Commentary: It's Time To Cut Ntt Down To Size

At Nippon Telegraph & Telephone Corp., Japan's mighty phone company, 2000 will be remembered as the year it went global. NTT DoCoMo Inc., the wireless unit that is 67% owned by NTT, purchased stakes in mobile operators in Asia, Europe, and the U.S., including 16% of AT&T Wireless. NTT Communications, the long-distance and Internet service provider, bought American ISP Verio Inc. outright. As regulatory barriers have come down, NTT has joined the likes of Deutsche Telekom and Vodafone AirTouch in staking out turf in the global marketplace.

There's just one flaw in this picture: Japan itself isn't part of the new competitive landscape. Some 14 years after Japan's telecom deregulation began, NTT still controls 50% of long-distance business, 60% of wireless, and 90% of local-phone service.

The remedy is simple: Break up the NTT monopoly. The government took one step in 1999 when it split off long-distance and divided the local company into NTT East and NTT West. Sounds like a breakup--except the units are still 100% NTT owned. No wonder the move prompted few new Davids to take on the NTT Goliath. "We're like children trying to fight a sumo wrestler," says Takeo Tsukada, ex-president of cell-phone operator IDO Corp., which recently joined forces with the KDDI telecom group to try to increase the group's 20% share of the mobile-phone market.

The good news is that NTT's fate is once again a national issue. The influential Telecommunications Council, made up of academics, bureaucrats, and business leaders, is recommending that NTT be given three years to open up phone service to competitors or risk being broken up itself.

ROLE MODEL. Yet some important changes need to happen now. For instance, in fixed-line Internet usage, Japan's penetration rate is about 22%, compared with 53% in the U.S. The main reason is that Japanese have to pay about 10 cents for three minutes of local access, unlike Americans, who enjoy flat phone fees. NTT is lowering the price by 12%, starting in May, to match those of rivals now moving into the newly deregulated local access market. But don't expect any major price drop until there's more competition. "Only [that way] do you get better prices and technology," says Softbank Corp. boss Masayoshi Son.

To get real change, the bureaucrats should spin off NTT Communications and NTT East and West as independent companies. If NTT needs proof of the success of privatization, it need look no further than NTT DoCoMo, the superstar wireless unit that now generates 36% of NTT Group's sales.

But it's not just NTT that needs to change. A whole tribe of politicians and bureaucrats have long taken the side of NTT against free competition. It's time NTT stopped hiding behind the politicians and started to compete as one company among many.

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