are anticipating the further spread of cell phone use in that country starting next year. (The Nihon Keizai Shimbun, August 24, 2005)

NTT Lifts FY05 Parent Net Profit View To Y394 Billion
Nippon Telegraph & Telephone Corp. said Wednesday it will book a special profit of Y249 billion this fiscal year from the sale of part of its stake in its mobile phone unit NTT DoCoMo Inc., which bought back its own shares. The Japanese telecommunications giant hiked its parent net profit forecast sharply and trimmed its parent pretax profit estimate for the year through March 2006 as a result of the move. NTT said its consolidated earnings projections weren't affected. NTT raised its parent net profit estimate for this fiscal year to Y394.00 billion from Y174.00 billion, but lowered its parent pretax profit outlook to Y174.00 billion from Y177.00 billion. It also cut its parent revenue outlook to Y337 billion from Y340 billion. As a result of the share sale, NTT's stake in the mobile phone company will fall to 61.96% from 63.13% in terms of shares with voting rights, an NTT spokesman said. Separately, NTT DoCoMo announced the results of its tender offer, saying it will buy back 1,561,220 of its own shares of common stock for Y166,000 per share. (Dow Jones, August 24, 2005)

Gearing up for cell phones, Softbank cuts sales costs
Softbank Corp. has suspended most of its sales activities to promote telecommunications services to consumers, shifting its focus from expansion regardless of costs to securing profits. The move comes as the company gears up to enter the cellular phone business next year. It expects to be issued a license by the Ministry of Internal Affairs and Communications to provide cell phone services within the year, and will have to commit massive initial investments to begin such an endeavor. So far, the Softbank group has stopped in large part sales promotion of its Yahoo BB ADSL Internet access service as well as a low-cost fixed-line phone service offered by group company Japan Telecom Co. The Softbank group has cut fixed costs, including those for operating call centers, as well as largely stopping sales promotion activities at train stations and shopping malls. It has cut the number of sales personnel deployed on weekdays by 80% from a year earlier. These efforts helped its ADSL operations lower the cost of signing up customers to 18.6 billion yen in the April-June quarter, down 37% from the previous year. The net increase in the number of subscribers to the group's ADSL service was 43,000 in July, down 40% from the previous year. But the company views this as something of an achievement, considering that the growth of the market has been slowing as it enters a saturation phase. For the low-cost, fixed-line phone service, the group intends to shift its sales focus from individuals to more profitable customers, centering on small businesses. The group plans to hold down initial investments for cell phone services by leasing facilities and equipment at first. But Softbank estimates that it will need to spend several hundred billion yen to subsidize the cost of cell phone handsets so it can offer them at cheaply enough to attract customers. (Nikkei Weekly, August 22, 2005)

KDDI R&D Labs Develops Facial Authentication System For Cell Phones　
KDDI R&D Laboratories Inc., the research arm of KDDI Corp., has developed a prototype of a system that verifies the owner of a cellular phone by analyzing the picture he takes of himself with the phone's built-in camera.　The system is intended to prevent unauthorized access to private information on a person's phone.　With the system, the owner of a cell phone takes a self-portrait with the phone's built-in camera that gets registered in the phone. The phone is then "locked," and the only way to access various functions is to take a picture to prove that it matches the registered one.　Facial authentication is a well-established technology used for security purposes in places like buildings, but it poses unique challenges when used in a phone because the ambient lighting around the user is always different, making the verification difficult to achieve within the practical limits of error.　The system currently has an accuracy level that ranges from 63% to 76%, depending on the way the face is lit when the photo is taken. For practical purposes, the accuracy needs to be boosted to 95%, a level KDDI R&D Laboratories hopes to achieve in one to two years.　(The Nikkei Business Daily, August 19, 2005)

Shakeout Likely Among Phone Makers
Facing the entry of foreign players into the domestic market as well as the erosion of their overseas operations, Japanese cellular phone manufacturers are struggling. Last week, they were shocked to hear that KDDI Corp. will start selling phones made by foreign firms this year for its second-ranked 'au' cellular phone service, as market leader NTT DoCoMo Inc. and No. 3 Vodafone K.K. are already doing. First on its supplier list is the Pentech group of South Korea, the seventh-largest player worldwide. The company is acting on its own rather than in response to trade friction, which in the mid-1990s led to pressure on DoCoMo to purchase handsets from foreign suppliers. Now that the third generation of cellular phones, coming into wider use here, have global standards, foreign companies have lower technical barriers to clear in entering the Japanese market. "If the phones are good and cheap, we don't care who makes them," said a DoCoMo executive. Previously, telecom firms had the manufacturers develop phones for their services, guaranteeing that they would buy them in reliable volumes. "As the domestic cellular market approaches saturation, we can no longer afford to favor Japanese manufacturers," said a telecom firm executive. The end of the honeymoon became evident in February, when DoCoMo started offering free battery replacement to subscribers who had used the same phones for over two years. To the manufacturers, this means a lost opportunity to sell new phones to DoCoMo's subscribers, who numbered 400,000 as of June. In 2004, 43.57 million cellular phones were shipped in Japan, down 10% from the previous year. Domestic manufacturers have sought foreign sales, but generally failed. Industry No. 2 Panasonic Mobile Communications Co. reported an operating loss abroad of 3.4 billion yen for the April-June period, after reporting 8.9 billion yen in red ink for fiscal 2005. Cost cuts are lagging behind falling prices. Industry leader NEC Corp. also reported a loss of about 5 billion yen for the first quarter, continuing a money-losing trend due to price erosion in Europe and a recent boycott of Japanese products in China. Having failed to differentiate its third-generation models, its domestic share is shrinking as well. But smaller operations are doing well. Thanks to its hit-making senior-friendly phones, Fujitsu Ltd. turned a profit on its cellular phone business for the first quarter and hopes to do for the year as a whole. Toshiba Corp. is also confident of making a profit this year, having found success with phones offering built-in television tuners. What the firms have in common is that they concentrated their resources in the domestic market. Toshiba withdrew from money-losing cellular operations in North America and China last year, maintaining only its European business. Fujitsu has no cellular operations overseas. Competition in the domestic market, however, is expected to increase in 2006, when subscribers will be allowed to keep their phone numbers when they change providers. "Service providers are reducing their phone purchases to save up money for improving service," said an industry analyst. "Not all manufacturers will have to supply phones. Technical support will be an alternative," said a source at DoCoMo. (The Nikkei Business Daily, August 16, 2005)