You might know that Chengdu was the first place where paper money was commercially used and it said to have more tea rooms than any other city. But, over these years Chengdu has grown into an industrial city as well and it is the place, for example, where the Chinese advanced fighter jet plane, called the J-10, was developed.

We also notice that next door to our hotel Chengdu is hosting the women’s world cup. It has come a long way over these 4000 years.

Similar to the generations of evolution of Chengdu, A key subject for this general meeting is the next generation PHS, one of the most important topics that the PHS MoU has undertaken in its history.

And, like Chengdu, how we handle this evolution will define our future.

At an earlier meeting I spoke with you about the theory of unintended consequences.

Today I would like to talk about another theory which was devised by the famous psychologist and professor, Dr .Abraham Maslow.

Maslow’s theory, and some of you might know it, is that each of us has a 5 step hierarchy of needs as we go through life.

The needs go from the basic to the advanced, each building upon the previous one.

For those of you not familiar with Maslow’s theory, let me explain.

First, Physical need - food, Air, Water - To survive

Second, Security need – To be safe and to stay alive.

Third, Social need - Love from family and friends.

Fourth, Ego or self esteem need - To be respected by others.

Fifth , Fulfillment need - Realization of our full potential as a person.

During our life, at any moment, we can be going up or down this hierarchy. For example…

If we are at the fourth level of self esteem and suddenly we lose our job, quickly we go to the second level, Security, as it is more essential for our needs.

Today, I would like to suggest that a business - for example, our PHS business, also follows this Maslow hierarchy of needs, each step being critical to our success.

Let me explain.

First need – physical - Means we need a product to survive.

Second need – Security - We need customers for that product to stay alive.

Third need - Social acceptance -We need significant revenue from those customers to show our product is accepted.

Fourth need - Respect within the industry - We become profitable.

Fifth need - Fulfillment - Successful and grow beyond the standard business by adding other products or services. (Some major examples would be NTT in Japan and China mobile in China)

We are at a crossroads in PHS - We have reached 100 million subscribers and now - What is next?

Some suggest that PHS will slowly die because of changes in the Chinese wireless landscape and because of the new, competitive technologies entering Japan.

I am an optimist, and I want to put this question in another perspective using Maslow’s theory and apply it to two of our members of the PHS MoU.

Let’s go.

First, let’s talk about CHINA NETCOM.

First need – Product - NETCOM has the PHS product that we all know.

Second need – Customers - NETCOM has gone from zero to 28,008,000 customers at the end of the first quarter of this year (Actually , about 25% of its total fixed line customer base)

Third need - Revenue - On June 10th CHINA NETCOM CEO Mr. Zuo reported that CHINA NETCOME has received US$5.3B (Using my currency conversion) in revenue from PHS since its beginning.

Fourth need - Profitable – Mr. Zuo also reported that CHINA NETCOM investment for this $5.3B US in revenue was US4B us providing a gross profit of over US$1B.

Fifth level – Fulfillment – CHINA NETCOM will continue with PHS despite the entry of 3G or other competition in China. In fact, just last week, On September 4th, CHINA NETCOM’s VP of market operations, Mr. Li Gengxin, indicated that the company is actively developing wireless value added services for its PHS business (WVAS).

Conclusion - Despite the misgivings of some, CHINA NETCOM is well along on fulfilling the dream of PHS in CHINA NETCOM’s business.

NETCOM has moved up the hierarchy of needs step by step and is not afraid of the future.

Now, let me talk about the second company - WILLCOM - Somewhat different from Netcom because it is facing a different challenge today.

WILLCOM

First need - Product - The PHS we all know - Let me call it 1G PHS for first generation. Second level - Customers - 4,645,200 as of August 2007.

Third level - Revenue - Yes, from those customers.

Fourth level - Profitable - I do not know, but I would expect so.

Fifth level - Fulfillment - WILLCOM continues to add an array of products and services. For example, Recently WILLCOM introduced its “Business hour triple rate plan”.

But - More critically - WILLCOM, in the Japanese market, now is looking at real competition. Today, from 3G, WIMAX and later, possibly 4G - And if WILLCOM does not do something soon, It may fall back to the second need, Security = the need for customers.

Fortunately, this was a warning call that WILLCOM recognized several years ago. So, WILLCOM, has a clear need for a new product to meet the demands of its marketplace… And this has led to the drive within the PHS MoU for next generation PHS, let me call it 2G PHS.

Next generation PHS is a new PHS standard for wireless broadband that will be competitive to/and likely even superior to 3G and WIMAX.

WILLCOM ’s action is meeting a future survival need to meet the technology change in the market by introducing a new product to gain customers , revenue and profitability and then fulfillment. WILLCOM is leading the way, out of necessity, for the rest of our industry and it has already had demonstrations and trials and expects to deploy the next generation PHS by the year 2010.

Of course, WILLCOM’s solution to the hierarchy of need, achieved within the PHS MoU, may be transferred to CHINA NETCOM and others at some date when they meet the similar challenge in their markets.

So, let me conclude that we are witnessing two reactions to the view that PHS, having passed 100 M subscribers, will now slowly die because of pending events in China and technologies in Japan.

CHINA NETCOM, is seeking to aggressively grow its PHS business as a matter of choice and is not waiting for others to act.

WILLCOM is hitting the technology decision head on by leading the development of 2G PHS for deployment in its market.

We are fortunate to have companies such as these in the PHS MoU who understand Maslow’s theory of needs and are taking those steps to ensure the fulfillment of their companies promise for their customers, employees, and shareholders.

It is my bet that CHINA NETCOM and WILLCOM will succeed.

Thank you.

SAM