The personal handyphone system market in Japan is ready for improvement, but analysts say it will take big commitments from carriers and differentiated marketing to jump-start demand.
PHS subscriber numbers steadily have fallen for more than a year as the country’s operators pushed the limited-mobility service as a cellular look-alike and offered heavily subsidized handsets. Customers discovered their service lacked coverage and quality and the practice of subsidizing resulted in low-use customers who canceled the service easily.
Japanese reports indicate Motorola Inc. has bowed out of the Japanese PHS market, citing shrinking unit sales. The company no longer will be the original equipment manufacturer for NTT Personal Communications, but will continue to develop more advanced PHS equipment capable of high-speed data transmission, said news reports.
Most of the country’s PHS operators still are losing money on the service. DDI Pocket Group, which claims more than 50 percent of the PHS market, is faring the best, declaring itself profitable within the first half of fiscal 1998.
Astel Tokyo, Japan’s third-largest operator, reported accumulated losses at the end of March of more than $720 million, and aggregate losses for the 10 Astel operators exceeded $1.5 billion. The company in May trimmed its work force, reduced sales promotion expenditures and reshuffled its board of directors in hopes of reducing its losses. Astel unsuccessfully solicited its shareholders for a bailout scheme that called for them to issue additional loans of up to $420 million and guarantee the carrier’s obligations until the end of September.
Other reports indicate the company plans to merge with TTNet, a regional telecommunications service company and a subsidiary of Tepco, a major shareholder of Astel. But research firm the Yankee Group believes Astel Tokyo would make an unattractive partner because the company is mounting up debt, has no clear market strategy and subscriber numbers have dropped.
“Nothwithstanding, some form of consolidation-a merger or a complete shut down-will be required relatively soon,” said the Yankee Group.
By December, NTT Personal’s PHS business will be transferred to NTT DoCoMo, the largest cellular operator in Japan. NTT DoCoMo’s group companies took a nonrecurring charge this fiscal year of about $852.7 million for losses associated with NTT Personal. The liquidation will be an expensive one, due to the company’s estimated total accumulated loss of $2.12 billion born by shareholders, said the Yankee Group.
Analysts say the comeback effort for PHS service will be a hard road. In general, the public has perceived PHS service as a cheaper form of cellular service, but the price advantage no longer is as compelling. Cellular operators have matched prices and many are offering bucket-minute pricing.
Dave Nowicki, director of ArrayComm Inc.’s Japanese and PHS division and chairman of the executive steering committee with the PHS MoU Group, doesn’t see PHS service’s problem as a PHS service vs. cellular service struggle.
“There are eight or nine companies competing against each other. Half are profitable and half are not,” he said. “Each operator is trying to find its niche in telecommunications … This is not out of the ordinary with operators around the world. With new business ideas and products, next year is poised to be a year of new growth for PHS.”
George Hoffman, analyst with the Yankee Group in Tokyo, believes PHS carriers must market the service as complementary to specific applications, such as indoor wireless private branch exchanges, wireless local area networks, telemetering and Internet access, which will utilize the service’s high data speeds. The Japanese government also has lifted some restrictions, allowing for stronger signals to be transmitted from base stations and an increase in coverage in suburbs and inside buildings.
Nowicki said PHS carriers already are finding their niches. DDI Pocket, which doesn’t operate a wireline network, is using the service for wireless local loop applications.
“More than 50 percent of traffic is coming from indoors,” said Nowicki.
“DDI wants to improve indoor penetration and go into rural and suburban areas.”
In contrast, DoCoMo plans to introduce high-speed mobile data applications next year with PHS service, said Hoffman. The carrier also plans to combine PHS and cellular technologies into one handset, which will allow it to offer low-cost calling where PHS coverage is good along with the high-speed data services cellular networks cannot offer.
Astel is focusing on the business customer, having recently introduced a handset capable of making high-speed mobile PHS phone calls.
Introducing pricing plans attractive to certain market segments also should help boost the PHS market, say analysts. DDI Pocket earlier this year introduced a low-priced service package, with a basic monthly charge of $7.35, that allows customers to call only two preregistered numbers. The plan has taken hold with families, said Hoffman. Parents used to give their children a pager, but now give them a preregistered PHS handset.
Though the number of PHS subscribers is falling, companies’ average revenue per user is rising from increased traffic on PHS networks, said Nowicki and Hoffman.
“Two years ago, the average PHS user was making two calls per day and today is making more than five calls per day. Subscribers are making longer calls and learning new ways to use their phone,” said Nowicki.
