Telecommunications

September 2005

Three Firms Applying For Bandwidth To Launch Cell Phone Service
With IPMobile Inc. set to apply for bandwidth Friday, joining Softbank Corp. and eAccess Ltd., the three firms that have been hoping to launch cellular phone service will officially be in the running. The Ministry of Internal Affairs and Communications will screen the applications and is expected to decide by year-end which firms will be allocated bandwidth. If some or all are approved, it would mark the first new entry into the market in 12 years. "We will grab a 10% market share not through unconventional schemes, but with attractive services," eAccess Chairman and Chief Executive Officer Sachio Senmoto said Thursday when he arrived at the ministry to file his company's application. The firm, which has funds coming its way from Tokyo Broadcasting System Inc. and Goldman Sachs Group Inc., plans to offer various services through partnerships with Internet service providers and others. If the cell phone service market sees new entrants, this will not only spur price competition, but may diversify services and expand related markets. Softbank is believed to be considering combining cell phones with its broadband service to offer integrated service. Meanwhile, IPMobile is planning to develop terminals to be installed in digital home electronics and automobiles, part of a vision to provide a new wireless data communications service. IPMobile and eAccess both intend to lease their cell phone lines to firms in other businesses. This would allow an ISP to market cell phones under its own brand, for example, possibly leading to a sharp increase in the number of mobile communications businesses. The ministry has announced that it intends to allow up to two newcomers for the 1.7GHz band and one new firm for the 2GHz band, so each of the three should be able to receive bandwidth allocations. But it plans to scrutinize their business plans and other factors and consult a panel before deciding which ones will be allocated bandwidth. The ministry said it will look at three points: the ability to expand service areas, technological prowess, and financial strength. "The most important factor is financial soundness," a ministry official said. "We will closely look at details such as capital plans and debt-equity ratios." President Tadashi Onodera of major phone service firm KDDI Corp. points out that there have been cases in the U.S. in which companies have collapsed because of intensified competition. "The ability to continuously provide service in a stable manner is a minimum requirement for a telecommunications firm," he said. Because this is an industry that requires huge infrastructure investments, existing firms feel that this is not a business that newcomers can easily enter. While each of the three prospective newcomers plans capital investment of 150-300 billion yen, the general view among existing firms is that 1 trillion yen is needed if solid service is to be provided across Japan. In addition, the firms will need to pay agents incentives of 30,000 yen to 40,000 yen per handset in order to popularize their services. So each of the three prospective newcomers will doubtless face the issue of how to deal with huge financial burdens. (The Nihon Keizai Shimbun, September 30, 2005)

Goldman to invest 25 billion yen in eAccess' cell phone business
U.S.-based Goldman Sachs Group Inc. will invest some 25 billion yen in eMobile Ltd., the cell phone unit of Japanese broadband services firm eAccess Ltd., the cell phone company said Thursday. Goldman Sachs' investment arm will buy new shares of eMobile to be issued under a third-party share allocation scheme, the company said. It said eAccess aims to enter the cell phone business in the 1.7-gigahertz band, which the government is expected to assign to cell phone operators in the near future. The cell phone company said it plans to launch a high-speed data communications service in metropolitan areas in March 2007. The service will gradually expand with the introduction of voice calls nationwide about a year later. EAccess applied for a license to conduct third-generation mobile phone business Thursday afternoon from the International Affairs and Communications Ministry. Chairman Sachio Senmoto told a news conference that the firm is setting its sights on securing a 10 percent share of the mobile market in five years. For the project, eMobile needs 300 billion yen to set up base stations and other facilities and plans to invest another 100 billion yen for developing handsets and promotional activities, eAccess said. EAccess has already pledged some 30 billion yen to eMobile, while commercial TV station Tokyo Broadcasting System Inc. has promised about 10 billion yen, it said. EAccess said it is discussing with Goldman Sachs other possible means of support by the financial group, including property acquisition for base stations and content supply. (The Japan Times, September 30, 2005)

Willcom To Unveil 4 PHS Handsets With Cell-Phone-Like Features
Willcom Inc., the leading PHS (personal handyphone system) service provider, announced Tuesday that in November it will begin selling four new models of PHS handsets that boast features and a performance on par with cellular phones. The handsets, developed by Kyocera Corp., Sanyo Electric Co. and Japan Radio Co., will come standard with Internet browser software and offer such additional features as fingerprint authentication and an integrated circuit recorder. Willcom also announced a new flat-rate data communications service with a fixed monthly fee of 3,800 yen. With this and the flat-rate voice service introduced in May, subscribers will be able to enjoy unlimited phone calls and Internet connectivity for just 6,700 yen a month. The firm intends to use these new handsets and services to lure users away from their cell phone services. The new standard PHS handset from Kyocera will retail for around 10,000 yen, while the others will range in price from 20,000 yen to 30,000 yen. Willcom currently has 3.36 million subscribers but hopes to raise that number to 4 million this fiscal year. (The Nihon Keizai Shimbun, September 28, 2005)

Vodafone, Japan Telecom Discuss Hybrid Phone Service
Vodafone KK and Japan Telecom Co. have entered into negotiations to jointly offer a service to corporations in which cellular phones can double as cordless handsets for fixed-line phones when users are indoors, The Nihon Keizai Shimbun learned Monday. Vodafone, the local arm of British firm Vodafone Group Plc, is Japan's third-largest cell phone service provider. Japan Telecom, which is under the umbrella of Softbank Corp., is the nation's third-largest fixed-line phone company. Top executives from both sides revealed that the parties have begun talks. They said they have formed specialized teams to handle negotiations and that specifics are being hammered out now. The firms aim to reach an agreement by year-end. Because Vodafone specializes in cell phones and Japan Telecom offers only fixed-line service, each company needed to join forces with another in order to launch integrated service. While Softbank plans to launch cellular service, Japan Telecom decided that it would take some time for Softbank to provide nationwide service even if it obtains a license, and this led it to seek a partnership with Vodafone. When using the new service, a cell phone would make a cordless connection to a fixed-line network when indoors, making possible calls to and from outside as well as intracompany calls. When the user is outside the office, the handset functions as a regular cell phone. This allows the user to be reached directly with a single phone number regardless of location. The new service is also expected to cut telecommunications expenses because it will use less-expensive fixed lines. Because the integration of fixed-line and cellular service is expected to attract customers, such other major telecom firms as the Nippon Telegraph and Telephone Corp. group and KDDI Corp. are scrambling to develop services. And with the Ministry of Internal Affairs and Communications set to unify phone numbers for both types of services as early as fiscal 2007, integrated service may spread quickly. (The Nihon Keizai Shimbun, September 27, 2005)

Record Cell Phone Sales Projected For 2006
Domestic sales of cellular phones are forecast to reach an all-time high of 49 million units in 2006 and then begin declining, according to demand projections released Thursday by market research firm Gartner Japan Ltd. Gartner says it expects replacement demand to be stimulated when a phone number portability system comes into effect next year, enabling users to switch providers while retaining their phone number. As a result, next year is seen as a make-or-break year for mobile phone companies and handset manufacturers. Domestic cell phone sales hit an all-time high of 48.7 million units in 2003 when camera-equipped handsets became popular. Sales fell in 2004 after this run-up in demand and are projected to be flat in 2005. With phone number portability slated to begin as early as fall 2006, carriers are bolstering measures to attract users from competitors. This is projected to push up replacement demand, resulting in 2006 sales surpassing 2003 sales. However, sales in subsequent years are projected to drop, to 45.9 million units in 2007 and 44.2 million units in 2008. NTT DoCoMo Inc and KDDI Corp. are already expanding discount programs with an eye on next year's extraordinary demand. (The Nikkei Business Daily, September 9, 2005)

NEC Co-Develops Technology That Turns Cell Phones Into Scanners
NEC Corp. and the Nara Institute of Science and Technology have developed technology that enables cellular phones with small cameras to be used as high-precision scanners. The technology reads text and images when a camera-equipped cell phone traces the pages of a book or other document. It detects the curvature of the page, automatically correcting any distortion that arises as a result. This allows such areas as printing near the binding to be scanned clearly. When scanning an A4-size book using a camera with 1 million pixels, tracing the page in 3-5 seconds at a distance of around 15cm produces 21-35 still images. These can then be transmitted to the user's home or office using the existing communications network and without requiring a fax machine. NEC and NAIST aim to commercialize the technology in three years. Countermeasures, such as having the phone beep while scanning, are planned to prevent illegal uses such as copying books in bookstores. (The Nikkei Business Daily, September 8, 2005)

KDDI System Uses Broadcast, Wireless Bands To Deliver Data
KDDI R&D Laboratories Inc. has developed a system that combines wireless communications with television broadcasting to efficiently deliver data to large numbers of mobile terminals. The system uses radio waves from TV broadcast stations to transmit information to multiple terminals, then falls back on the bandwidth normally used for cellular phones to deliver any data that fails to reach the terminals. This setup is designed to get around the network clogs that occur when multiple terminals try to access the same Internet site at the same time. KDDI R&D, the research arm of KDDI Corp., has already prototyped a car navigation system that receives information this way. While a vehicle is in use, the navigation system constantly receives map information on the surrounding area through a TV broadcast signal. Whenever the data is not completely received and parts of the map cannot be displayed, the bandwidth used for 3G (third-generation) wireless services is tapped to obtain the missing data. KDDI R&D plans to conduct field trials with multiple users in a city to verify the technology. It hopes to have a practical system ready in three to four years that can be used to deliver map data and emergency information to car navigation systems. (The Nikkei Business Daily, September 6, 2005)

Government To Sell 1.12 Million NTT Shares To Complete Privatization
The Ministry of Finance announced Monday that it will sell 1.12 million shares of Nippon Telegraph and Telephone Corp. to complete the privatization of the telecommunications giant, concluding 20 years of sales of government-owned NTT stock. The government will sell the shares directly to the firm on Tuesday at Monday's market closing price of 483,000 yen apiece. With this final sale expected to put 542.4 billion yen into the government's coffers, its total revenue from the sale of its NTT shares will reach roughly 14.5 trillion yen. In 1985, the government turned the Nippon Telegraph and Telephone Public Corp. into the private NTT to end the public entity's monopoly. The government began selling its NTT shares in 1986. In fiscal 1987, NTT share sales generated 4.9 trillion yen on the back of strong buying by individual investors. Under the current law governing NTT's privatization, the government must hold at least one-third of issued NTT shares. The sale announced Monday will lower the government's stake to 33.7%. (The Nihon Keizai Shimbun, September 6, 2005)

Softbank To Apply For Mobile Phone Service Today
Softbank Corp. will on Monday apply for government approval of its planned entry into the mobile telephony business, The Nihon Keizai Shimbun has learned. The move will make Softbank the first company to apply for a license since the Telecommunications Ministry announced it would allow two newcomers into the mobile phone market, the first such step in 12 years, by freeing-up 1.7GHz of radio bandwidth. Eaccess Ltd., an ADSL broadband service company, is also expected to apply for the service. The ministry will accept applications until the end of September and announce the successful candidates by the end of this year. Softbank aims to begin offering data communications services in selected areas in autumn 2006 and start mobile telephony services in 2007, aiming to win a total of 10 million subscribers early on. The company plans to employ handsets compatible with both the third-generation cellular phone service and local area networking so as to offer subscribers a high-speed communications environment enabling them to download images and music. In its application, Softbank will specify how it intends to raise the necessary funds, as the ministry requires applicants to show that they will be able to maintain stable operations. The company's plans will likely call for raising capital by issuing bonds and other means. Softbank will also submit a plan to build 15,000 to 20,000 base stations nationwide. In an effort to limit the initial costs to 400-500 billion yen, the Internet company will procure its communications equipment through leasing deals. (The Nihon Keizai Shimbun, September 5, 2005)

KDDI To Roll Out Cell-Phone-Based Car Navigation Service
KDDI Corp. announced Thursday that it will start offering a cellular-phone-based car navigation service on Sept. 8. The service will work with handsets capable of obtaining information on current locations. It will display a map on the screen and offer voice guidance from the phone's speaker. Once the destination is input, the service will display the relevant navigation map and provide voice cues to alert the user to upcoming turns. It even incorporates the latest traffic reports and selects the fastest likely routes. The service also provides information on car parks near the destination and gives the user directions from the parking lot. Subscribing to the industry's first cell-phone-based car navigation service will cost 315 yen a month, or 157 yen for one day. Fourteen current handset models will be compatible with the offering. KDDI believes the service will be a hit because only around 20% of all cars are equipped with navigation systems because of their high prices. The company will market the service for use by passengers because drivers are legally proscribed from using cell phones. The new endeavor is the latest addition to the growing array of services offered to cell phone users. A number of handsets now double as digital cameras, PDAs (personal digital assistants), video game consoles, music players and television viewers. In addition, some are equipped with electronic wallet, credit card and commuter pass functions. KDDI leads rivals in the area of music download services for cell phones. Its Chaku Uta Full service sells close to 3 million songs a month. (The Nihon Keizai Shimbun, September 2, 2005)

Broadband Users Top 20 Million In Japan
The number of subscribers to broadband Internet access services has broken above the 20 million mark for the first time in Japan, the Ministry of Internal Affairs and Communications reported Wednesday. As of June 30, the figure stood at 20.57 million people, up some 4 million from a year earlier. Subscribers to DSL rose 16% to 14.08 million. Fiber-optic services saw subscribership nearly double to 3.41 million people, thanks to price cuts stemming from intense competition. Access via cable television networks had 3.06 million users, up 14%, while wireless subscribers declined 20% to 20,000. By market share, fiber gained 6 percentage points to reach 16.6%, overtaking cable's 14.9%. DSL remained on top at 68.5%, despite losing 4.7 percentage points. (The Nihon Keizai Shimbun, September 1, 2005)