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Japan giant NTT eyes U.S. expansion

Asia's largest player, Nippon Telegraph and Telephone, needs to raise its U.S. presence and improve its network, according to the company's international division chief.

SAN JOSE, Calif.--In the midst of the feverish acquisition dance going on between most of the world's communications giants, one of the largest of them all stands apart.

Japan's Nippon Telegraph and Telephone (NTT) has long loomed over the Asian communications market, with a valuation that dwarfs even AT&T. But it has yet to jump into the merger frenzy that has left AT&T, MCI WorldCom, Deutsche Telekom and other peers scrambling.

That could change as it solidifies its hold on the Pacific Rim, said Masanobu Suzuki, chief executive of the company's international division NTT Communications. Already Asia's largest player, the company needs to raise its U.S. presence and improve its network, he told CNET in an interview at a recent company conference here last week.

"It is necessary to invest some significant amount of money to acquire this capacity," said Suzuki. "But I can't say specifically whether this would be through acquisition or through investment."

Until recently a comfortable monopolist in its home market, NTT now faces new competition from other communications companies such as cable firms and even utilities, as well as from companies spawned by the Internet. It is a familiar refrain for firms in Japan, such as Sony, and elsewhere, as the explosion of communications forces strategic shifts midstream.

Communications markets in the United States and Europe have been reshaped in the last few years as the biggest companies have forged a series of rapid-fire, record-breaking mergers. Most recently, Germany's Deutsche Telekom was identified as a suitor for Qwest Communications International and US West, before withdrawing as a result of a quarrel between the two U.S. merger partners.

Analysts say the consolidation is driven by the need to win as large a global footprint as possible, in order to serve global corporations. The companies also are seeking to offer local and long-distance voice, data and wireless communications as all of these services become linked through Internet-based networks.

NTT is the unquestioned leader in the Asian market, with annual revenues of more than $80 billion. Its reticence in moving beyond that sphere is partly tied to its own internal difficulties over the past year, however.

Last summer, the company went through a sweeping restructuring, similar to the breakup of AT&T in 1984. NTT was split into several different operating companies, including two regional local phone firms, a wireless phone division known as NTT DoCoMo, and international and long-distance firm NTT Communications.

While all still are owned by the parent holding company, they now operate effectively as separate firms. The wireless-focused NTT DoCoMo quickly has achieved the highest profile, with an innovative mobile Internet service that has exploded on the Japanese market over the last year.

But the company see story: Mergers: How big is big enough?needs to capitalize on that success quickly, while it has momentum and while attractive merger partners are still on the market, some analysts say.

"If there is a time for them to move aggressively, it is now," said Elliot Hamilton, lead telecommunications analyst at the Strategis Group. "They've not only got the capital, they've got the wireless Internet, which they can use as leverage."

Suzuki, who has led NTT's international division since July, is a quiet, careful man in person, a far cry from the flaunted ambitions of Qwest's Joe Nacchio or MCI WorldCom's Bernie Ebbers. After 35 years in the company, he says he's now looking to push the giant toward the Net, a strategy also being pursued by AT&T, MCI WorldCom and others.

In the United States, his firm has invested in Internet access and Web hosting firm Verio, and is close to opening its first Web hosting data center in San Jose, Calif. New Net services, such as applications service hosting, will be added on top of that infrastructure for U.S. and Asian customers.

"Right now our first priority is the trans-Pacific market," Suzuki said.

The company now focuses on Japanese corporations with overseas offices, or on U.S. firms that want to reach Japan. But even that business will require creating a U.S. backbone in order to compete with AT&T and its Concert venture, MCI WorldCom, and the new undersea operations like Global Crossing and Qwest, the executive said.

Analysts say this goal points to acquisitions or partnerships.

"Building organically would just take too long," said Andy Belt, executive vice president at Renaissance Strategy, a Boston-based technology consulting firm. "I don't think they're too late to the market. These things are expensive, but given their financial strength, they could do it."

Suzuki declined to say whether he was leaning toward any particular U.S. players as partners.

"There are lots of good companies in the U.S.," he said. "I can't say which is the best."