NTT units to regroup to kill off broadband competitors - The pulse: the word on the street from the heart of Tokyo - Company Profile

Japan, Inc., May, 2003 by Bruce Rutledge

Nippon Telegraph and Telephone is reportedly planning to join together units of its empire to form a more cohesive broadband operation. If the report is true, NTT could quickly have competitors in a stranglehold. Meanwhile, Softbank is scrambling for cash in an attempt to be ready for the next phase of Japan's broadband battle.

The Nihon Keizai Shimbun newspaper in March said four NTT group firms--the holding company, NTT Communications, and NTT East and West--would form a joint venture as early as this year to compete in the broadband market. The plan is to be included in the parent company's medium-term business plan to be released in April.

With Japan establishing itself as one of the cheapest markets in the world for broadband services, NTT has decided to try to strong-arm its competitors. The joint venture would offer everything from Internet access to ADSL connections to Internet protocol (IP) telephone services, and the NTT infrastructure would make it very hard for competitors like Softbank to compete. The only competitors large enough to fight toe-to-toe with a reunited NTT would be Tepco and the other electric utilities, which are wading into IP phone and fiber-to the-home services.

But Softbank is the main reason Japan has cheap ADSL connections. It started the price war in 2001 and hasn't let up since. Most recently it has sold shares of some of its US holdings, including Yahoo, to raise money for the next phase of the battle and to pay down debt. The Associated Press reported in March that the company plans to raise an additional $77 million by selling 8 million shares in UTStarcom, a US broadband equipment maker, some time in April.

But how long can Softbank CEO Masayoshi Son fight against the deep pockets of an NTT banded together with the sole purpose of eliminating pesky price-cutters like Softbank? Even Son would have a hard time fighting a unified NTT. Isn't that why the empire was broken up four years ago? NTT is bound to argue that it doesn't dominate broadband like it dominated conventional phone services before its 1999 breakup. But the "chaos" of the current broadband market in Japan has irked NTT for some time. It doesn't like what it can't control. And this latest plan is all about controlling the broadband market like it controls the regional phone market. That would mean the slow death of competition, quiet price hikes and an end to all the "chaos" that makes Japan's broadband market one of the few dynamic markets in a lackluster economy.