MITO: Japanese telecom giant Nippon Telegraph & Telephone, or NTT, announced on Tuesday it will spend 4.3 trillion yen (USD 38 billion) to buy out and take private its mobile unit NTT DoCoMo in one of the largest ever deals of its kind.
NTT and NTT DoCoMo executives released details of the plan on Tuesday. The move is intended to enhance the competitiveness of the NTT group as it consolidates its services, said NTT's CEO Jun Sawada. "We want to be a game changer," Sawada said.
He said that between September 30 - November 16 the company would buy DoCoMo's shares at a price of 3,900 yen. DoCoMo's shares were last trading at 3,213 yen. NTT held about 66% of DoCoMo's shares as of March 31. The company said that the acquisition will be financed by bridge loans, not a share offering.
The restructuring dovetails with newly installed Prime Minister Yoshihide Suga's push for lower telecoms rates and more consumer and business-friendly services. It is expected to enable DoCoMo to offer cheaper rates in competition with rivals such as SoftBank and KDDI.
Suga has made expanding digital services a main part of his policy agenda and has called for reforms of the industry’s complex pricing policies and relatively inflexible contract arrangements. Pressures to improve such services have intensified with the push for remote work during the coronavirus pandemic.
NTT's shares fell 2.7 per cent ahead of the announcement, which was made after markets closed. DoCoMo's shares were suspended from trading. Share prices for other NTT subsidiaries surged ahead of the announcement.
NTT DoCoMo is Japan’s largest mobile carrier, with more than 70 million subscribers. It was founded in 1992. According to its website, it holds a 44.2 per cent market share compared with the 32per cent share held by KDDI's au brand. SoftBank is third ranked, with a nearly 24 per cent share.
Although DoCoMo is the market leader, its profits have been eroding, a factor that helped drive the decision to consolidate. Sawada said there was no direct link between the buyout and cutting mobile subscription prices.
"However, by doing this, DoCoMo will get stronger. That’s why we are doing this. As the result of this, we could build a stable foundation which apparently could give us power to decrease the price," he said.
The NTT buy out is the biggest ever in Japan and one of the largest worldwide. The biggest so far was the USD 48 billion acquisition of Dallas, Texas-based energy utility TXU Corporation, now known as Energy Future Holdings, by Kohlberg Kravis Roberts, the Texas Pacific Group and Goldman Sachs Capital Partners in 2007.
A trend toward such deals appears to be gathering pace, as Japanese companies sitting on big cash piles adjust their business strategies in a time of growing uncertainty.
NTT traces its roots to 1869, the early days of the telegraph in Japan. Founded in 1952 as the government phone utility, it was privatized in 1987. The company has expanded its network services as its fixed line business has been largely supplanted by mobile phones, at least for individual users.
Japan's mobile phone rates are on average about half the costs charged in the US and much lower than in Canada and South Korea, according to a study by telecoms services research firm cable.co.uk.
However, at about USD 3.90 for 1GB of mobile data costs in Japan are far higher than in many European and Asian countries, such as China, where 1G cost 61 cents and India, where the cost was only 9 cents.