Telecommunications

April 2002

The Nippon Telephone and Telegraph Corp. (NTT) formally announced a new 3-year business plan that entails 17,000 job cuts, a 400 billion Yen capital investment reduction and a shift in focus regarding Internet protocol-based services. NTT will boost its broadband businesses, such as fiber-optic services, while its two regional units, NTT East Corp. and NTT West Corp. will expand the scope of their fiber-optic services. The plan calls on the firm to terminate or consolidate unprofitable businesses, such as public phone operations, and calls on its group firms to cooperate in providing communications services via wireless local area networks. While suspending investments in fixed-line phone operations, it plans to expand its wireless operations. The firm expects the shift to help it boost group earnings by more than 70% over the next three years. NTT aims to post a group operating profit of 1.5 trillion Yen in the business year 2004, up from an estimated 867 billion Yen profit last year. Group revenues are estimated to grow to 12.6 trillion Yen in 2004 from 11.8 trillion Yen in 2001. To achieve three objectives, NTT will slash its group work-force to 199,000 from 216,000 over the three years, while cutting the group's capital spending to 2.2 trillion Yen from 2.6 trillion Yen. It aims to cut group interest-bearing debt by 1.3 trillion Yen to 6.4 trillion Yen. (April 20, the Japan Times, the Nihon Keizai Shimbun)

Nippon Telegraph and Telephone Corp. (NTT) will build its broadband communications business into a major revenue source, and downsize less-profitable fixed-line and other operations, according to NTT's 3-year business plan. To benefit shareholders, NTT will also consider such measures as a share buyback program. The new business plan, which runs through fiscal 2004, marks a major shift for the company, which had emphasized expansion. The telecommunications giant will now focus more on business efficiency and rationalized management. NTT has been devising 3-year business plans every year since 2000. The two key tasks in the new plan are creating demand for the coming broadband age and resolving financial problems. In broadband communications, NTT will strengthen its content distribution by launching a promotional office within the holding company to develop new services and coordinate contact with nongroup firms. It also plans to expand fiber-optic communications services offered by the two regional arms as well as lower rates. Tokyo Electric Power Co. and other utilities, and telecoms affiliated with such firms, are entering the market with low rates. To survive such competition, NTT East Corp. plans in June to introduce a fiber-optic Internet access package for less than 10,000 Yen a month. NTT West Corp. plans to follow suit soon. The biggest project for NTT now is the launch of wireless LAN (local area network) services, which offer high-speed Internet access even outside homes. All major telecommunications firms are scurrying to enter this potentially lucrative market. By combining fiber-optic communications networks with ADSL (asymmetric digital subscriber line) and other communication lines, the NTT group aims to create an environment in which users can enjoy high-speed Internet access regardless of the location. NTT Communications Corp. and NTT East Corp. will begin commercial wireless LAN services in May. NTT DoCoMo Inc. is scheduled to test a wireless LAN linked to third-generation cellular phone services, and aims to commercialize it soon. Exploiting the vast services offered by its group firms, NTT will allow customers to use their various services and will consolidate the fees in one bill. Meanwhile, the company will discontinue its telex service this fiscal year and shrink public telephone operations, both of which have become unprofitable due to the spread of cell phones and Internet use. The group, which operated an estimated 680,000 public phones at the end of March, has been eliminating 20,000 to 30,000 such phones annually for the past few years. The business plans of the two regional arms call for doing away with a total of 78,000 public phones this fiscal year. At its peak, some 79,000 lines were used in the telex operation. But the figure shrank to about 3,700 as of March 31, 2002, following the increasing use of fax machines and the Internet. Other NTT operations will also be downsized, such as the personal handy phone business and the pager business, whose subscription plunged 90% from its peak to 827,000 as of March 31. (April 20, the Nihon Keizai Shimbun)

The Telecommunications Ministry plans to appropriate a budget of 30 billion Yen a year for NTT West Corp. from next fiscal year, to induce connection fee cuts. The ministry intends to call on other domestic and foreign telecom carriers to pay toward the planned subsidy. In return, such companies will likely have the interconnection charges reduced. NTT East and West monopolize the local phone networks but are required to serve all areas nationwide with uniform prices, resulting in losses in sparsely populated regions. The regional arms of Nippon Telegraph and Telephone Corp. have opposed reducing interconnection fees charged to other telephone companies on the grounds that it will become even more difficult to serve unprofitable areas. Law amendments enforced from last autumn, have made it possible to collect money to make up for such losses incurred at the NTT units, and the ministry has been working to estimate how much money should be charged to both NTT group companies and non-NTT carriers for that purpose. According to ministry estimates, if interconnection charges are reduced by nearly 20%, NTT West will incur a 30 billion Yen loss each year. If interconnection charges are cut by 10%, the loss would come to 10 billion Yen. As NTT West serves numerous remote islands, profits from other operations are not sufficient to offset the losses incurred in unprofitable areas. As NTT East would post a profit of more than 10 billion Yen; even if connection charges are cut by 20%, no subsidy would be offered to the company. Both NTT East and West, as well as other NTT group companies (NTT Communications Corp. and NTT DoCoMo Inc.) will be called on to pay sums toward the subsidy for NTT West that will depend on the amount of their sales. The NTT group is certain to protest as it will end up paying the bulk of the subsidy. Japan and the U.S. are scheduled to negotiate a cut in NTT interconnection charges this autumn. Until now, Japan has resisted U.S. pressure to sharply lower the charges on the grounds that doing so would seriously hurt NTT. But the planned subsidy will likely prompt Washington to step up its demands. (April 14, the Nihon Keizai Shimbun)

NTT East Corp. will launch a low-price fiber-optic net connection service in June. The ''new family type'' category will carry a fixed monthly rate of 5,800 Yen for a 100-megabit-per-second service, NTT East said. Regular monthly fees are 9,000 Yen. Although subscribers will need to conclude separate contracts with Internet service providers, all fees combined are ''certain to be less than 10,000 Yen per month, Tetsuo Koga, director of NTT East, said in announcing the new price plan. NTT East, one of Nippon Telegraph and Telephone Corp.'s (NTT) two regional carriers, decided to introduce the new price category due to the launch last month of a similar service by Tokyo Electric Power Co. (TEPCO), with a monthly fee of 9,880 Yen all inclusive, through its telecommunications unit Tokyo Telecommunications Network Co. Koga criticized TEPCO for not disclosing fees it charges for the use of its fiber-optic network. With the new price category, NTT East plans to expand areas for the B Flet's service to all 17 prefectures in eastern and northeastern Japan by September. The service is currently available in most of Tokyo and some areas in Hokkaido, Kanagawa, Chiba, Saitama, Ibaraki and Miyagi prefectures. (April 11, Kyodo News)

The United States insisted that interconnection rates charged by mobile phone operators in Japan and Europe are above cost, vowing in the process to pursue a rate reduction as a leading item on the U.S. telecommunications trade agenda in 2002. There is growing evidence that mobile wireless operators in the European Union and Japan charge wire-line telecommunications carriers wholesale rates that are significantly above cost, according to the Office of U.S. Trade Representative in its Section 1377 annual review of foreign compliance with telecom trade agreements. The report does not identify any specific mobile phone operators, although the U.S. has argued that the interconnection and access rates charged by Japan's dominant wireless service provider, NTT DoCoMo Inc. are extremely high and nontransparent. If Japan sails to meet U.S. requests for cuts in interconnection rates and other deregulation measures in the telecommunications sector, the matter could develop into a major source of trade friction. In the USTR annual report, Japan and the EU are urged to implement their commitments to the World Trade Organization to provide cost-oriented and reasonable rates. The U.S. will focus on the issue as a matter of priority. (April 5, the Japan Times)

Nippon Telegraph and Telephone Corp. (NTT) is expected to book more than 2 trillion Yen in extraordinary charges for the fiscal year, a decision that is believed to reflect the opinions of overseas investors. The collapse of the communications bubble is a global trend as shown by the several trillions of Yen in losses incurred by European and U.S. communications firms as well as a result of past mergers and acquisitions efforts. Unlike the European and U.S. firms that swapped stocks as a part of mergers and acquisitions agreements, NTT opted to acquire companies and carry out investments with cash, actions that inevitably led to the expected extraordinary charges. The decision to book such huge charges, however, did not come easily for NTT. In February, officials from NTT DoCoMo Inc. and NTT asserted in discussions that AT&T Wireless Inc. shareholdings were undervalued and that it was not necessary to evaluate corporate value based on the share price at the March fiscal year-end. The mood began shifting in early March, however, when NTT DoCoMo leaders met with investors overseas following the firm's listing on New York and London stock exchanges. The NTT DoCoMo leaders are said to have come out of such meetings with shareholders with the feeling that the company would be better evaluated by investors if it actually booked valuation losses. Around the same time, the move by European and U.S. counterparts to book extraordinary charges of more than 1 trillion Yen to deal with goodwill for acquired companies also reduced NTT's resistance to booking large extraordinary charges. Investments and acquisitions undertaken by NTT DoCoMo and NTT Communications Corp. entailed the use of cash. In addition, NTT carried out a public offering in November 2000 for about 280 billion Yen, while NTT DoCoMo did a public offering for about 950 billion Yen in February 2001. Those funds were used toward acquisitions and investments as well. Therefore, it cannot be denied that the cash that was collected from investors through NTT's public offering price and NTT DoCoMo's public offering price effectively went to waste. In fact, the extraordinary charges that NTT is expected to book are a high price to pay for its botched overseas investments. (April 3, the Nikkei Financial Daily)