Asia Times: Japan Telecom shares surge as AT&T, British Telecom buy in



	April 28, 1999	atimes.com

Japan Economy

Japan Telecom shares surge as AT&T, British Telecom buy in
Bloomberg News

Tokyo - Japan Telecom Co. shares surged as much as 9.2 percent after AT&T Corp. and British Telecommunications Plc agreed to buy 30 percent of the company for 220 billion yen ($1.85 billion) in cash and other assets, the largest international investment in Japan's phone industry.

Before the end of the trading day, shares of Japan's fourth-largest phone company had risen as much as 170,000 yen to 2.01 million yen, matching the 52-week high reached March 30. About 2,000 shares had traded, more than twice the three-month average for a full day. In the past three trading days, Japan Telecom's shares have risen more than 26 percent.

The biggest U.S. and U.K. phone companies will buy 191,914 new Japan Telecom shares at 1.15 million yen each, 38 percent below Friday's close. In addition to about 140 billion yen in cash, AT&T and BT will also fold their existing Japanese operations into Japan Telecom.

The purchase will give AT&T and BT a larger presence in the world's second-largest phone market. It's the first investment for the companies' planned $10 billion joint venture that will compete with MCI WorldCom Inc. and others in the race to provide services worldwide to multinational corporations.

''BT and AT&T need an Asian beachhead,'' said Brian Adamik, senior vice president at market research firm Yankee Group. ''This gets them there quickly."

The Japan Telecom investment is the latest sign foreign companies are ready to bet on a recovery in Japan's economy, the world's second-largest. Last month, French automaker Renault SA agreed to buy about 37 percent of Nissan Motor Co. Meanwhile, Cable & Wireless Plc, Britain's No. 2 phone company, is planning to raise its bid for International Digital Communications Inc. to ensure it gains control of the Japanese phone company.

British Telecom rose 1 pence Friday to 994p, and its American depositary receipts climbed 1 5/8 to 162 1/8. AT&T shares fell 3 3/8, or 6 percent, to 53 3/8.

''No corporation can achieve global play without being in Japan,'' AT&T President John Zeglis said at a press conference. ''This is a must-do market for AT&T."

Though AT&T and BT already have operations in Japan, the investment in Japan Telecom will give the two companies greater clout to challenge MCI WorldCom, the first foreign company granted a license to offer phone services there.

Japan Telecom will become an ''important partner'' for the AT&T-BT venture's Asian strategy, said Koichi Sakata, Japan Telecom chairman. The Japanese company will be the sole distributor of AT&T and BT services in Japan.

The alliance also strengthens Japan Telecom's efforts to challenge Nippon Telegraph & Telephone Corp., the country's largest phone company.

Once AT&T's WorldPartners alliance, which links AT&T with 18 phone companies outside the U.S. and Europe, dissolves after this year, Japan Telecom will take over its business resources in Japan, AT&T's Zeglis said.

''With the weight of BT and AT&T behind Japan Telecom, we will position as the No. 1 competitor in Japan,'' said Alfred Mockett, who heads BT's international division.

The companies expect the investment to help boost revenue in Japan more than 10 percent. ''The market itself is growing around 10 percent; we think we can growth faster than that,'' Mockett said.

For BT, the investment ends a long search for a partner in Japan's $108 billion phone market. It follows a string of BT investments over the past year in Asia, where cash-strapped governments have only recently begun to allow access to international telecommunications companies.

''We believe Asia is a critical market,'' said Andy Green, BT's group director of strategy and development.

East Japan Railway Co., the world's largest railroad company, will remain Japan Telecom's largest individual shareholder, with a 15.1 percent stake. Other Japanese rail companies, including West Japan Railway Co. and Central Japan Railway Co., will own a combined 33.9 percent.

Japan Telecom is building a nationwide fiber-optic network along the country's railroad tracks. The company, which has 70 million customers, had about $3 billion in revenue last year.

AT&T and BT plan to use the network to provide new high- speed data services to customers. ''The rights of way take us right into the heart of every city,'' BT's Mockett said.

The ventures AT&T and BT will contribute to Japan Telecom will give the company about 400,000 Internet customers, making it one the country's top five Internet service providers. BT and AT&T will appoint executives to head Japan Telecom's new multinational sales and data units.

As part of their venture, BT and AT&T plan to build a fiber- optic network connecting the world's 100 largest cities. This is the first joint investment for the two companies, which are also considering purchases.

The two companies said they're thinking about making other buys. ''This is the first outing we've had as partners,'' Zeglis said. ''We will be doing more elsewhere in the world."

As part of the agreement, BT will fold its Harmonix joint venture with Marubeni Corp. into Japan Telecom. The venture, which has a fiber-optic network in Japan and licenses to offer wireless local phone services in Tokyo, Osaka and Nagoya, began offering international phone services to businesses this month.

AT&T will contribute its AT&T Jens venture. Jens, which provides Internet access to businesses, was formed in 1984 by AT&T and 25 Japanese corporations, including KDD Corp., Fujitsu Ltd. and Hitachi Ltd.

BT and AT&T will make the joint investment through a holding company. BT will pay about $975 million in cash, while AT&T will pay about $200 million. BT will own more of the holding company, giving it the equivalent of 20 percent of Japan Telecom and AT&T 10 percent, though the two companies will have equal voting rights.

BT and AT&T said they may change their relative investments in the holding company over time. Each company will appoint two directors to Japan Telecom's board.

The transaction, which the companies expect to complete within six months, will add to AT&T earnings from the start. For BT, it will be slightly dilutive after goodwill charges.

Separately, BT will invest an undisclosed amount in IMT-2000 Planning Corp., a joint venture of Japan Telecom, Nissan Motor and AirTouch Communications Inc. to develop high-speed, large- capacity cellular phone services in Japan. Japan Telecom has a 40 percent stake in the venture, which needs as much as 600 billion yen to start the new mobile phone services, the company said in December.

The investment in Japan Telecom comes on the heels of AT&T's $62.5 billion bid last Thursday for U.S. cable-television provider MediaOne Group Inc. Some AT&T investors are concerned the company, which just bought No. 2 cable provider Tele- Communications Inc. for $59.4 billion, is making too many acquisitions too quickly.

Zeglis said AT&T is pushing to make investments around the world that will give it an edge in winning the highest-spending customers. The strategy won't leave the company stretched too thin because AT&T doesn't have to directly oversee all of the investments.

The Japan Telecom investment, for example, will be managed by the AT&T-BT venture, not AT&T itself, he said. ''This doesn't require us to run things from Basking Ridge,'' Zeglis said. ''We've grown up on that one."

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