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Friday, Sept. 11, 1998

Telecom giants poised to buy in Japan, analyst says


Staff writer

Mergers and acquisitions within the global telecom industry will continue at an even faster pace than before, according to a leading U.S. telecom analyst.

"In all markets, basically everything is up for grabs in the U.S., Europe and Japan, and probably other places as they open up their markets as well," said Jack Grubman, managing director of Salomon Smith Barney during an interview in Tokyo.

Grubman, who has 21 years' experience as a telecom analyst, said that with the deregulation in Japan, global carriers that are not Japanese will try to expand their assets here through mergers and acquisitions.

This year, Japan lifted a 30 percent limit on foreign ownership of Type 1 carriers, which operate independently using their own lines. The New York-based analyst contends that the world's telecom industry has seen a drastic shift toward liberalization and toward a truly cross-border industry over the past five years.

"Five years ago, less than 10 percent of the telephone lines around the world were in markets that had competition. Today, over 85 percent of the world's telephone lines are in markets that have competition," he said.

Grubman predicts that in the future global telecom market, there will be four to six global fully integrated players that will connect voice, data and Internet traffic end to end on their own networks.

According to Grubman, such telecom firms will include U.S.-based WorldCom, AT&T Corp., Deutsche Telekom, and Nippon Telegraph and Telephone Corp.

But none of these major firms has all of the assets it needs, he pointed out. For example, Deutsche Telekom cannot deliver calls in Tokyo, so it seeks partners in DDI Corp., Japan Telecom Co. or others. Likewise, NTT needs assets in the U.S. and Europe, and there are potential partners there with which they can merge or make joint ventures, he said. "The telecom industry by definition was a single country industry. So nobody was born with global assets, and you have to acquire or build your assets because the industry has become really global in the last several years," he stressed.

Grubman said that as they seek to operate worldwide, their targets will not only be limited to telecom firms that have local networks but will also include companies like Global Crossing Ltd., which provide telecom firms with undersea fiber cable capacity.

Global Internet traffic is said to be growing at 200 percent to 300 percent a year, according to Grubman.



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