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Japanese Telcos Differ About Prospects for 2002/3

Japanese Telcos Differ About Prospects for 2002/3

It was another lively month here in Tokyo. First KDDI, Japan's second largest telecoms group, forecast that group net profits would more than triple to $384 million thanks to restructuring and a boost from its 3G mobile phone service.

We've finally returned to the cost levels seen before our merger," said KDDI president Tadashi Onodera, referring to how KDDI was formed by the merger of KDD, IDO, and DDI at the end of 2000. The uptake of its 3G service, which it launched in April, has been strong, with 334,000 subscribers signing up in its first month - more than three times as many as NTT DoCoMo has signed up to its 3G service in more than 7 months.

KDDI's 3G service, which uses the CDMA 1x standard developed by QUALCOMM, also helped it to regain the number 2 spot, which it had lost to J-Phone, albeit by a small margin. (J-Phone, which is controlled by Vodafone, had overtaken KDDI's mobile arm in March on the popularity of its camera phones.) Onodera, who has vowed to make KDDI the leading 3G operator, said the new service was helping the company win subscribers over from other operators, with 43% of subscribers comprising new users. He expects the company to have 7 million 3G users by the end of next March.

Onodera attributed the popularity of KDDI's 3G service to the enhanced functionality - with 70% of subscribers opting for a phone with a global positioning navigation system - and low price. KDDI's 3G phones are only marginally more expensive than 2.5G models.

W-CDMA Glitches Will Take Time to Eliminate
In contrast to this success story, one of Japan's leading mobile phone makers, Matsushita Communication Industrial, announced that difficulties in developing handsets and the high cost of network-building are set to delay the takeoff of third-generation mobile phone services in Japan until at least the middle of next year.

This more cautious stance on 3G by the second-largest mobile handset maker in Japan highlights the technical difficulties that have plagued Japanese 3G services, which use the W-CDMA standard.

Matsushita and NEC, Japan's leading mobile phone maker, will both launch new 3G handsets this fall, with more than double the battery life of current handsets. But Yasuo Katsura, president of Matsushita Communication Industrial, believes it will take until the third generation of handsets for glitches to be ironed out and demand to pick up.

By comparison DoCoMo, which failed to achieve a targeted 150,000 subscribers for FOMA by the end of March, is forecasting 1.29 million subscribers by the end of next March. Much will depend on technical advances and DoCoMo's willingness to increase the already substantially hefty subsidies for the handsets and expand the area coverage.

Matsushita's Katsura also warned that the difficulty of developing handsets could delay the early launch of 3G in Europe, where Hutchison 3G UK and others are planning to start commercial services later this year. "Will [Hutchison] really be able to meet commercial needs this autumn?" he asked.

NEC, which is supplying the network to Hutchison 3G through a joint venture with Siemens, and is one of the handset suppliers as well, says it is on track to supply one million 3G handsets to Hutchison for services in seven countries in Europe.

Japan Telecom Bullish on 2002 Profits
Japan Telecom, the Japanese subsidiary of Vodafone, said in May that it expects to more than double ordinary profit before taxes this year with the help of higher mobile phone revenues and substantial cost cuts.

The group, which is Japan's third largest telecoms operator, expects operating profits to surge to $1.47 billion - a bullish forecast at a time when Japan's telecoms sector has been struggling in the face of severe price competition and a slowdown in the mobile phone market. The forecast highlights the benefits of restructuring and tight cost controls introduced by Vodafone.

JT expects another strong performance this year from J-Phone, its mobile phone subsidiary, which has seen huge demand for its Sha-Mail and Movie Sha-Mail photo and video mail service, which helped J-Phone to take 30% of net subscriber additions in the second half and increase its subscriber base by 2.25 million to 12.23 million.

J-Phone president Darryl Green gave an upbeat forecast for the mobile phone business, saying the Japanese market had more room for growth. "The era of high growth is over, but (the market) is not saturated yet. The only market that is saturated is Tokyo. If you look nationwide there is still room for growth," he said. Green also highlighted J-Phone's commitment to 3G, saying that, despite the six-month delay to the rollout and a reduction in capital spending, he was confident that J-Phone could build a 3G network equivalent to its existing 2G network by August of next year.

Green's optimism came in contrast to the more sober outlook of NTT DoCoMo president Keiji Tachikawa, who unveiled his company's plans to start its own digital photo mail service, called i-shot, in June.

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