THE Pacific : 3 Major Rivals Gaining on Nippon Telegraph : Competition Forces Former Telecommunications Monopoly to Cut Its Rates

Nippon Telegraph & Telephone, once Japan’s telecommunications monopoly, is facing stiff competition from its rivals after being privatized three years ago.

Three major carriers that started operations in September, 1987, and offering service 20% cheaper than NTT’s, have seized about 10% of the long-distance phone business in the Tokyo-Osaka corridor, where more than 70% of Japan’s population lives. And a new round of rate cuts has been announced to further intensify the competition.

Kanji Koide, NTT’s corporate strategy manager, cited competition from the new rivals as the main reason for the company’s 14.6% decline in pretax ordinary profit and a 0.9% slide in after-tax profit for the first half of the current fiscal year.

Despite its first decline in profit since privatization in April, 1985, NTT announced that it will lower its own long-distance rates (200 miles or more) by 8.3%, to $2.75 (330 yen) from $3 (360 yen) for a three-minute call. NTT also said it would reduce adjacent-city and middle-distance rates.

Some Calls Drop 20%

The reductions, expected to go into effect in February, will be the second in NTT long-distance charges since privatization but the first in 16 years in rates for adjacent-city calls.

NTT’s competitors, Koide estimated, had seized about 9% to 10% of the $6.6-billion long-distance business in the Tokyo-to-Osaka region.

“In extreme cases,” he said, out-of-city calls from NTT’s exchanges in business districts of Tokyo, Nagoya and Osaka had plunged by as much as 20% since the new carriers installed their own long-distance lines and began service. They rely upon access to NTT’s lines for local connections.

NTT will reduce the differential in its long-distance rates compared to its competitors to about 10% after its new rates are implemented, Koide said.

NTT had hardly made its announcement, however, before one competitor, Nippon Telecom, disclosed that it plans to step up the competition. The firm, which is owned by a group of companies affiliated with Japan Railways, said it would cut its long-distance rates by 7%, to $2.33 (280 yen) from $2.50 (300 yen) for a three-minute call.

The move, which the other two new carriers were expected to follow, will widen the gap to nearly 18% between NTT’s rates and those of its competitors.

Osamu Kajima, manager of NTT’s accounting department, said that during the current fiscal year, the giant phone company will exceed a goal that it had set for itself of reaching $3.3 billion in pretax profit.

“That is the level that will allow us to pay taxes and dividends and leave enough funds for expansion,” he said. “Therefore, we don’t think that our performance was so bad” despite the drop in profit.

For the current fiscal year ending next March 31, NTT predicted that it would earn $3.5 billion in pretax profit, 4% less than the forecast it made at the beginning of the year, and $1.9 billion in after-tax earnings. Revenue was expected to amount to $46.8 billion.

Koide noted that other factors in NTT’s profit decline came from the spin-off of data communications business into a new subsidiary in July and its first post-privatization reduction in long-distance rates last February.