Japan DDI Considers U-Turn On 3G
Mobile Phone Standard
By IAN MESSER
TOKYO -- In a development that could have major implications for the
global telecommunications industry, DDI Corp. (J.DDD or 9433) appears
to be preparing to make a 180-degree shift on the issue of which standard
to use for third-generation (3G) cell phone technology.
Until now, the Japanese company has said it would go with a technology
called code division multiple access 2000, or CDMA2000, a system
developed by Qualcomm Inc. (QCOM) of the U.S.
However, the Wednesday morning edition of the Nihon Keizai Shimbun,
Japan's largest business daily, reported that DDI has now decided to use a
rival format called wide-band CDMA, or W-CDMA.
A DDI spokesman denied that the company has decided which format to
use and said only that the company would announce a decision sometime
before May 10, the deadline for applications for third-generation licenses.
However, a senior DDI executive confirmed that the company is now
considering both formats.
The W-CDMA and CDMA2000 formats are based on the same
technology, but the W-CDMA 3G standard can be used with base stations
and other infrastructure already in place in Europe.
At stake in the battle of standards is a huge global market that is expected
to grow bigger with the launch of 3G cell phone technology which enables
users to send and receive moving color images through their mobile phone
handsets. Essentially, users will be able to carry the Internet around in their
pockets wherever they go.
DDI operates one of Japan's largest mobile phone networks. The nation's
other two major operators, NTT Mobile Communications Network Inc.
(J.NTX or 9437) - also known as NTT DoCoMo - and Japan Telecom
Co. (J.JTC or 9434), have already said that they will adopt the W-CDMA
format championed by European carriers.
NTT DoCoMo's plans for the world's first commercial rollout of 3G
services in the spring of 2001 have made the Japanese market a key testing
ground for this technology. While some European countries are only a year
or so behind Japan, North America isn't expected to debut 3G cellular
phones for another five years or so.
Makio Inui, senior telecommunications analyst at Nikko Salomon Smith
Barney in Tokyo, said he was flabbergasted by the Nihon Keizai Shimbun
report.
Inui noted that DDI has already invested about Y1.0 trillion in introducing
CDMAOne services which are closely compatible with Qualcomm's
CDMA2000 format. If DDI were to pick the rival W-CDMA format at
this stage the company would have to rebuild its entire infrastructure, he
said. One of the principal attractions of DDI for investors was that the
company would be able to launch third-generation services with a
comparatively small incremental investment, thanks to the introduction of
CDMAOne services, added Inui.
Investors reacted calmly to the report, as DDI shares benefited from the
general move to buy back telecommunications shares that have been
battered recently. DDI's share price ended Wednesday's session Y46,000,
or 5.2%, higher at Y926,000. Those gains paled compared with the
performance of shares in arch-rival NTT DoCoMo, which jumped
Y360,000, or 9.25%, to Y4.25 million on the report.
Some analysts were sanguine about DDI's possible change of heart.
Shinji Moriyuki, an analyst at Daiwa Research Institute, noted that DDI has
been hinting that it was considering both standards since last autumn. He
also pointed out that DDI may choose a newer version of the W-CDMA
format that could cut startup costs.
Hironobu Sawake, telecommunications analyst at ING Baring Securities,
said that using Qualcomm's high data rate (HDR) technology for mobile
data transmissions in combination with DDI's current CDMAOne
technology for voice services may be the best and most cost-efficient
choice for DDI in the long-term. However, this would depend on HDR
being added as one of the global standards for third-generation technology,
Sawake said.
-by Ian Messer (813-5255-2929;ian.messer@dowjones.com)
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