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3rd December 2002 by Kiyoshi Takenaka of Reuters

After twice delaying a planned launch, Japan's J-Phone Corp is finally set to start commercial third-generation (3G) mobile phone services this month, testing the water for British parent Vodafone Group Plc.

Japan's third-largest mobile operator is expected to offer international roaming from the start to give itself a competitive edge over its two main rivals, who already offer 3G services, but in general it aims to build up services gradually, analysts say.

"Market expectations for the service are very low," said Bruce Kirk, an equity research director at KBC Securities.

"I don't think we will see a full commercial service for at least another 12 months...The launch will be a very small sparkler rather than a firework."

After watching rival NTT DoCoMo Inc struggle to lure users to its 3G service, which offers video conferencing and speedy access to the Web, J-Phone is well aware that it is unrealistic to aim for a 3G empire overnight.

"In terms of 3G handsets, we don't expect to see really properly functional handsets till mid-2003 -- handsets that have sufficient battery life that customers aren't put out," said Kirk Boodry, an analyst at Dresdner Kleinwort Wasserstein.

DoCoMo, which offers 3G service based on W-CDMA technology, the same format as J-Phone, was recently forced to cut its end-March user target by 77 percent to 320,000, hit by its limited coverage area and poor battery life on its handsets.

In contrast, KDDI Corp, Japan's second-largest telecoms firm that offers 3G services based on a competing CDMA2000 format, had over three million users at end-October.

J-Phone, owned by Japan Telecom Holdings Co Ltd. and its parent Vodafone, is set to announce the details of its 3G launch, including the exact date, the specifications of new handsets and their suppliers, on December 3.

Although J-Phone is the last major Japanese mobile carrier to offer 3G services, the launch marks the first commercial 3G operation by any member of the Vodafone group, which will make the Japanese unit even more anxious to get it right.

"I think people are going to be watching it very carefully from Europe," KBC's Kirk said.

INTERNATIONAL ROAMING

J-Phone has played its cards close to its chest prior to the launch, but analysts expect its service to feature international roaming to attract business customers while keeping other functions to a minimum initially.

J-Phone President Darryl Green has said the company planned to offer dual mode handsets that work both on the 3G network and the GSM (global system for mobile communication) network, which is widely used in Europe.

That would enable subscribers to enjoy advanced 3G services when they are in Japan and use the same handset as a GSM phone in Europe, where commercial 3G services have yet to start.

Cash-strapped operators in Europe have opted to focus on repairing their battered balance sheets after spending billions of euros on 3G licenses in 2000.

"DoCoMo needs other carriers to launch W-CDMA for international roaming. But for J-Phone, roaming is possible in 50 countries just so long as handsets have dual mode chips," said Motoharu Sone, an analyst at UFJ Tsubasa Research Institute.

People in Japan may find international roaming less useful than European users, who tend to cross borders more often.

But analysts say that dual-mode handsets make sense for Vodafone since European carriers in its group will need them to enable users to make calls both in cities and rural areas, where the 3G network may take time to arrive.

"It is clear that J-Phone is serving as a testing ground for Vodafone," said Suguru Kagawa, a researcher at Yano Research Institute Ltd.

BRINGING GLOBAL MARKET TO HANDSET MAKERS

Among the interested onlookers are handset makers, hopeful that supplying 3G phones to J-Phone may open up a global market.

Sharp Corp, which in 2000 helped J-Phone launch its highly popular camera-phone service, now supplies handsets to Vodafone.

But analysts are quick to point out that Vodafone can be a tough negotiator, with huge bargaining power on prices.

"Procurement by Vodafone means economies of scale in production for manufacturers. But that would come with tough price talks. It would not exactly be all rosy," said Hironobu Sawake, an analyst at J.P. Morgan.

Sanyo Electric Co Ltd. and NEC Corp, which provided J-Phone with handsets for its 3G test service, are likely to be rewarded with orders for the commercial operation, and analysts say Finland's Nokia, the world's largest cellphone maker, could also become a supplier eventually

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