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BT, AT&T in Japan deal
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April 25, 1999: 10:17 a.m. ET
The latest telecom deal has BT and AT&T linking up with Japan Telecom
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NEW YORK (CNNfn) - British Telecommunications Plc. and AT&T Corp. Sunday said they will acquire a 30 percent stake in Japan Telecom Co. in a $1.83 billion deal that marks the latest move in a global shakeup of the telecommunications industry.
Under terms of the deal, announced in Tokyo, BT and AT&T will each acquire a 15 percent equity stake in Japan Telecom. Through a holding company, BT will have an economic interest of 20 percent and AT&T will hold 10 percent. Both companies will appoint executive and non-executive directors in Japan Telecom.
Japan Telecom provides international, long distance, data, Internet and local service in Japan with some 17 million customers. It also has stakes in digital mobile companies, which have more than 6 million customers.
An important foothold
The deal will give the two western operators a significant foothold in the Japanese telecommunications market, the world's second largest and an important missing link as they try to offer seamless data services that covers the global market.
It also marks the first AT&T-BT joint investment since the two companies announced an $11 billion joint venture for their international operations in July. That venture is still awaiting final regulatory approval.
"Japan has one of the largest concentrations of multinational companies in the world," C. Michael Armstrong, chairman and chief executive officer of AT&T, said in a statement. "It's an extraordinary growth opportunity for all three companies and it is essential that the global venture have a strong distributor in this key market."
Japan Telecom will become the sole distributor of BT and AT&T's proposed global venture branded services and a preferred supplier of services to the venture. The alliance will cover markets in the United States, Europe and Japan.
"The agreement will strengthen further the company's position in the Japanese market with the backing of two such strong brands as AT&T and BT," Koichi Sakata, chairman of Japan Telecom, said in a statement. "It will also give Japanese customers access to exciting new products and services that the two companies' new proposed global venture will bring."
BT will also line up as the core member of Japan Telecom's next-generation mobile phone venture, owned jointly with the world's largest mobile phone operator Air Touch Communication.
"When BT entered the Japanese market in 1985, our ambition was to become a strong force in the world's second largest telecommunications market, which is worth about $100 billion a year," Sir Peter Bonfield, BT's chief executive said. "This deal will allow Japan Telecom to become the number one challenger in Japan."
The deal, which had been widely expected, is the first large investment by outside investors in Japan's deregulating telecommunications sector. It's also the latest in a series of partnerships and mergers sweeping the industry as major telecommunication firms prepare for dramatic changes in the way voice, data and video signals are beamed around the world.
A wave of telecom deals
Last week, Deutche Telekom and Telecom Italia unveiled plans to combine operations in a deal valued at $82 billion dollars.
And AT&T launched an unsolicited bid to acquire MediaOne for $58 billion in cash and stock.
Companies from different countries are teaming up to compete globally as many once government held telecom companies are now being privatized, and traded on international stock markets.
The deal comes amid a heated takeover battle between Japan's former state-monopoly Nippon Telegraph and Telephone Corp and Britain's Cable and Wireless Plc (CW) over International Digital Corp, a small international service provider. The battle is expected to drag on for months.
Sunday's move is also expected to spur a wave of consolidation in Japan's crowded telecommunications sector, now dominated by NTT.
Japan Telecom provides leased line and long distance services through fiber optic networks running along railway lines owned by its major shareholders, the Japan Railway Co. group. It has a long customer list of Japan-based giant multinational companies, and is a player in the mobile phone market.
Japan Telecom reported a net profit of 8.1 billion yen on a consolidated base in the year ended on March 31. But, like other newcomer Japanese telecom operators, it expects profits to sharply shrink in the current business year -- to around five billion yen -- amid competition to cut rates and heavy investment burdens.
Given Japan Telecom's huge funding requirements, some analysts say BT and AT&T will have to make additional investments soon, with the Japanese carrier eventually ceding substantial management control to them.
Industry sources said BT and AT&T were pushing to take more than 33.4 percent of Japan Telecom -- enough to have a veto over major management decisions.
"Whether and when Japan Telecom will become a full subsidiary, both in name and in substance, is the issue that is attracting keen industry attention," said Credit Lyonnaise Securities analyst Atsuo Takahashi. 
-- from staff and wire reports
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