Japan's portable hand-set (PHS) telephone-makers have been swamped with an avalanche of customer cancellations in what some analysts say is a sign that after a stellar start the portable handy telephone system may be stalling. Industry sources describe the cancellations as a temporary and seasonal problem. The PHS telephone market grew from zero when they were introduced in October 1995 to 7.3 million customers by last month - growth so explosive it was considered one of the brightest spots in the Japanese economy. However, hundreds of thousands of cancellations almost swamped out new orders last month, resulting in the lowest net monthly increase since the telephones first hit the market: 62,000 units, the Nihon Keizai Shimbun newspaper reported. The PHS telephone system relies on a large quantity of tiny transmitters, often installed inside vending machines, while cellular telephones depend on a smaller quantity of large transmission towers. Sources at the three PHS companies - Astel, DDI and NTT Personal - described the cancellations as a reaction to excessive promotion last year when the US$300 telephones were handed out for as little as a yen (about six HK cents) each. 'People who should never have subscribed to a portable phone service were enrolled and now they are cancelling,' DDI's Junichi Takahashi said. He said there were always many cancellations in August because most customers were students who often did not need their telephones during summer holidays. Analysts were not entirely convinced by explanations of this sort. Deutsche Morgan Grenfell analyst Naoki Sato said: 'The PHS phones are of lousy quality; you often get busy signals or else no signal at all and you cannot use them in cars or trains, so people have begun switching to cellular phones.' He said although some analysts expected the PHS system to perish within two years, he thought it would survive as a tool for mobile computing. The PHS has a data transmission speed three or four times faster than that of cell telephones and the rates are far cheaper, making them ideal for portable computing. A spokesman for NTT said PHS and cellular telephones could co-exist.