NTT DoCoMo Considering Pulling Out Of PHS Operations - Source

TOKYO -(Dow Jones)- NTT DoCoMo Inc. (9437.TO) is considering withdrawing from its unprofitable personal handyphone system business, a source familiar with the matter said Thursday.

Japan's biggest mobile phone company in terms of subscribers hasn't yet made a final decision on the matter, the source said.

The Nihon Keizai Shimbun reported in its Thursday morning edition that NTT DoCoMo plans to stop accepting new customers for the PHS service as early as April and withdraw from the business altogether in two to three years.

NTT DoCoMo said Thursday that it has not made any decision on the matter.

The possible withdrawal comes after rival KDDI Corp. (9433.TO) sold a large potion of its holdings in its PHS business last October to Carlyle Group L.P. (CAY.XX) and Kyocera Corp. (6971.TO) to focus on the conventional code-division multiple access mobile standard, or CDMA, as well as its broadband optical-fiber network.

The PHS service is generally known for its high voice quality, low service charges and high data transmission speeds. But the number of PHS subscribers in Japan started to decline once cell phone call rates fell and high-speed third generation phones began to hit the market.

The PHS business is also more difficult to run profitably than other wireless phone services partly as the service area covered by each PHS base station is much smaller than systems for second and third generation mobile phone services. A large investment is needed to offer a wide enough service area to compete with 2G and 3G services.

Such tough business conditions have kept price competition high in the PHS business overall.

NTT DoCoMo, known for its "i-mode" mobile Internet service, took over the PHS operations of group company NTT Personal Communications Network in December 1998 as the group company had been struggling to turn a profit.

Since the launch of the service in June 1995, DoCoMo's PHS business, Japan's second largest by number of subscribers, has never been profitable, the source said.

The number of subscribers to DoCoMo PHS services had fallen to 1.37 million as of the end of January from a peak of 2.12 million in September 1997.

DoCoMo's PHS business posted a group operating loss of Y17 billion in the nine months ended December.

If DoCoMo decides to quit its PHS business, that would leave Willcom Inc., the former KDDI PHS subsidiary, as the sole major PHS company in Japan.

The impact of the possible withdrawal will likely be relatively minor in the near term, an analyst at Deutsche Securities said, as estimated reductions in operating and depreciation costs will likely be limited compared to DoCoMo's overall operating profit.

-By Yoshio Takahashi, Dow Jones Newswires; 813-5255-2929; yoshio.takahashi@dowjones.com

-Edited by Kirsty Mackenzie and Bennett Richardson

(END) Dow Jones Newswires"

Posted to the site on 17th February 2005