WW-132 -- KDDI offloads DDI Pocket ・ A new challenger for corporate mobile services?

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J@pan Inc presents the Wireless Watch Newsletter:

W I R E L E S S W A T C H

Commentary on Japan's Wireless World
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Wireless Watch Newsletter
Issue No. 132
Tuesday, June 22, 2004
TOKYO

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CONTENTS

@@ Viewpoint: KDDI offloads DDI Pocket ・ A new challenger for corporate
mobile services?

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@@ Viewpoint: KDDI offloads DDI Pocket ・ A new challenger for corporate
mobile services?

KDDI has agreed to sell its PHS business subsidiary DDI Pocket to the
Carlyle Group, a US private equity fund, for 220 billion yen. Carlyle
will acquire a 60 percent stake in DDI, while Kyocera will increase its
share from 13.25 to 30 percent. KDDI retains a 10 percent share. The
new shareholder will establish a new company to continue the operations
of DDI Pocket.

The transaction is expected to be finalized in the fourth quarter of
2004. Current management and all employees will be retained. The Carlyle
Group is headed by former IBM chairman Louis Gerstner. Telecommunications
account for 30 percent of its worldwide investments. Carlyle's
representative in Japan said that his company is not seeking a quick
exit. Rather, they want to exploit the business market in PHS services.

DDI Pocket is the market leader for PHS wireless voice and data services
in Japan, with approximately 2.9 million customers. DDI Pocket is
profitable and contributes about 6 percent to the sales and profits of
the KDDI Group. It operates a network of more than 160,000 base stations
nationwide. DDI's data communications product, "Air H," is popular among
corporate users with its fixed-rate "all-you-can-use" services.
Recently, DDI launched a phone with an Opera browser, making it
possible to read html web pages.

Kyocera is a main supplier of PHS phones and base stations, while its
subsidiary, KCCS, a system integrator and data housing company, can
provide the IT environment for corporate mobile data services.

Mobile data-services provider, B-Mobile, which uses the DDI-network,
might be taken by surprise. However, the MVNO could benefit from
network improvements by the new company, making its services more
attractive to its own corporate customers.

KDDI's move is also a nice welcome present for fresh DoCoMo CEO
Masao Nakamura. Its competition is now more focused -- the new PS
company will aggressively target the corporate markets, while KDDI
can now concentrate on its mainstream AU mobile services, which
compete with DoCoMo's i-mode.

Nakamura recently said he wants DoCoMo to further exploit its PHS
network for flat-rate mobile data services, because flat-rate data
services on FOMA would be difficult to offer at this stage.

We expect KDDI to make its position clear concerning Tu-Ka, the
fourth largest carrier, which is gradually losing market share.
Will it migrate existing Tu-Ka customers to AU? Or will it sell
its stake to another group of investors?

Stay tuned.

-- Arjen van Blokland

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STAFF
Written by Arjen van Blokland; Edited by Roland Kelts
(editors@japaninc.com)

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