Mobile operator Willcom files for bankruptcy protection+

TOKYO, Feb. 18 Kyodo -
Willcom Inc., a struggling provider of personal handy-phone system services,
filed for bankruptcy protection with the Tokyo District Court on Thursday,
pinning its hopes on turning business around with its next-generation
high-speed PHS service.

The company filed for court protection under the Corporate Rehabilitation Law
and also submitted the same day a request for aid to a state-backed turnaround
body.
The company reported total debt of 206.0 billion yen, representing one of the
biggest failures by a telecommunications carrier.
All of Willcom directors, including Kazuo Inamori, chairman of Japan Airlines
Corp. who serves as an outside director for the telecom firm, will resign to
take responsibility for the failure. Kubota will become an administrator in the
firm's bankruptcy process.
Willcom will use a prepackaged bankruptcy scheme, similar to the one for
debt-ridden Japan Airlines Corp., in which it will consult with creditors in
advance of a rehabilitation plan.
''It became extremely hard to attract new customers and there was an increase
in contract cancellations so, as a result, it was hard to rehabilitate on our
own,'' Willcom President Yukio Kubota said at a news conference. ''We decided
that (filing) was the best thing to do.''
In addition to asking for help from the government-backed Enterprise Turnaround
Initiative Corp. of Japan, Willcom will also seek funds from sponsors,
including mobile phone carrier and Internet conglomerate Softbank Corp. and
investment fund Advantage Partners LLP.
Sources familiar with the matter said earlier that ETIC, which is financed by
the government and private financial institutions, would decide by Feb. 25 to
support Willcom's rehabilitation.
Willcom has suffered an erosion of earnings due to a decline in subscribers for
PHS services -- a stripped-down cellular service with relatively low charges --
amid intense competition with other mobile phone operators. It has also
incurred heavy debts due partly to infrastructure investments.
As of January, the company had roughly 4.3 million subscribers, with around 4.2
million of them subscribing to PHS services. The subscription figure compared
with industry leaders NTT Docomo Inc.'s 55.5 million and KDDI Corp.'s 31.4
million in the month.
Wilcom said, however, it will continue to provide services to its subscribers.
Willcom is currently 60 percent owned by U.S. private equity firm Carlyle
Group, while Kyocera Corp. owns a 30 percent stake and KDDI Corp. holds the
remaining 10 percent stake. They are expected to retire all of their shares,
Kubota said.
ETIC is expected to provide 10 billion yen in loans to Willcom, and banks and
other creditors will be asked to waive tens of billions of yen in loans.
Following Willcom's filing for bankruptcy protection, Kyocera said in a
separate statement that it may be unable to collect accounts receivable from
Willcom worth 15.3 billion yen as of the end of 2009.
Willcom's decision to file for bankruptcy protection is a step further than the
''alternative dispute resolution'' arbitration scheme it sought in September.
Under the scheme, a noncourt third-party acts as an intermediary between the
company and its creditors to enable the suspension of loan payments.
But the ADR led to a reduction of customers, complicating Willcom's talks with
creditor banks on compiling a rehabilitation plan, so it sought support from
ETIC earlier this year.
Kubota declined to comment on media reports that Willcom will be split into
two, with one company handling existing PHS services and the other focusing on
faster next-generation services, saying that this will be discussed further
with its sponsors.
Willcom launched its next-generation high-speed data transfer PHS service,
called Willcom Core XGP, last year but the company is in need of fresh funds to
operate the service.
While Kubota reiterated the value of low-cost PHS services to society including
hospitals, industry analysts were skeptical about Willcom's ability to beat
competitors such as KDDI affiliate UQ Communications Inc., which provides WiMAX
wireless broadband data communication services in Japan.
Yusuke Tsunoda, a telecommunications analyst with Tokai Tokyo Research Center
Co., said he believes that PHS services are unprofitable and unlikely to
survive in the mobile phone market, especially amid the rising demand for
smartphones.
==Kyodo
2010-02-18 23:09:05


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