December 5, 2017 5:12 am JST

Freetel smartphone maker seeks bankruptcy protection

Japanese budget brand and service provider's fall was swift

Freetel stores closed their doors Monday after operator Plus One Marketing filed for bankruptcy protection.

TOKYO -- The manufacturer of Japan's hit budget brand Freetel smartphones has filed for bankruptcy protection after its mobile service business was sold off last month, putting the future of the company's once-popular handsets in question.

Plus One Marketing on Monday asked the Tokyo District Court to supervise talks with creditors owed roughly 2.6 billion yen ($23 million), citing a severe cash crunch that would keep the Tokyo-based company from making payments on time. On the same day, Freetel handsets and signage vanished from electronics stores, including all branches of major chain Yodobashi Camera, a Plus One shareholder. As the displays at one Tokyo shop were carted out, a worker on the smartphone floor remarked, "This is the first time I've ever seen anything like this," referring to the unprecedented response to a bankruptcy filing during business hours.

Prospects seemed a great deal brighter in 2012, when Kaoru Masuda, a leading force behind American computer maker Dell's mobile phone business, founded the budget smartphone maker and mobile service provider. Plus One aimed to be "No. 1 in the world by shipments in 2025" with its Freetel brand, Masuda said. Investors including Yodobashi Camera and a private-public fund managed by Japan's Internal Affairs Ministry were convinced, putting up 3 billion yen in total.

Freetel's handsets were designed in Japan and manufactured in China, keeping costs low and quality high. The company's bargain-basement service plans, starting from 299 yen per month, quickly drew a following.

Sudden collapse

But cutting corners in pursuit of growth proved Plus One's undoing. Japan's Consumer Affairs Agency in April 2017 found advertisements calling Freetel's service "the industry's fastest" to be false, denting the company's credibility. Once-mobbed Freetel stalls at major electronics retailers fell quiet as customers turned elsewhere. Some salespeople even warned shoppers against buying the phones, which Plus One touted as exemplars of "Japanese quality."

With new business thin on the ground, Plus One fell into an earnings crisis, just as the cost of developing the phones in China was on the rise. The company closed out the year ended March 31 with a 5.5 billion yen net loss, marking its third straight fiscal year in the red.

A helping hand appeared in November, when leading Japanese internet company Rakuten paid 3.6 billion yen to acquire Freetel's business as a cellular service provider. But not even that sum was enough to put Plus One back on its feet as a maker and seller of smartphones.

Freetel service contracts have already been transferred to Rakuten, which has assured customers their service will continue uninterrupted. The Freetel brand will be folded into Rakuten in January.

Tokyo-based staffing and technology services provider Maya System has stepped forward as a potential turnaround sponsor for Plus One. But key questions remain unanswered about how a recovery would proceed, including how customer support will be handled.

(Nikkei)

Rakuten, Inc.

Japan

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