The future of PHS has always been attracting attention in China. Lately, PHS MoU Group held seminar in Hangzhou. Taking the opportunity, SinaTech interviewed Mr. Yoshioki Chika, vice president of WILLCOM Inc., Mr. Shoichi Sugiura, Secretary General of PHS MoU Group and Mr. Fuxin Xu, the former chief of Yuhang Telecom Bureau and the pioneer of PHS in China

SinaTech: Good day everybody, I am a reporter from Sina.com and Sina is one of the most influential website in China. We are taking the lead in reporting news regarding telecom industry. Mr. Xu is a veteran surfer of Sina. Today, our guests are Mr. Yoshioki Chika, VP of WILLCOM Inc, Mr. Shoichi Sugiura, Secretary General of PHS MoU Group and Mr. Pun Lam, GM of Wireless Department of UTStarcom. We are also honored to have Ms. Lin Yuhong, editor-in-chief of Observe and Research of Guangmin Daily to carry out the co-interview.

PHS once developed over 90million users in China at peak time, and it is facing a critical challenge now. The visit of our Japanese guests is arranged at this critical moment. We’d like to know how PHS has been developed in Japan because Chinese users care much about the technological and market development PHS can realize.

Mr. Yoshioki Chika: Good day everyone. I am VP of WILLCOM Inc. PHS is started in Japan over ten years’ ago and gained about seven million users in the first two years. After competition with other mobile operators, our voice users are kept around five million. I believe that this situation is very similar to what we had in China. After that, we introduced data service, which brought up the total number of subscribers now.

What I’d like to emphasize is that we introduced data service in 2001, which is the same time 3G rolled out its data service in Japan. Our subscriber increased with 3G. We are working on even faster effective speed on data transmission now and we are to build a new wireless broadband based on the current technology.

SinaTech: Is that true that the major supporters of PHS in Japan are students and housewives?

Mr. Yoshioki Chika: We do have many voice subscribers who are students and housewives. But we also have many business and white-collar users, who enjoy our data services.

SinaTech: How do you compare AURP of PHS to other mobile operators?

Mr. Yoshioki Chika: We provide monthly package service. AURP reflected on our individual users is a bit lower than that of mobile operators, but our business users manage to let us keep the same level AUPR with mobile operators.

SinaTech: PHS MoU Group chose to hold a meeting in China today. Does that mean that WILLCOM is not expecting to witness PHS’ disappearance in China?

Mr. Yoshioki Chika: PHS didn’t walk a smooth way in Japan. It experienced a similar way that China is walking now. Therefore, we don’t think that PHS would simply and naturally disappear. We will provide whatever we could to help the industry in China.

SinaTech: You believe that PHS by WILLCOM will not walk down slope again, do you?

Mr. Yoshioki Chika: Nothing is one hundred percent. What I am trying to say is that PHS has a big potential in future.

SinaTech: It could be a hard question, but you need to convince Chinese operators somehow. In China, we have two PHS operators, which is very different than Japan. In Japan, WILLCOM only operate PHS network, while in China, both PHS operators are having other mobile network to operate with. We are facing the worry that both PHS operators will reduce future investment in PHS to allow the development of mobile network, or even, they could encourage PHS users to switch to mobile networks. How do you comment this?

Mr. Yoshioki Chika: Statistics show that there is a huge market for voice service to PHS users. To switch all users to mobile network requests a huge investment to that mobile network. From the economic angle that one business entity has to consider, the decision can not be unwise.

SinaTech: Regarding the user-transaction, I’d like to ask Mr. Xu, if one operator is to run both network, could it lead to an internal destroy of each other?

Mr. Fuxin Xu: China Unicom has already been an example. It was proved that Unicom can not take care of both networks. After all, investment is limited, which created more difficulties for the development of both networks.

SinaTech: What do you think can be done in this case?

Mr. Fuxin Xu:　Like I’ve said in early seminar, the best way is to adjust the company system, in another word, to form independent subsidiary company to operate PHS.

Ms. Yuhong Lin: Who is to operate PHS then?

Mr. Fuxin Xu: For example, PHS can be kept as the solely network operated by a subsidiary company either under China Unicom or China Telecom, to make the operation independent. In this way, one batch of people would be only responsible for PHS and a different batch of people would only be responsible for CDMA or GSM.

This subsidiary company under either China Unicom or China Telecom can operate the same way as China Railcom under China Mobile. China mobile didn’t throw its fixed network away. Instead, it still focuses on its familiar mobile business, while gives China Railcom enough independence to operate the fixed network independently. China Unicom and China Telecom has been operating PHS for several years. The business should only be reinforced. Even after CDMA license is granted, the batch of people who were responsible for PHS should be kept to serve the need of PHS users. As long as an independent subsidiary company can be established to give PHS network a certain degree of independence on personnel and capital, way to develop will be found.

SinaTech: Are you trying to say that operators in China should form a PHS operator like WILLCM in Japan?

Mr. Fuxin Xu: Not really. The top management belongs to the mother company, although subsidiary company should be given the right to make decision on investment and be responsible to the profit or loss generated afterwards. As far as I know, under the current system, some local-level operator has already transferred all personnel resource from PHS to CDMA, adding to the fact that no more investment is granted to PHS, no wonder sales and service staffs are not interested in PHS-related business anymore.

SinaTech: What is WILLCOM’s suggestion to operator in China then?

Mr. Yoshioki Chika: I think what Mr. Xu suggested is a right direction. Because WILLCOM was started as a subsidiary of KDDI and KDDI also operates CDMA. So once the subsidiary is established, we also gained freedom on investment usage and policy adjustment. After so many years, KDDI still holds 10% of our shares although it is no longer our biggest shareholder.

Ms. Yuhong Lin: What is the amount of users at lowest point?

Mr. Yoshioki Chika: For WILLCOM, the amount of users has once dropped to as few as 2.9 million in 2003 and 2004. But from establishing an independent subsidiary in Oct. 2004 to today as we survived completely without KDDI, the number of users has grown to 4.6 million.

SinaTech: So are you under complete independent operation now, despite of the share KDDI holds?

Mr. Yoshioki Chika: Yes. It only has 10% of our shares now. It did interfere with our decision more or less when it was our 100% shareholder though.

SinaTech: Do you have any other suggestions? Do you suggest China to copy Japanese experience regarding the users satisfaction? In China, we are facing a more complicated situation that mobile is even cheaper than PHS sometimes.

Mr. Yoshioki Chika: Actually, PHS is not the cheapest in Japan. PHS should not be considered competitive because it is cheap. PHS has its own advantages. It is environmentally friendly for example. It is the only wireless communication system allowed in hospitals in Japan. In the end, a patient with heart pacemaker can not use mobile phone because it has impact on the device, so most hospitals suggest the use of PHS. And another advantage of PHS lies with its capacity, which is why we could provide monthly fixed-rate service. We shall exert its advantages in developing its future, instead of sticking on its cheap feature only.

Mr. Fuxin Xu:We shall avoid its disadvantages and develop its advantages. PHS does have its technical advantages. Firstly, it is environmentally friendly. Pregnant woman and senior citizen shall consider using it. Secondly, it still has room to reduce charge because the cost to build PHS network is much less than a mobile network. Whether or not PHS charges less than mobile phone is depending on the policy of operator. As far as I know, PHS charges as few as RMB36 per month. Other network can not afford this offer while PHS, which can expand capacity by installing more cells at low costs, is able to expand the number of users this way. This is the competitive advantage of PHS. In Japan, mobile operators don’t have the monthly fixed-rate service that PHS provides simply because they can’t guarantee the capacity. In Sichuan earthquake earlier this year, mobile users suffered connection failure because mobile network can’t provide enough capacity for simultaneous callings all of a sudden, while PHS network dealt with the emergency fine, because it has many cells in one area. The earthquake proved that PHS is more advantageous.

Ms. Yuhong Lin: The current PHS in China is majorly used for voice service, will it need a massive investment to transfer to business focus to data service?

Mr. Fuxin Xu: As a business entity, you are supposed to add investment in what you gain profit from. Now that PHS brought you profit, you ought to invest a portion of the profit. We talk about capacity expansion when the number of mobile user grows. In case of PHS, the current situation is that we have enough capacity in some places to satisfy 3 times the current demand for voice communication.

Ms. Yuhong Lin: Can we say that it would be a completely wrong decision for the current operators to give up further investment in PHS?

Mr. Fuxin Xu: From the business angle, state-assert is to be protected, let along the fact that the market is still there and 80 million users still welcome the service despite of zero investment and no further charge cut. Therefore, operators shall be responsible to the users and to the state asset.

Ms. Yuhong Lin: Many people compare PHS to paging service, saying it is doomed to die. Do you think that PHS is facing such a critical moment now?

Mr. Fuxin Xu: The technology of PHS is not simple, which is different from the situation facing paging service at that time. Some advantages of PHS can’t even be realized by the modern mobile technology.

Ms. Yuhong Lin: Can PHS be replaced by 3G then?

Mr. Fuxin Xu: No. The experience of WILLCOM Inc. told us that even if PHS only holds 4% of the total market share, its data business can take 40% of the 3G market. And this advantage is to become more obvious with the growth of users, as the speed of PHS doesn’t drop. This advantage of PHS proved it as a very suitable network especially in downtown area.

SinaTech: If that is the case, where is the biggest challenge of PHS coming from?

Mr. Fuxin Xu: According to many local level telecom subsidiaries, PHS is still a well-known and welcomed product on the market. Therefore, I dare to say that the major threat of PHS is not from external environment. Rather, it is from inside operators. Users will be forced to lose interest in using PHS service, if an operator doesn’t care about the business, doesn’t develop nor improve the service, doesn’t optimize the network, doesn’t guarantee the quality and stick to the charge that it adopted 11 years ago.

SinaTech:So you believe that the biggest threat comes from internal planning, do you?

Mr. Fuxin Xu:Unicom is an example. It invested a CDMA network and then a GSM network, which resulted in internal fight against each other. Only if the GSM network wasn’t invested, CDMA could have better chance to develop, because China Mobile’s GSM network is completed almost at the same time with Unicom’s network.

SinaTech: Can we avoid internal fight by establishing independent subsidiary company to opearate PHS?

Mr. Fuxin Xu: That will depend on how independent the subsidiary can carry out its own business.

SinaTech: Both China Unicom and China Telecom would have to agree to hand out their PHS asset to from that subsidiary. Do you think the suggestion is practical?

Mr. Fuxin Xu: All I could say is that if the subsidiary is established, PHS business will grow, as was proved in WILLCOM experience.

Ms. Yuhong Lin: As a matter of fact, domestic PHS operators know that PHS network in Japan is different from China as it is a national mobile network in Japan. From this angle, do you think that the two countries need to adopt different ways in developing mobile business?

Mr. Yoshioki Chika: We envy China for being able to make use of fixed network in operating PHS. From the perspective of cost, operating PHS on fixed-line network is more advantageous than operating it independently. Most operators of fixed-line network are long-based companies offering reliable business from the past. At least their social influence will be bigger than WILLCOM. WILLCOM will be very advantageous if it has both fixed-line network and PHS network.

Ms. Yuhong Lin: Can we interpreter PHS as potential gold mine instead of a heavy burden to fixed-line operators?

Mr. Yoshioki Chika: You are completely right. It would be a great pity to give up the goal when the first step has already been marched out successfully.

Ms. Yuhong Lin: Mr. Lam, do you feel the successive development of PHS being weak?

Mr. Lam: It is true that less manufactures are involving in the development of PHS nowadays, except UTStarcom is still motivated by the new technologies of PHS that we developed with the support of WILLCOM.

SinaTech: Still, there is an unavoidable problem here. Due to the reduction of users in recent years, equipment procurement from telecom operators decrease, and some terminal manufacturers backed off the market. Are there ways to curb the disadvantageous tendency and what will happen if the problem becomes more serious?

Mr. Yoshioki Chika: This is the situation that WILLCOM used to face in Japan. That is why we adopted module method, as I have mentioned in the seminar presentation earlier. In Japan, handset is separated from the module, which carries all the wireless function of a terminal. This design enabled the inexperienced manufacturers to design and make handsets. We have been talking to Chinese operators about this concept and received positive reflection. We have also reached agreement with China Unicom regarding the module for PHS this year. The module concept will be developed in China in future.

SinaTech: So WILLCOM do keep in touch with PHS operators in China?

Mr. Yoshioki Chika: WILLICOM has been working with China Netcom regarding PHS development.

SinaTech: What is the reflection from China Netcom?

Mr. Yoshioki Chika: They set up several teams to analyze the cooperation plan, then we established the standard jointly. Aftwards, Netcom designed and developed its own module for PHS. This is only the first step though. We are to develop module for GSM too, making the module to tell the jacket whether it should be a PHS or GSM handset.

SinaTech: In a recent press conference, China Telecom has just released that it will spend as much as its investment on CDMA in future. I believe that China Netcom is only considering a very small portion of investment in fixed network, including PHS. There is a lot of work to be done to urge China Telecom in changing its mind. Although, the decision of China Telecom could be very irrelevant to WILLCOM, I’d still like to know if WILLCOM will only stick to PHS and if WILLCOM expect Chinese operators to keep running PHS network in a long run?

Mr. Yoshioki Chika: Regarding your first question, yes, WILLCOM is only operating PHS network and it will only operate PHS network in future as well. I also believe that PHS operators in China would consider continuing the operation too, because PHS is advantageous in investment, social cost, voice quality, as well as data capacity. Since profit shall always be the first priority to a business, I believe that it is right to continue the business. By today, China Telecom has much more PHS subscribers than CDMA subscribers. I think it shall focus on the way to attract new CDMA users, instead of starting internal fight between PHS and CDMA.

SinaTech: Mr. Xu, do you think that the operators will continue developing PHS in China?

Mr. Fuxin Xu: From the business angle, as long as PHS is profitable, it shall not be given up. This is a regular analysis, although I can’t tell the secret thinking of the operators.

Ms. Yuhong Lin: GSM and CDMA both has clear way towards 3G and 4G, what is the future of PHS?

Mr. Yoshioki Chika: Our next step is XGP.

Ms. Yuhong Lin: 3G and 4G are internationally supported, while PHS was only adopted in limited countries and areas in the past, do you think it will be difficult to convince China Telcom in sticking to the path of PHS?

Mr. Yoshioki Chika: You are right about this.

Ms. Yuhong Lin: How difficult it could be?

Mr. Yoshioki Chika: WILLCOM is trying to do two things. One of them is to defeat WIMAX and LTE in Japan. The other is to realize XGP as a commonly accepted technology. WIMAX is much better known than XGP in the world. We want to prove the world that XGP is better than WIMAX.

Ms. Yuhong Lin: Is WIMAX in use in Japan now?

Mr. Yoshioki Chika: License to build WIMAX network is granted last December. The operator hopes to start WIMAX service next spring, almost the same time XGP is to be launched.

Ms. Yuhong Lin: What is its data transmission speed?

Mr. Yoshioki Chika: Theoratically 40G but the effective speed should be around the level XGP is to provide.

SinaTech: I have one last question to ask. Chinese government suggested earlier that PHS is occupying the frequency resource to develop TD-SCDMA. This is to hint PHS to give up the frequency. What do you think about the situation?

Mr. Fuxin Xu: Ministry of Information Industry promulgated No. 649 document named Instruction Regarding the Co-use of 1.9GHz Frequency Resource by PHS and DECT in 1998, which clearly stipulated that 1900-1920MHz is allotted to TDD wireless access method including PHS.

Mr. Yoshioki Chika: The existing PHS network, as far as we know, can support about 100 million users for ten more years. Giving up the network under such a circumstance is a doubtless waste.

Ms. Yuhong Lin: how much income can PHS bring WILLCOM each year in average?

Mr. Yoshioki Chika: Our sales revenue is around JPY250 billion.

Ms. Yuhong Lin: What is WILLCOM’s rank on Japanese mobile market?

Mr. Yoshioki Chika: We are the fourth biggest, because we only count for 4% of the market.

SinaTech: Mr. Sugiura, do you have any comment?

Mr. Sugiura: the biggest advantage of PHS is micro cell. We could and should fully make use of the frequency resource.

Mr. Lam: We support the further development of PHS in China. From the angle of terminal supply, I feel that the healthy demand from users still exist and we would like to stick with these uses to develop this industry in China.

Ms. Yuhong Lin: Will UT follow the development path of XGP?

Mr. Lam:Yes, we have been watching the development of XGP. Besides China, UTStarcom is also providing PHS equipment for operators in some South American countries. Some of them are very interested in the successive development of PHS.

SinaTech: Thank you for taking my interview today. We’d have to call it an end here today due to the time restriction. Thank you all.

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