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Tuesday, June 22, 2010
NTT communication giant, answerable to state, politics
Nippon Telegraph and Telephone Corp., the nation's biggest phone company, holds a unique place in corporate Japan.
Although relatively unknown internationally, the carrier has topped all of Japan's more recognizable global companies in profit for the past two years despite having to compete in a cutthroat telecommunications market.
Often hit as monopolistic because it was public-run when it debuted in 1952 and is still under partial government control, NTT was nominally privatized in 1985 and broken up in 1999. Criticism of its dominance has continued, however, and the juggernaut remains a political football for high-powered politicians eager to keep votes.
How big is NTT?
The NTT Group consists of five main companies — NTT East, NTT West, NTT Communications, NTT Data and NTT DoCoMo — under the wing of a holding company.
NTT East and West are mainly land-line, IP phone service and home Internet service providers. NTT Communications and NTT Data run an information and communications technologies solutions business for companies and NTT DoCoMo is Japan's biggest cell phone carrier.
Overall, NTT had 530 affiliated companies as of March.
What is driving the NTT Group's performance?
One factor is that the communications industry is less affected by changes in economic conditions. Because NTT's operations are mostly domestic, overseas sales accounted for only ¥270 billion of its more than ¥10 trillion in sales in fiscal 2009.
NTT also commands its own business infrastructure, including the nationwide phone line network it was tasked with building when it was a state-run company.
That, combined with its long history, have given NTT strong brand recognition, and many consumers generally view it as dependable.
With the shift to mobile communications, however, NTT is now getting about 40 percent of its annual sales and 75 percent of its operating profit from DoCoMo.
What is the history of the NTT Group?
The company was founded as Nippon Telegraph and Telephone Public Corp. in 1952. Its mission was to rebuild and improve the national communications infrastructure, including telephone, telegraph and other data networks that were heavily damaged by the war.
As the nation's sole telecommunications company, it took NTTP until the late 1970s to complete its mission. After the economy began surging, however, the government moved to privatize NTTP in 1985 to create competition in the industry.
At the time the NTT Law was passed, the company had more than 300,000 employees and ¥780 billion in capital. But it is still not completely private. The NTT Law allows the government to maintain a one-third stake.
Did NTT start as one company?
Yes, but it was not broken up into its current holding company structure until 1999.
According to Masaki Kanda, author of "NTT Mineika no Kozai" ("The Merits and Demerits of the NTT Privatization"), the government apparently didn't put a lot of thought into NTT's privatization because it was preoccupied with privatizing another behemoth — the Japanese National Railways.
According to Kanda, the government was supposed to review NTT five years after privatization but delayed it until 1999 because of resistance from lawmakers and NTT employees.
This is how it worked: The union ranks feared their power would be weakened if the company was divided, and lawmakers dependent on NTT's unionized voters didn't want to lose their support, Kanda said.
Has privatization worked well?
This is the subject of longtime debate in the communications industry and among lawmakers.
NTT's management has often drawn flak from rival telecom carriers who feel its government legacy has made it too dominant, whether divided or not.
For instance, other than the land-line network, NTT East and West command more than 70 percent of the fiber-optic Internet line market, while DoCoMo has nearly half of the cell phone market.
In addition, the NTT Group eclipsed its rivals by posting ¥10.1 trillion in sales in fiscal 2009, compared with ¥3.44 trillion for KDDI Corp. and ¥2.76 trillion for Softbank Corp.
KDDI President Tadashi Onodera and other experts have said each unit in the NTT Group should be separated completely from each other in terms of their shareholdings and cash to prevent them from acting together as one company.
What is the counterargument?
Because NTT, NTT East and West have to conform with the NTT Law, they cannot act like normal companies. For instance, because the communications infrastructure is crucial to daily life, NTT West and East are obligated to provide phone access anywhere in the country, even if it is unprofitable.
NTT must also submit a management plan each year to the communications ministry, implying that its decision-making process is not 100 percent independent.
NTT also says that KDDI and Softbank are logging combined sales of more than ¥6 trillion, which is more than four times what they were making in 1999 and a sign that healthy competition is flourishing. It also says that even though the company is topping others in operating profit, its profit margin is not necessarily higher.
What are the other issues swirling around NTT and its structure?
Communications minister Kazuhiro Haraguchi has declared that Japan will have broadband Internet connections in all households by 2015.
This has sparked talk of further restructuring for NTT, particularly by spinning off the fiber-optic Internet units at NTT East and West into a combined company that would specialize in that infrastructure.
The government drafted a plan in 2005 under then communications minister Heizo Takenaka, who favored breaking up NTT, to force a review this year.
While a ministry committee tried to postpone it until 2011, Haraguchi has stated that he is planning to come up witha course for restructuringbefore the end of the year.
It has been 25 years since NTT was privatized. Why do its structure and management remain such a big issue?
"When you look at the root of this issue, there are lawmakers," said Nobuo Ikeda, an economist and longtime observer of NTT's privatization.
Because bureaucrats at the communications ministry and certain lawmakers have a strong influence on decision-making at the company, "NTT's profits can easily be manipulated by their decisions," Ikeda said.
Therefore, NTT and its union have been supporting lawmakers who can influence telecommunications policy.
NTT has about 300,000 employees and about 200,000 are in its union, representing a huge organized vote, he said.
"NTT can be easily used for politics. I think that's the biggest factor (that has prolonged this issue)," Ikeda said.