• Compiled From Kyodo, Bloomberg

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Willcom Inc., an ailing provider of personal handy-phone system services, is set to ask the Tokyo District Court for protection under the Corporate Rehabilitation Law this week, sources said Wednesday.

The state-backed Enterprise Turnaround Initiative Corp. of Japan is expected to decide by Feb. 25 to sponsor Willcom’s rehabilitation along with cell phone service provider Softbank Corp., the sources said.

Under a rehabilitation plan being worked out by Willcom and its creditors in advance, the carrier will continue business operations while implementing rehabilitation measures under court protection, they said. Japan Airlines Corp. is undergoing a similar rehabilitation program.

The plan is expected to call on creditor banks to waive Willcom’s loans worth billions of yen.

One proposal seeks to divide Willcom into one company for current PHS services and another for next-generation services, the sources said.

The three Willcom shareholders — U.S. private equity firm Carlyle Group, Kyocera Corp. and KDDI Corp. — may be asked to retire 100 percent of their Willcom shareholdings.

Willcom had total liabilities of ¥173.3 billion, or six times its shareholders’ equity, according to its latest financial filings. Mitsubishi UFJ Financial Group Inc. and Mizuho Financial Group Inc., Willcom’s biggest creditors, were each owed ¥17.6 billion as of last March 31, according to financial statements on the phone company’s Web site.

Carlyle and Kyocera Corp. bought a combined 90 percent of Willcom from KDDI Corp. for ¥220 billion in 2004.

Subscribers to Willcom’s service declined 6 percent from the peak in July 2007, according to the company’s Web site. By comparison, Softbank added 1.7 million users in 2009 and NTT DoCoMo Inc., Japan’s largest wireless operator, increased its number of subscribers by 1.3 million, according to the carriers.

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