3G reprieve for Japan handset makers

DoCoMo's 3G plan gives Japanese handset makers a chance to become major players in next-generation phones

In this story: Down to the wire Handsets key to wireless success Scramble for global alliances No promise of profits yet RELATED STORIES, SITES

By CNN's Kristie Lu Stout and wire reports

TOKYO, Japan (CNN) -- Japanese handset makers are breathing a sigh of relief in the wake of NTT DoCoMo's 3G launch delay.

Japan's leading mobile carrier said it would delay the commercial launch of its third-generation cellular services until October to ensure its complex network will function properly.

It will still offer what it calls a restricted "introductory" service from May 30.

DoCoMo's delayed launch of its commercial 3G services is giving Japanese handset makers like NEC and Matsushita some breathing space to make sure their technology works.

Down to the wire

Osamu Waki, a director of Matsushita Communication, Japan's largest cell phone maker, said in February that his company was behind schedule in preparing handsets for the May 3G launch.

Waki reiterated last week in an interview, "It'll be down to the wire. We're really struggling."

Shares of NEC and Matsushita were down 2.75 percent and 3.29 percent respectively in reaction to news of the DoCoMo 3G delay.

"Short term, the impact is minimal," Yoshiharu Izumi, an executive director at UBS Warburg, told CNN.

"DoCoMo's 3G problem is on the software side and network management side. Sales of equipment from the handset makers won't be affected."

Handsets key to wireless success

In the past, the success of the handset has greatly contributed to the success of a mobile offering, such as DoCoMo's I-mode Internet data service that now has over 22 million users.

"If you look back at the launch of I-mode it was a couple of months before Panasonic launched its I-mode phone and when it came out, the market really started to take off," Gartner Group mobile analyst Nick Ingelbrecht told CNN.

Industry watchers attribute the stunning success of the I-mode partly to Japanese handsets, which are light, slim, have a long battery life, offer color screens and audio technology.

Scramble for global alliances

But Japanese handset makers are bit players in the global wireless stage dominated by heavy hitters Motorola, Nokia and Ericsson.

DoCoMo's 3G promise has given NEC, Matsushita, Sony, Toshiba, and Sharp a chance to become major players in the next-generation mobile sector.

In the last week, some of Japan's top handset makers have been scrambling to finalize key trans-continental tie-ups to secure their standing on the world stage.

Sony, which has only a two percent share of the global handset market, announced a joint venture on Tuesday with the world's number-three handset maker Ericsson.

Analysts call the deal a good fit.

Sony, whose handsets include models with a built-in audio player or Web-surfing capability, brings technology and marketing savvy to the table.

Ericsson, like many other European and U.S. wireless companies, will contribute extensive distribution channels and access to network equipment.

On Monday, Japanese media reported that Mitsubishi Electric was in final talks with Motorola to develop and manufacture 3G handsets. Mitsubishi denied the report.

"We've had talks with Motorola over the past year but no talks right now on a tie-up in the mobile phone business," a Mitsubishi Electric spokesperson told CNN.

Already consummated deals include an alliance between Toshiba and Siemens to cooperate on 3G cell phones for the global market.

Also, last month, British Telecommunications said Sharp would develop and supply for its wireless customers Net-enabled phones with built-in cameras.

No promise of profits yet

Though 3G promises faster speed and wider content offerings, it has yet to promise profits.

"It has become very difficult to generate profit on 3G services," says Hiroyuki Masuhi, an analyst at Daiwa Institute of Research.

The wireless industry as a whole has been faltering, with only Nokia among 20 handset makers worldwide still making profits.

Last week, Ericsson reported a loss for the first quarter and a second round of layoffs.

Expectations for handset sales in 2001 have been cut almost on a monthly basis to as low as 425 million units, compared with 410 million last year.

In addition, European companies have spent about $107.2 billion for 3G licenses, saddling carriers with heavy debts. Many have announced delays in 3G deployments, which could mean a longer wait for Japanese makers to fully leverage their expertise.

Reuters contributed to this report.

Ericsson, Sony ink mobile phone unit
Apr. 24, 2001
DoCoMo plunges on report of 3G delay
April 23, 2001
Ericsson to slash up to 12,000 jobs, warns of loss in second quarter
Apr. 20, 2001
Mitsubishi denies Motorola tie-up
April 20, 2001

DoCoMoNet
Mitsubishi Electric
Motorola, Inc.
Ericsson
Sony
NEC Global Gateway
Matsushita Japan

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