The Japanese government has ended years of conflict with national telecomms carrier NTT and outlined a plan for its break-up.
The scheme is a compromise with NTT - which has vigorously opposed any break-up - based on one of three options shortlisted recently by the Japanese Ministry of Posts and Telecommunications. It sets up a holding company - the first to be created in Japan since they were banned in 1946 - which will control three autonomous units. These will consist of two regional telephone operators and one international business.
The plan stops well short of completely dismantling the giant, a fact that has raised fears that competition in Japan will still be stifled. However, analysts generally welcomed the move, saying it would force NTT to be more efficient. Toshibo Sato, an analyst at UBS Securities, said NTT would have to reveal more about how it spends its money now.
NTT welcomed the governmnent's backtracking on a full break-up. "We've always been against a split or break-up," said NTT president Junichiro Miyazu. "I think it's fine to call it a reorganisation."
The holding company option addresses one of NTT's key objections to break-up, that its reseach and development resources would be weakened. R&D will be pooled and controlled by the holding company. However, the telco claims one of the regional companies will be unlikely to make a profit, as the bulk of telecomms business is centred on Tokyo and the most profitable calls will come into the long distance unit. The government has yet to decide whether the holding company can offset profits in one company with losses in another for tax and shareholder reasons. Miyazu warned that the agreement could fall apart if this were not allowed. "If even one of the pre-conditions is lacking, I think the whole agreement will collapse," he told a press conference.
NTT will now be able to form international alliances, which were largely prohibited before - it has already been wooed by the BT-MCI partnership. It will also be able to compete with Japan's main international carrier, KDD, whose shares fell 1.25 per cent on the news.
Provided the ban on holding companies is lifted early next year, and shareholders approve the scheme in June, the reorganisation should be complete by 1999.
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