TOKYO-The number of Personal Handy Phone System (PHS) subscribers in Japan has decreased for six straight months since last October. Suffering from a total of 590 billion yen (US$4.42 billion) in accumulated deficit, the PHS industry is being required to take drastic restructuring measures.
Top executives at all three PHS firms expressed concern for the future of their businesses and started tackling the necessary restructuring.
Astel Tokyo, the leading player in Astel Group, the third largest PHS operator, reshuffled most of its board of directors, including the president.
NTT Personal, the second largest PHS group, suffering from a total of 240 billion yen (US$1.8 billion) in cumulative debt, reportedly will be liquidated, and NTT DoCoMo is expected to take over the operation of the PHS business. Both NTT and NTT DoCoMo denied the report. NTT has a 28-percent stake in the NTT Personal group companies, and each NTT DoCoMo firm has a 47-percent to 48-percent stake in each of the NTT Personal companies.
DDI, the parent company of DDI Pocket Group, the largest PHS group, raised 38.4 billion yen (US$288 million) in funds from Kyocera for rescuing DDI Pocket Group companies.
PHS service was launched in July 1995. PHS terminals, which are smaller, lighter, cheaper and better for data transmission than cellular, initially were selling well. The number of PHS subscribers reached 7 million within two and half years. However, the boom seems to have ended. Subscribers have been dropping since last October, and now the 590 billion yen deficit remains in the hands of the three PHS groups.
PHS has lost popularity because cellular phones, which have wider coverage areas and can make and receive calls from moving vehicles, have become similar to PHS. As cellular phones become smaller, lighter and cheaper, the advantages of PHS service have been diluted.
To expand the number of subscribers, PHS carriers have given many “incentives” or kick-backs to retailers. Those retailers have given away PHS service to customers free of charge, or for just 10 yen (about US7 cents), and those subscribers who were given PHS phones without any intention of using the service turned around and canceled their contracts. During that time, PHS carriers also had invested a lot of money for constructing base stations around the nation, leaving huge amounts of deficit for the PHS carriers. Recently, PHS carriers scaled back the incentives. But it was too late.
Another heavy cost for PHS carriers are the fees they have to pay to interconnect with NTT’s Integrated Services Digital Network (ISDN) lines. It is said the three firms are paying a total of 200 billion yen (US$1.5 billion) in interconnection fees to NTT annually.
Astel Group has fallen into the third position, partly because all of the Astel Group firms are like salad balls, consisting of many investing firms. For example, Astel Tokyo has 155 investing firms including Mitsui & Co., Mitsubishi, JT, Tokyo Telecommunication Network, Sumitomo, Nissho Iwai, Japan Tobacco, Recruit, Tokyo Telemessage and KDD. As the old saying goes, “Too many cooks spoil the broth.” The group failed to make a decision quickly and allowed the other two PHS groups to take the lead.
Taking responsibility for the insufficient business achievement, Takeshi Eguchi, founding president of Astel Tokyo, resigned. Ken Kitazono, a former executive of Tokyo Electric Power Co. (TEPCO), replaced him.
A dozen major shareholders jointly guaranteed the deficit of Astel Tokyo and improved the cash position. The result of such reshuffling will be largely dependent on how far TEPCO and TTNet can support the trouble-ridden PHS business.
NTT seemed to have determined it is impossible to recover the accumulated deficit of NTT Personal and decided both NTT and NTT DoCoMo would bear the deficit. Many newspapers and magazines reported NTT Personal would be liquidated and each NTT DoCoMo Group firm would take over operation of the PHS business. Both NTT and NTT DoCoMo have denied such reports.
Nine NTT DoCoMo Group companies altogether will record a special loss of 112 billion yen (US$839 million) for fiscal 1997. NTT DoCoMo (Tokyo) will bear 43 billion yen. The rest of the 69 billion yen deficit will be borne by eight NTT DoCoMo firms, according to the investment ratio. Due to the arrangement, the estimated final profit of NTT DoCoMo (Tokyo) was pushed down from an initial 64 billion yen (US$480 million) to 21 billion yen (US$157 million).
At present, the market is carefully watching how NTT DoCoMo deals with its PHS business. The most realistic scenario is that NTT DoCoMo will pour profits from its cellular business into its PHS business in order to maintain the operation. Other options are to provide dual-mode terminals that can be used for both PHS and cellular or to encourage PHS users to shift to cellular by offering special discounts on the basic monthly charge.
If the PHS firms want to continue to sell their services with the catch phrase of “a handy cordless phone which can be brought out anywhere,” they have to maintain cheap communications charges, nearly as low as a conventional telephone.
As part of its come-back effort, DDI Pocket introduced a new low-priced package with the basic monthly charge of 980 yen (US$7.35), with the number of called telephone numbers is limited to two.
NTT Personal last February marketed a character phone called “Dorae phone” with new location services. The service, “Imadoko (where is now) Service,” provides the location of the Dorae phone holder, mostly children, to their parents by fax. The service is winning popularity.
Data transmission service using PHS’s 32 kbps data function is steadily winning popularity, as well, although the data transmission is only 1 percent of the total usage of PHS right now.
Meanwhile the three PHS firms requested that the Ministry of Posts and Telecommunication (MPT) offer a rescue measure. To meet those requests, MPT at the end of March released some rescue programs for PHS carriers.
MPT decided to relax regulation of maximum strength of signal from base stations, which allows each base station to cover wider areas. In addition, it decided to allow carriers to use microwave for the trunk network instead of expensive ISDN lines. MPT also decided to allow PHS technology for local networks in rural areas where PHS services have not started.
Due to such relaxation, NTT this fall will launch wireless services in Obihiro City, Hokkaido, using PHS technology as a substitute for conventional telephone lines.
