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Third placed Japanese cellco Softbank could get its hands on 4G spectrum via a deal to rescue Willcom, holder of a national 2.5GHz license and operator of the low cost PHS (Personal HandyPhone Service) service. Willcom is poised to file for bankruptcy protection in order to turn itself around, with Softbank due to take a major stake in its nascent mobile data business.

When China decided to shut down its own PHS systems, Willcom is left as the world's only significant user of the technology. This has raised doubts over the commercial viability of its roadmap for a mobile data upgrade for PHS, called XGP.

Willcom, reports the Nikkei news agency, will work out a radical turnaround plan under the auspices of Japan's Enterprise Turnaround Initiative, with the help of Softbank, which was previously said to be bidding to acquire the smaller firm. The main thrust of the plan will be to split Willcom into two entities. One will run the existing PHS business, and the other will build and run the network for high speed services.

The latter will use the 2.5GHz license awarded to Willcom in 2008, but the firm is likely to abandon XGP and move to another OFDM-based TDD system, either WiMAX or TD-LTE (the latter would give it a common ecosystem with China Mobile). This unit will be led by Softbank, which would gain access to a 4G-class network and spectrum, without the burden of the legacy PHS business, with its low margins and declining user base.

This arrangement would also get round the conditions set on the 2.5GHz licenses, which barred an incumbent cellco from having a majority stake in a winning bidder. Softbank would presumably take a large, but not controlling, share in the new business, to avoid a long process of reversing this rule, which could have been necessary in the face of a direct takeover plan.

Both top mobile operators, DoCoMo and KDDI, bid in the auction as part of consortia and, along with Willcom, the latter won a license, with its Intel-backed UQ Communications joint venture. This has given KDDI a headstart over rivals in the mobile broadband sector, where UQ's WiMAX build-out is targeting high margin data plans - important to fend off the rapidly rising, data-driven upstart eMobile - and a wholesale model.

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. Although initial roll-outs of XGP in Tokyo and elsewhere are said to be delivering very strong performance and spectral efficiency, and release 2.0 will add MIMO and other enhancements next year, there are very few devices. The two chip suppliers are Altair of Israel and WaveSat of Canada, both of which applied WiMAX experience to the creation of XGP silicon, but while this is now incorporated in PC cards and Altair promises a dongle soon, there has not yet been sufficient customer base to attract handset makers. In May, Altair announced a common platform for WiMAX, TD-LTE (and later FD-LTE) and XGP.

As of the end of September 2009, Willcom's liabilities stood at JPY173.1bn, including JPY93.5bn in loans. ETIC will oversee the reorganization of the existing services company. If the talks go smoothly, Willcom could be applying for court protection from creditors as early as February. Investment fund Advantage Partners is still considering participating in the turnaround plan.

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