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The Japanese wireless market is set for consolidation, with the third cellco, Softbank, reportedly planning a bid for Willcom, which operates the low end PHS (Personal Handyphone) service. The main attraction could well be Willcom's national license in 2.5GHz, which has been earmarked for a data-driven enhancement to PHS, called XGP. However, if the regulator proves flexible, the license could be made technology neutral, which would give Softbank mobile broadband spectrum to help it boost its data services ahead of LTE roll-outs by DoCoMo and disruptive newcomer eMobile.

The other 2.5GHz license is held by UQ Communications, a joint venture led by second cellco KDDI. This is building out WiMAX networks across Japan and working with partners, such as several large electronics retailers, to create an innovative set of broadband services and tariffs. These are giving KDDI a valuable additional string to its bow as it tries to retain its position in the ultra-competitive Japanese mobile data market - UQ not only has a greenfield network capable of piloting new business models, but is also adopting a strong wholesale/MVNO approach for additional revenue streams.

It is questionable whether Softbank would be able to achieve the same advantage if it were to acquire Willcom. This would depend on the future of the PHS/XGP technology; whether XGP itself was enough to support a strong mobile data model or whether Softbank would look to another technology like WiMAX; and whether the regulator allowed the cellco to own the 2.5GHz license outright (at the auction, the three mobile operators were forbidden to own a controlling stake in any unit bidding for the franchises).

The future conditions attached to the 2.5GHz license would affect the perceived value of Willcom to Softbank. The smaller firm would also bring it a base of about 4.4m subscribers for PHS, a low cost service that runs in small cells and is used mainly in Japan and China. Hopes that XGP, an OFDM-based technology like WiMAX, would become a standard and ecosystem outside Japan were dashed when China decided not to support a new generation for PHS, and instead ordered the PHS services to be would down over the coming few years, and their spectrum in 1.9GHz turned over to 3G.

Softbank is understood to be insisting that Willcom's lenders waive a portion of its JPY93.5bn ($1bn) debt, according to Japanese newspaper Yomiuri Shimbun. Willcom, a former unit of KDDI, was sold to the private equity group, Carlyle, in 2004, but the group is now looking for an exit.

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