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Fri, Feb 07, 2003 - Page 12 News List

Vodafone reconsiders its venture in Japan


The Vodafone Group, the British mobile phone giant, confirmed on Wednesday what many had long suspected: It wants to sell its fixed-line telephone business in Japan. But with cellular phones, Internet telephony and broadband connections fast replacing plain old local phone service, the question is, Who will want to buy the business?

One possible answer, apparently, is Ripplewood Holdings, an American investment fund that already owns a bank and several hotels and electronics companies in Japan.

The business in question is the fixed-line division of Japan Telecom Holdings, which is two-thirds owned by Vodafone. Vodafone wants to concentrate on J-Phone, Japan Telecom's profitable cellular subsidiary.

Japan Telecom says it is entertaining more than one offer, but Ripplewood appears to be the front-runner. Another contender, the Tokyo Electric Power Co, one of Japan's largest utilities, has much of its attention focused on repairing its nuclear power plants. Cable and Wireless IDC, another foreign owner of a fixed-line business in Japan, may not want to get any deeper into a market dominated by the former government monopoly, Nippon Telegraph and Telephone, which carries 90 percent of all local calls.

Whoever ultimately buys the business, the proposed breakup of Japan Telecom, a traditional telecommunications conglomerate, could presage more spinoffs.

Nippon Telegraph, KDDI and Japan Telecom have all operated on the assumption that the best way to win lucrative corporate accounts was to offer a complete slate of services -- local, long distance and cellular -- under one roof.

But the deregulation of Japan's telecommunications market and the introduction of less expensive technology has forced Nippon and others to rethink that strategy. Like consumers elsewhere, the Japanese are doing more of their communicating through e-mail and through Internet-based voice services, at a fraction of the cost of traditional phone calling. More than 60 percent of adults have cellphones. These trends are eating steadily into fixed-line phone revenue. At Nippon's fixed-line units, revenue fell 10 percent in the half-year ended Sept. 30.

The fee increase suggests that Japan's big phone companies have not found a way to offer their full menu of services profitably.

"We cannot say that companies that possess both fixed-line and mobile communications operations have been able to establish business models that generate synergies between the two," said Seiji Eguchi, a credit analyst at JP Morgan Securities.

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