Government to reduce NTT stake

7 Jan 2005

The Japanese Ministry of Finance (MoF) has revealed plans to sell up to 1.12 million shares in fixed line incumbent NTT, a move which will reduce its holding to around a third, the minimum stake allowed; it currently holds a 45.95% stake in the telco. The sale, which is expected to take place later this year, will make around JPY450 billion (USD4.3 billion), although the government says it has only budgeted JPY344.1 billion. According to MoF officials, the process is still awaiting a final decision, and the amount of shares actually sold will depend on market conditions. The government has not sold any shares in NTT since November 2000 because of the weak market. NTT’s share price closed at JPY452,000 on Thursday, down 1.3%.

NTT, which provides services through its NTT East and NTT West divisions, has managed to maintain its stranglehold on the Japanese fixed line market, despite the country having been one of the first to liberalise the sector back in 1985. Its high last mile interconnection rates and slow responses to its rivals’ requests for co-location space are the main reasons for the lack of competition, and the regulator has been forced to intervene on several occasions to stop its anti-competitive behaviour. As well as basic voice services, NTT also provides an IT offering through its NTT Data unit, and a suite of business services including telegraph, leased line circuits, data transmission and digital data exchange. It has been focusing on the provision of broadband services, but has not been as successful in this sector as its rivals, as it was slow to recognise the potential of the market.

NTT has been suffering from financial problems since 2001, although its balance sheet did begin to improve in 2003/04. Its net profit more than doubled in fiscal 2003, buoyed by the sale of a stake in mobile operator NTT DoCoMo, with net income rising to JPY643.9 billion (USD5.62 billion), up from JPY233 billion the year before. However, operating profit at NTT East and NTT West declined and the telco has also issued a gloomy forecast for the coming year, saying that profit growth will stall and sales decline due to rising competition. In September 2004 NTT suffered a further blow to its balance sheet, when a price war erupted as its rivals KDDI and Japan Telecom began rolling out cheap services to undercut it. This scenario looks likely to continue into 2005.

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