Nippon Telegraph and Telephone Corp. (NTT) has decided to shell out 4.2 trillion yen (about $39.7 billion) to make mobile carrier NTT Docomo Inc. into a wholly owned subsidiary -- a possible game-changing move for Japan's telecommunications sector.
NTT was late to roll out a 5G network compared to the United States and China. Meanwhile, it is being hard-pressed by IT giants dubbed GAFA -- Google, Amazon, Facebook and Apple on the online services front. In short, its international competitiveness is low and getting worse.
Smartphones are a must-have in both business and people's personal lives, and the telecom giant is hoping that taking full control of major smartphone market player Docomo will turn NTT's fortunes around. To make that happen, reworking Docomo into a company providing truly user-centric services will be key.
Docomo was created in 1992 when NTT's cellphone business was split off from the company at the direction of the Japanese government. The aim was to prevent NTT from becoming overwhelmingly dominant in Japan's nascent mobile phone market as it was with landlines. Docomo has grown since the middle of the decade as mobiles became people's main communication tool.
However, the arrival of the smartphone era dealt Docomo a punishing blow. Competitors SoftBank Corp. and KDDI Corp. -- marketed under the au brand -- were able to start selling Apple's hyper-popular iPhone before Docomo, and the company began hemorrhaging customers. Before iPhones landed in Japan, Docomo boasted a market share of about 60%. That has fallen to 37%, while its operating profit has sunk to the lowest of the three big carriers.
NTT has considered reabsorbing Docomo before. However, NTT is still more than 30%-owned by the Japanese government, whose past policy of keeping the two companies separate has cast a sort of binding spell on NTT's strategy. And so the company has been looking carefully for the moment when it might be allowed to get full control of Docomo.
That moment has finally arrived, propelled in part by the determination of the new administration of Prime Minister Yoshihide Suga to boost Japanese firms' international competitiveness. The government has high hopes that NTT, with its extensive stock of capital and skilled workers, will become a driving force behind the Japanese IT sector's return to glory. Meanwhile, the Ministry of Internal Affairs and Communications has also given its blessing to the deal.
There is also hope in official circles that Docomo will be able to reduce mobile phone fees if the company's management can be improved. Suga has been pressing for reduced mobile phone charges since he was the chief Cabinet secretary under the previous prime minister, Shinzo Abe. However, even after taking measures such as prohibiting offering discounts for bundling the cost of handsets with data and call charges, the push for lower monthly phone fees has yielded little, and has come to a complete halt.
And so when NTT President Jun Sawada said the firm had a plan to reduce fees, it was a godsend for the Suga administration.
However, administration of Japan's telecom system risks being warped if the government is seen to be bestowing too much favor on NTT. Including for the sake of the discount mobile carriers leasing NTT's telecommunications network, the government must work to ensure a fair competitive environment.