Japan, NTT in Pact to Open Up Phone Business to Competitors

After years of argument over whether to break up telephone giant Nippon Telegraph & Telephone Corp., the company and the government announced today they have agreed on a compromise that will open the market to competition while keeping NTT intact.

The $58-billion-a-year entity would be split into three firms under a holding company in mid-1998 if necessary legislation is approved by Japan’s Parliament. Among other things, it could create a powerful new competitor in international telecommunications.

Currently, NTT is banned by Japanese law from providing international telephone service. It also holds a near-monopoly over local connections, which would be ended under the new plan.

The system approved by NTT and the Ministry of Posts and Telecommunications calls for NTT to be split into two regional companies providing local service and one long-distance company that would be allowed to enter the international market.

All three firms, however, plus existing NTT subsidiaries would be under a holding company, according to the plan. That was seen as a way to preserve NTT’s high-quality research laboratories--key to Japan’s technological competitiveness--with a strong corporate funding base.

The decision marks an important victory for NTT, which had fought against various breakup proposals ever since a government panel on administrative reform recommended in 1982 that it should be divided into several firms to promote competition.

NTT was officially “privatized” in 1985, with some shares bought and sold on the Tokyo stock market ever since, but the majority of shares are still owned by the Japanese government.

Several questions still hang over the plan. In a holdover from steps taken by the post-World War II U.S. occupation to break up the country’s giant prewar conglomerates, holding companies are illegal in Japan.

The government of Prime Minister Ryutaro Hashimoto, which is dominated by the conservative pro-business Liberal Democratic Party, has expressed interest in revising that law to allow holding companies. There has been opposition to those proposals in the past, however, from the key Social Democratic Party.

NTT stock rose 2.3% on Thursday amid Japanese media reports that such a plan would be enacted.

Analysts say the decision to reach a compromise that falls short of a complete breakup of NTT was prompted partly by the merger last month of British Telecommunications and MCI Communications Corp. Japanese officials apparently feared that if NTT was broken into completely independent firms at a time when global giants are emerging in the telecommunications field, Japan could be placed at a competitive disadvantage.