Japan's Personal Handyphone Systems

[Dave Farber <farber () central cis upenn edu>]

Date: 05/31/95 [MM/DD/YY]
REPORT:  ATIP95.26  :  Title: Japan's Personal Handyphone Systems


By Simon Mansfield, Technology Analyst
ATIP Tokyo [simon () atip or jp]




ABSTRACT: From early July, Nippon Telegraph and Telephone Corp, Japan's
leading telecommunication carrier, will launch the first low-cost, mobile
telephone system in Japan using the Personal Handy Phone System (PHS).
PHS builds upon similar low cost mobile systems such as the United Kingdom's
CT-2 system to bring about a highly reliable, low-cost cordless telephone
system that is fully digitized throughout its operation.


======================Start Report ATIP95.26=========================


JAPAN'S PERSONAL HANDY PHONE SYSTEM


CONTENTS


1.0 PHS General Overview Report
1.1 Introduction
1.2 History and Technology overview
1.3 The Main Players
1.4 NTT Personal
1.5 DDI Pocket
1.6 Astel group
1.7 Call and Terminal Charges
1.8 Conclusion


2.0 Future of PHS Services
2.1 NTT Conducts Personal Multimedia Communications (PMC) Experiments
2.2 Services Being Conducted
2.3 Terminal-Type PMC Services
2.4 Network-Type PMC Services
2.5 Terms


3.0 NTT Corp in the Late Nineties


================================
1.0 PHS GENERAL OVERVIEW REPORT


> From early July, Nippon Telegraph and Telephone Corp, Japan's leading
telecommunication carrier, will launch the first low-cost, mobile telephone
system in Japan using the Personal Handy Phone System (PHS).


PHS builds upon similar low cost mobile systems such as the United Kingdom's
CT-2 system to bring about a highly reliable, low-cost cordless telephone
system that is fully digitized throughout its operation.


1.1 INTRODUCTION:


The Personal Handyphone System (PHS) concept has attracted great interest
within Japan and elsewhere in Asia, as an easily installed mobile
communication system that builds upon the existing land line network, while
enabling a subscriber base measuring in the tens of millions.


Almost every Japanese electronics maker is hoping to carve out a substantial
hardware business supplying devices, and subs systems, along with terminals
to other PHS hardware makers, network providers and the general public.


The Ministry of Posts and Telecommunications of Japan (MPT) has directed
service providers to aim for the lowest possible price possible for both
terminals and connect charges with the aim of achieving wide spread market
penetration in the shortest time frame possible.


In tandem with the development of voice services, NTT Labs and other
research groups within the government and private sectors are developing a
range of added value PHS services that will enable users to access - at low
cost - to on line network services including the Internet via a PHS terminal
connected to their notebook or personal digital assistant.


At the launch of services, NTT will be able to provide data connections
between terminals and on-line networks at speeds of 2400 baud - enough to
support basic email and fax services, while by early 1995, NTT is hoping
that high-speed access at speeds above 19.2Kbps will enable people to surf
the net using their favorite web browser.


the only significant draw back of PHS technology is that the system can be
used when moving faster than 10 kilometers an hour. However, as the system
is designed for both outdoor and indoor use, users will be able to make and
receive calls while inside underground shopping centers and other facilities
that often cause interference to cellular phones. Furthermore, as the system
makes use of land lines for switching calls between different cell areas the
quality of transmissions is extremely high with little indication that one
is using a cordless phone.


1.2 HISTORY AND TECHNOLOGY OVERVIEW OF PHS:


The Personal Handy Phone System is a two way digital cordless telephone
system that makes use of the existing public network to bring about
substantial reductions in call charges.


The development concept was initiated by the MPT in 1990, when the Ministry
directed relevant administrative and research bodies to research and develop
a low cost cordless terminal system using a fully digitized environment.


In 1992, the Communications Research Laboratory, issued its first report
recommending that Japan build upon several existing technologies, while
making various improvements to bring about a new standard for cordless
digital telecommunications. At the time this concept was called Personal
Handy Phone.


Over a two year period, NTT and a large number of other organizations
participated in a series of field trials in Sapparo (northern Japan) and
central Tokyo. At the conclusion of these trials a final standard was
formulated enabling full scale planning to begin by the various companies
planning to participate in the PHS concept.


During 1994, the MPT began discussion with the various companies looking to
operate as PHS service providers, with the aim of bringing about some
consolidation of the different players. Although the MPT was anxious to
ensure that competition was healthy, it was also concerned that if there two
many competing companies only the richest players (ie NTT) would survive any
ensuing price wars.


As a result the provision of PHS services in Japan will be managed by three
main consortiums that will provide services via regional operating
subsidiaries in all major cities across Japan.


1.3 THE MAIN PLAYERS:


The three consortiums that will offer PHS services in Japan are; NTT
Personal, DDI Pocket and the Astel group.


1.4 NTT PERSONAL


NTT Personal is led by NTT Corporation, with a 28% direct share by the
parent company, and another 48% share through NTT Corp's 95%-owned
subsidiary, NTT Mobile Communication Network Inc., giving NTT a total
controlling interest of 76%. Other major stake holders include: trading
houses Itochu Corp and Marubeni Corp, and Cable & Wireless PLC. With
additional small holdings held by various national and regional banks.


Under the NTT umbrella there will be nine regional PHS operating companies
covering most of Japan. However, at this stage NTT Central, covering the
Tokyo region is the most advanced in terms of setting up infrastructure and
is reported to be on track to launch services from early July.


According to the current roll out schedule, NTT Central Personal
Communications Network Inc will have 30,000 base stations installed
throughout central Tokyo when services start in July.


By mid 1996, the various NTT PHS operating companies plan to provide
coverage to 70 cities, and 120 cities within five years across Japan. A
total of 60,000 base stations will be installed during fiscal 1995, reaching
a total of 95,000 within five years.


1.5 DDI POCKET


DDI Pocket, is led by DDI Corp, a highly successful new common carrier
active in the cellular mobile phone market and long distance trunk routes
using microwave transmitters. At this stage DDI Corp is the only major
investor in DDI Pocket, but the company is currently in discussion with
trading houses Nichimen Corp and Tomen Corp to take up a stake in DDI Pocket.


According to a DDI Pocket official, the company is planning to launch PHS
services in Tokyo and Sapparo (northern Japan) from July 1st, with at least
7,000 base stations installed by this time. Services for other areas of
Japan will start progressively from October.


Unlike the other two PHS providers, DDI Pocket will use a more powerful base
station with a range of 500 meters, compared to 200 meters for the standard
base stations being used by NTT Personal and the Astel group.


1.6 ASTEL GROUP


The Astel group is led by Japan Rail, KDD Corp - Japan's leading
international carrier, and a corresponding electrical utility in each region
of operation. Initially, Astel will operate with two subsidiaries Astel
Kansai and Astel Tokyo.


Astel Kansai, led by Kansai Electric Power Co, and covering the Osaka, Kyoto
and Kobe areas, reported it will install 15,000 base stations during fiscal
1995(end Mar'96), with at least 5,000 base stations installed by October
when services will start in Osaka. Total capital investment for fiscal 1995
is projected at 12 billion yen and 20 billion yen over three years.


Astel Tokyo, which brings together the Daiei supermarket chain, Recruit
Cosmos Co Ltd, Mitsubishi Corp, Mitsui & Co and Japan Telecom plans to
install 10,000 base stations by October 1995 when operations will start in
the central Tokyo area.


By March 1997, Astel Tokyo aims to have 60,000 stations installed enabling
high capacity coverage for the Tokyo region's 40 million inhabitants. Yearly
capital investment is projected to run at more 25 billion yen for the next
three years.


1.7 HARDWARE AND CALL CHARGES


The two big issues affecting the success of the PHS concept are terminal
costs and call charges. As mentioned, the MPT and the various PHS providers
know that unless handsets and call charges are cheap the growth of
subscribers will be slow, leading to a substantial delay for the various
consortiums to recoup their initial investment costs.


Generally speaking, the profit potential for terminal sales is only
significant in the short term as can be seen by the very low cost of
cellular phones in the US today (and increasingly in Japan), with companies
selling handsets at heavily discounted prices in order to gain customers for
the different cellular network providers.


According to a source at one company planning to sell PHS handsets, prices
will fall very quickly to around the 10,000-20,000 yen range, with the
possibility that at different times handsets could be virtually given away
free as the three consortiums outbid each other in a frenzy to sign up
subscribers. As such, the main benefices from a hardware perspective will be
companies supplying components, base stations and other substantial
supporting infrastructure equipment.


According to a report issued by Union Bank of Switzerland's Tokyo securities
office, big winners among component suppliers for PHS terminal equipment
include Murata Manufacturing Co, Toko Inc and Kinseki Ltd.


Major suppliers of base stations and other large system equipment include:
Fujitsu Ltd, Yokogawa Hewlett-Packard Inc, Nitsuko Corp, Kyushu Matsushita
Electric Co and Nippondenso Co.


For call charges, the MPT issued guidelines in early 1995, advising that PHS
call charges for local calls for three minutes should be within a 30-60 yen
range. The PHS consortiums responded that they were aiming for a fee of
around 40-50 yen per three minute local call.


During a recent press briefing by NTT, it was suggested that the initial
charge would be 40 yen per three minute call, with the other consortiums
expected to follow up with similar charges. This fee compares very favorably
with the average charge for cellular phones in Japan of around 150 yen per
three minute local call, and 30 yen per three minutes for local calls made
from NTT's public telephones.


For PHS providers that are not affiliated with NTT, a major issue has been
the tariffs NTT will charge for interconnecting PHS calls through NTT Corp's
local land line networks.


Although NTT refused to answer a question directly on this point, ATIP
estimates that NTT Corp will base its charges to PHS providers on an
average fee of 10 yen per three minutes. This figure is derived from the
fact that
NTT charges local customers 10 yen per three minutes when calling from a
private phone.


The MPT was unable to confirm this estimate, but suggested it was around the
upper limit that MPT would find acceptable for NTT to charge.


Another issue is how NTT Personal will operate in relation to NTT. According
to the MPT, the Ministry has directed that all PHS providers be treated
equally by NTT Corp, with no special favors provided to NTT Personal by NTT
Corp. This includes making payments for renting space in NTT regional
centers, use of NTT telephone poles along local streets for mounting PHS
base stations, and making royalty payments for use of PHS technology
developed by NTT Corp's research division.


An official at the MPT said final approval for operation of PHS services
would depend upon NTT Corp offering fair and equal treatment to all parties,
and the Ministry was pleased to find this was the case with the agreement
reached between NTT Corp and DDI Pocket for interconnection tariffs.


The official added, that the Ministry would carefully monitor the situation
and intervene if evidence of restrictive business practices arose.


1.8 CONCLUSION:


Japan's telecommunication industry is rapidly developing a sophisticated
next generation terminal system that will provide users with greater
mobility and easy access to new data services when away from the office or home.


Although PHS suffers one serious drawback in that users must be moving no
faster that 10 kilometers an hour for calls to be made and received, the low
cost of the system makes the concept very attractive as a new- generation
cordless phone system. In addition, the high population density and the
difficulty of using cars in Japan and other Asian nations makes PHS an ideal
low cost telecommunication that should see rapid growth and wide spread
support from business and personal users.


2.0 FUTURE OF PHS SERVICES


As part of NTT's ongoing program to develop telecommunication services for
the 21st century, NTT Labs has been conducting the Visual, Intelligent and
Personal (VI&P) research program. Following the successful development of
basic PHS technology, NTT is now looking towards the future and has launched
a two-year research program entitled Personal Multimedia Communications (PMC).


PMC will build upon existing PHS technology to develop added value services
using the mobility of PHS to enable people to access data services such as
the Internet and other on-line service providers.


The following is taken from a NTT news release issued on May 17, 1995.


2.1 NTT CONDUCTING PERSONAL MULTIMEDIA COMMUNICATIONS TESTS


- Third phase of VI&P communications services comprehensive experiments
under way at Musashino R&D center -


NTT has initiated a variety of experiments aimed at developing new type of
personal multimedia communications (PMC) services using wireless personal
handy-phones at its Musashino R&D Center in western Tokyo.


The PMC tests are focusing on terminal-type PMC services and network-type
PMC services, which are expected to be realized in the near future,


Terminal-type PMC services are multimedia communications services for
high-speed data and video communications services utilizing the personal
handy-phone system.


Network-type PMC services allow the network to detect the location of people
using PHS terminals and provide other sophisticated, user-adaptive services.


The current tests are the third phase of an ongoing comprehensive test of
NTT's Visual, Intelligent & Personal communications services, which are
being developed under the VI&P corporate vision aimed at leading NTT into
the next century.


2.2 PERSONAL MULTIMEDIA COMMUNICATIONS (PMC) SERVICES BEING TESTED


2.3 TERMINAL-TYPE PMC SERVICES


PHS services are sophisticated communications services combining the
conveniences of a cordless telephone in the home and a personal handy- phone
outside.  The PHS terminal is more suitable for multimedia services,
however, than a conventional handy-phone due to its capability for 32 Kbps
digital communications with base stations.  The terminal-type PMC tests
focus on the merits of terminal mobility and digital
communications.


1) Modem-type non-phone services


These are tests of transmissions in which data signals are read as sound
(converting digital signals to analog using a modem) for use in PHS
terminals for data communications services other than telephone.


-E-mail: This service transmits and receives e-mail in a wireless
environment by connecting electronic pocketbooks and portable computers to a
mail server through PHS terminals.


-Handy facsimile: This service enables users in the wireless PHS environment
to transmit and receive data with conventional facsimiles.


2) High-speed digital communications services


These are tests of high-speed data communications in which data signals are
not read as sound, to realize the full potential of PHS digital communications.


-High-speed database access: This service provides an Internet access
environment, equal to that of LANs and available anywhere, through wireless
access in conventional office LANs. Easy access to multimedia information is
available on the WWW server connected to the Internet.


-Digital still-picture transmission: Pictures taken by electronic still
cameras can be fed into personal computers or printed out on printers via
wireless access.


-Field video: This is a mobile video-on-demand service in which multimedia
information can be transferred at a capacity of 32 Kbps.


3) Advanced high-speed wireless access services


These are tests of high-speed communications services using 1.5 Mbps fiber
radio transmission (*l) to meet future needs for high-speed radio
transmission access.


-High-speed digital video transmission: MPEGI's( *2) high-efficacy coding
videos in remote locations are displayed on portable terminal equipment on
demand.


4) PHS basic technology


This is a test of basic technology for voice calls, an essential service of PHS.


-Bone-conductive ear microphone/receiver unit: By mixing conventional
air-conductive sound (*3) with bone-conductive sound (*4), low-noise and
high-quality voice calls are possible in noisy environments.


2.4 NETWORK-TYPE PMC SERVICES


This is a series of tests to detect the location of people using PHS
terminals and to provide sophisticated, adaptive services by utilizing
information on the user's locations. In addition to PHS tests, the NTT
Musashino R&D Center is testing personal mobility capabilities for providing
sophisticated network services when people use IC cards instead of PHS
terminals.


-Call forwarding: Information recorded on an IC card can be detected by
radio transmission or by devices accepting the IC card to recognize the
user's location through the network.  User's call can then be transmitted to
telephones nearby using the user's location information.


-IC card PHS phone: This is a sophisticated transmission service for event
halls or stadiums in which individual IC cards are inserted into leased
handy-phones.


-Multimedia auto tracking: This enables, for example, the network to detect
and access people who use IC cards or PHS terminals. For example, as
visitors move from one exhibition corner to another, personal computer
displays in each corner can be connected automatically with each expert's
computer who would explain and discuss the exhibits.


The third phase of the VI&P comprehensive test also involves a PMC service
using a communications satellite to test the instant mobility of offices by
incorporating a communications satellite and portable user earth stations in
the PMC service environment. Specific tests are being conducted with
electronic mail, handy facsimile, high-speed database access, and video
transmission.


2.5  Terms


*1) Fiber radio transmission: A technology to convert a microfrequency wave
signal to light and transmit it by optical fiber.  This method enables
wireless signals to be delivered easily to wireless areas.


*2) MPEGI: This is a standard for high-efficacy coding that compresses and
regenerates moving pictures with sound at a coding rate of about 1.5 Mbps.
Picture quality is equal to that of VHS.


*3) Air-conductive sound: Ordinary sound is transmitted by air. The
bandwidth is broad and the sound quality is good, but this sound is subject
to background noise.


*4) Bone-conductive sound: This is sound transmitted via bone in the
listener's head. The sound is transmitted into the listener's head via a
vibrating pick-up attached to the ear.  The bandwidth is narrow and the
sound quality is bad, but this sound is very audible in noisy environments.


3.0 NTT CORP IN THE LATE NINETIES


Underpinning Japan's telecommunication industry is NTT Corp, the world's
second largest telephone company after AT&T with over 200,000 employees and
annual revenues of more than $80 billion.


Although NTT is now a public company, with some 33% of the stock held by
private investors, 65.6% of the company remains firmly in the grip of
Japan's Ministry of Finance (MoF).


The MoF had originally planned to sell off more of NTT Corp in steady chunks
as a way of financing Japan's national budget deficit, but following the
collapse of the Japanese Stock Market in 1991/92, the MoF has shied away
from dumping anymore NTT stock on a market that is no longer in a position
to absorb over priced NTT stock. As a result, Japan's national budget now
makes use of the infamous asterisk to cover some of its expenditure.


Moreover, the situation for Japan's telecommunications industry is confused
and messy. NTT is unsure of its future, and competitors are increasingly
becoming dissatisfied with NTT's business practices.


Although Japan's telecommunication industry is growing with new providers
entering the market every month, the rapid expansion and reorganization that
has characterized the US and UK telecom markets over the past 10 years has
yet to be seen in Japan.


Part of the problem is that NTT remains jealous of its traditional turf and
has repeatedly frustrated the attempts of newcomers to enter the
telecommunications industry. A senior official with the MPT, in private
remarks said, "NTT has not honored the spirit of deregulation, and after
many years of giving NTT time to adjust to a telecommunication marketplace
the Ministry finds itself increasingly at odds with the attitude adopted by
NTT."


For many years it has been traditional to lump the MPT and NTT into the same
basket of regulatory bound bureaucrats. However, it's the opinion of this
analyst that the MPT is in the midst of a major change.


A good example of this was how the MPT issued an administrative guidance to
NTT earlier this year forcing NTT to detail and clarify the process by which
virtual private networks (VPN) and frame relay providers could interconnect
with NTT local and regional network.


This came about after many years of ongoing problems for companies wanting
to interconnect their VPNs through the NTT public network to other VPNs. NTT
was obviously very concerned that if it allowed VPNs to start joining up
together - a natural result given Japan's interlocking business practices -
NTT would suffer substantial revenue losses as telecom traffic bypassed
NTT's public network.


After much dithering, NTT responded to the MPT administrative guidance with
a detailed report outlining the procedure for processing interconnection
applications and the nomination of a particular office within NTT that would
accept applications - a key aspect of the MPT's administrative guidance.


As such, it is now possible to openly discuss with MPT officials what should
be done with NTT - a state of affairs virtually unthinkable two years ago.


According to a senior official at the MPT, Japan's telecommunication
industry requires substantial realignment to encourage new business growth.


Other officials at the MPT say the Ministry is considering various options,
but a decision will have to wait until the Telecommunication Council reports
back early next year.


Moreover, the president of a major Japanese public corporation said in off
the record comments that the break up of NTT was imminent and those planning
to do this are being very careful in ensuring this happens.


But it is far too early to predict what the future holds for NTT, as the
Telecommunication Council won't report back until early 1996. Furthermore,
twice in the past 10 years the Telecommunication Council, with the limited
supported of the MPT, has recommended that NTT be broken up, only to have
the recommendation rejected by the Ministry of Finance.


But this time, the forces against NTT are more powerful than ever, while the
MoF is under increasing pressure from other ministries to share power, and
accept that other ministries are sometimes more qualified to manage and
oversee particular segments of Japanese industry.


=====================END OF REPORT ATIP95.26r===========================