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The Ntt Breakup That Isn't

International Business: JAPAN


A three-in-one structure will let the giant keep a monopoly

The Dec. 6 agreement to break up giant Nippon Telegraph & Telephone Corp. is a classic Japanese triumph of form over content. True, NTT will be split into two regional carriers and one operator handling both domestic long-distance and international services. But at the same time, these entities will be reconstituted under a holding company--one run by none other than NTT's current management.

The deal, not likely to be fully implemented until 1999, is a victory for NTT and a setback for reformers inside the Ministry of Posts & Telecommunications (MPT), who favored breaking up NTT into truly competing companies and lowering all barriers to rivals in the domestic market. The 14-year debate over NTT's future was a chance to cut away the thicket of regulations that have bred complacency and high costs in Japan's telecom industry. But pressure from the Liberal Democratic Party led by Prime Minister Ryutaro Hashimoto forced the MPT to cave in to NTT, which controls 80% of the Japanese market. The big loser is the domestic economy, which will be denied the benefits of unbridled telecom competition.

NTT can now accept a breakup because the new holding company will maintain its monopoly on local telephone service and its ability to charge high access fees to any long-distance rivals that want to lease its lines. Competitors to NTT in the domestic long-distance market pay out nearly half their revenues to NTT, limiting discounting. As a result, long-distance charges in Japan are 5 to 10 times higher than those in the U.S. Service also suffers. NTT charges extra for itemized bills, while a new phone line costs $650.

Foreign rivals, and Japanese companies desperate to cut telecom costs, hoped for a different outcome. But investors, happy that NTT 's pricing clout was unscathed, bid the stock price up 9.5% in four days. As NTT branches out into international markets, its cash and domestic dominance will make it an attractive partner, either to AT&T or the British Telecom-MCI linkup. Strong demand for data communications and cellular services helped NTT's pretax profit climb by 64%, to $1.8 billion, in the six months through September.

The outcome to the debate over NTT's fate should not surprise anyone familiar with Japan. Whereas the AT&T breakup was led by a Justice Dept. concerned with monopolistic practices, Japan's Fair Trade Commission was a bystander to the talks. In fact, bureaucrats and NTT executives brokered the final deal behind closed doors. The goal was to create a national champion that can compete abroad, not to champion consumers who need a break. If Hashimoto's next reforms are equally superficial, Japanese prices and practices will disconnect even further from international norms.By Steven V. Brull in Tokyo

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