Willcom heading to legal procedure and Japan's spectrum policy is questioned

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Nikkei reports that Willcom, Japan's No. 4 mobile carrier after NTT DoCoMo, au and Softbank, is going into a legal procedure similar to Chapter 11.  (Not exactly Chapter 11, as it is handled outside of the court, but still there will be a legal outside supervisor for their restructure.)

Willcom provides PHS (Personal Handiphone Service) system, which utilizes "half-duplex" type air interface and is used only in Japan and China.  It was originally conceived as an extension of cordless phone and as cheaper alternative to full cellular phones, but as cellular phone system got bigger and took on the economy of scale, the system lost the advantage.  A long, long time ago, it was.  And as the digital cellular system has been converged to 2 systems (GSM and CDMA, and eventually to one, LTE, in near future), PHS has become just another local, proprietary, limited technology.

But they survived.  When their price advantage in voice disappeared, they pushed the high-speed wireless data service.  It caught on to a niche but stable group of high-end data users.

That was a fine survival strategy for a niche player.  But the things got a strange turn when the government made 2.5GHz spectrum available in 2007.  Two licenses was made available, and Willcom got one of them in the "beauty contest" with its plan of "Next Generation PHS", XGP.  (The other was taken by UQ communications, KDDI-backed WiMAX carrier.)

There was another group backed by NTT, much more financially solid player, applied for the license, but Willcom was chosen.  The unwritten reason was rumored to be that their "PHS-XGP" technology was "made in Japan" and that the government wanted to push the in-house technology globally.

But looking at the situation from non-partial point of view, there was absolutely NO possibility that XGP would become the global standard at that time.  None.  Zilch.  Even the people at Willcom was not believing in it.  I think it was just a totally political decision.

So Willcom was burdened to deploy XGP by the government (the planned investment is estimated as 140 billion yen) even though they have 130 billion yen debt and their PHS subscriber is in steady decline.  Now Willcom is short of money, but nobody wants to put more capital under the current economy.

In a way, I believe that Willcom itself is the victim of the unrealistic government expectation.

Now, there is a debate that Japan should introduce spectrum auction system.  Opposition says that auction system may give the license to unqualified parties just because of the sum of money.  But as in this case, the government officials actually gave the license to an unqualified party for a non-business reason.  In Japan's telecom industry, spectrum policy will be a tough issue for the new Hatoyama government.