Japan's DDI prepares to enter cellphone war
By Yvonne Chang
TOKYO, May 12 (Reuters) - Japan's long-distance telephone carrier DDI Corp is poised to enter the battle for the country's competitive cellphone market with an expected launch on Friday of a new format for third-generation mobile phones.
DDI is expected to announce at a 3 p.m. (0600 GMT) press briefing a new format for third-generation mobile phones, which experts widely believe will be cdma2000, a format promoted by U.S. wireless telephone giant Qualcomm Inc (NasdaqNM:QCOM - news).
The cdma2000 format would cut DDI's costs by fitting in with existing infrastructure used by DDI's current cdmaOne mobile phones, also developed by Qualcomm.
DDI's main competitors, NTT Docomo and Japan Telecom's cellular phone arm J-Phone, plan to use the W-CDMA (Wideband Code Division Multiple Access) format, promoted by Docomo and supported by European carriers.
``The difference in format does not affect users in terms of product performance, so the question is how to keep investment costs low,'' said Yasumasa Goda, analyst at Merrill Lynch.
With cdma2000, analysts estimate DDI may only have to spend about 100 billion yen ($923 million) in fresh investment, or one-tenth of an estimated one trillion yen it would have had to cough up if it chose to use W-CDMA.
SLOW START WON'T PUT DDI AT DISADVANTAGE
There is no question that W-CDMA will be a de facto industry standard in Japan for the next few years given Docomo's absolute dominance in the local cell phone market and its aggressive moves to promote the format globally, analysts said.
DDI plans to launch the third-generation cellphones by 2002 while rival Docomo, with a local market share of 60 percent, plans one in May 2001. J-Phone plans a launch in fall of 2001.
But by using less expensive technology, DDI will have a better chance to compete with the telecom giant, given the short life-span of a high-tech products in the fast-moving telecoms industry, they said.
``The companies will have to come up with even faster mobile phones with larger capacity in the next five years. I think it's wise for DDI to keep costs low for the third generation phones and seek to counter Docomo and J-Phone with the next version,'' said Toshiaki Iba, analyst at Tokyo Mitsubishi Securities.
``The market demand for third-generation phones is still unclear, and there is no need for DDI to rush,'' Goda added.
DDI shares ended Friday morning trade up 10.89 percent at 1.12 million yen amid a broad-based rally of Tokyo stocks following a rebound in U.S. shares overnight.
MERGER TO HELP DDI
Analysts expect DDI, squeezed by slack sales of its cellular phone business in the previous year, to enjoy robust growth this year as mobile phone services turnaround ahead of a three-way merger.
DDI agreed to merge from October with KDD Corp , Japan's former international phone service monopoly and unlisted IDO Corp, a cell phone unit of Toyota Motor Corp , making it the nation's second largest telecom carrier after Nippon Telegraph and Telephone Corp (NTT) .
Analysts said the merger will complement the three companies' weaknesses, giving DDI fibre optic cable assets, Internet technology and a solid corporate customer base from KDD, as well as financial support from Toyota.
DDI is expected to post 102.6 billion yen in group operating profit in the year started on April 1, a four-fold increase from an estimated 23 billion for the year just ended, according to First Call/Thomson Financial's consensus estimate of 13 analysts.
DDI AND PARTNER TO CLEAN BOOKS BEFORE MERGER
For the business year just ended, analysts expect DDI to mark its first move into the red in three years on a net basis as it moves to clean itself up before the merger.
DDI predicted a net loss of 15 billion yen due to slack sales of its cellphone services and 10 billion yen in special losses incurred by its withdrawal from Iridium's satellite phone business.
DDI said it will also book a 26 billion yen loss from dismantling facilities for analogue cellular phone services.
Its partner KDD is also moving to clean itself up, and is expected to post special losses of around 56 billion yen from the disposing of communications equipment and to cover a shortfall in pension reserves.
DDI will announce its earnings results for 1999/00 on Monday.
DDI's other rival Japan Telecom is meanwhile expected to enjoy steady growth this business year with analysts citing the strength of its mobile phone arm J-Phone contributing to the group's profit.
Japan Telecom, which is 30 percent owned by British Telecom Co (quote from Yahoo! UK & Ireland: BT.L) and AT&T Corp (NYSE:T - news), expects a group net profit of 15 billion yen for 1999/00. The company will announce its earnings for 1999/00 next Thursday.
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