Guess Who's Buying American Mighty Ntt

In the late 1970s, the head of Japan's state phone monopoly, Nippon Telegraph & Telephone Corp., told reporters that the only things foreign companies could sell his company would be mops and telephone poles.

Since then, the Japanese goliath has come a long way. Privatized in 1985, it is now beginning to experience competition--and is willing to buy foreign-built equipment to meet the challenge. Last year, $465 million--about 6%--of the phone giant's capital budget was spent on foreign equipment, a 30% increase over 1989. North American companies supplied 95% of it. And advanced products, such as digital switches and transmission gear, made up 70% of that. So, as Japanese suppliers sally forth in the intensifying global battle among telecom equipment makers, competitors from abroad are at last getting a chance to retaliate in kind.

The question is, can NTT keep up its progress? "We'll buy the best products at the lowest possible price," says NTT President Masashi Kojima, but he isn't promising anything. American telecom executives in Tokyo, however, say that their prospects are improving. One reason: NTT needs foreign products, such as systems for toll-free call-in numbers, to keep ahead of its new domestic rivals. And telecom gear is growing more dependent on software--a traditional American strength. Says John P. Stern, vice-president for the American Electronics Assn.'s Asian operations: "NTT has no choice but to work more closely with foreign suppliers."

'BENEFICIAL.' While Japan still isn't wide open, the change is striking. For years, NTT relied on NEC, Fujitsu, Hitachi, and Oki to co-develop and manufacture the hardware for its phone network, everything from integrated circuits to mainframe computers and central switches. NTT shared its vast research and development resources and bought the companies' products.

With deregulation in the mid-1980s, NTT found itself competing head-on with members of the old family. NEC Corp. snatched a big chunk of the business for office-phone systems. Hitachi Ltd. went after cordless telephones, an NTT monopoly until 1985. And after years at the helm of Japan's sole public data network, NTT finds itself pitted against Fujitsu, Hitachi, and NEC.

NTT's "buy foreign" campaign kicked off in 1981 as a response to U. S. trade pressure. But now, it's looking more like a survival strategy. "It's not just to appease America," says a senior official in NTT's International Procurement Office. "We realize these purchases can be beneficial." Take NTT's relationship with Northern Telecom. After finishing field tests on one of Northern's advanced switches in 1987, NTT began placing orders to buy as much as $74 million worth of the gear a year. Northern can't conceal its delight. "These aren't minor components," says one official. "It's the control core of the network."

In another unprecedented step, NTT invited American Telephone & Telegraph Co. to work with its own researchers in developing a new fiber-optic transmission device. Skeptics inside AT&T scoff that it was just a scheme to pick the brains of Bell Laboratories engineers. But Allan K. Yoshimura, managing director of AT&T Network Systems in Tokyo, dismisses that idea. NTT has its own, formidable R&D track record, he points out. "NTT put as many engineers on this as we did," says Yoshimura. "Half the time, we had NTT engineers over here until 10:30 at night." The result was a high-speed device that funnels multiple signals through a single optical fiber. AT&T expects to sell about $150 million worth of them to NTT in the next few years, helping NTT to build a cutting-edge network.

FEELERS. As NTT eases the way for foreign equipment makers in Japan, it's also looking to branch out. Although defined by law as a domestic carrier, it's exploring ventures including a possible cellular-phone deal with BellSouth Corp. in Brazil. And NTT President Kojima is reacting favorably to feelers from British Telecommunications PLC about becoming a partner in BT's new Atlanta-based company, called Syncordia Corp., which will run big corporations' global networks.

NTT can't afford to sit still. Pretax earnings slid 15% last year. And the Posts & Telecommunications Ministry is intent on dismembering NTT in the name of competition. If that happens, the new operating companies--Baby NTTs--"will need all the help they can get" from foreign phone companies and equipment suppliers, says Theodore Iriye, Infonet Services Corp.'s vice-president for Asia-Pacific.

Competitive pressures on NTT are here to stay. That means NTT needs such suppliers as AT&T and Northern to help it meet its customers' needs. After all, it will take a lot more than mops and telephone poles to provide the services that telecommunications customers demand in the 1990s.