Pioneer TTNet seeks power alliance

Challenger to NTT's local dominance now unwilling to go it alone

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Tokyo Telecommunication Network Co., which broke NTT’s dominance of the local call market two years ago, must diversify and form alliances with Japanese and foreign carriers to survive rising competition, TTNet President Katsumi Iwasaki says.

“I personally think that all 10 carriers affiliated with electric power companies (including TTNet) should consider merging,” he said. “But it will not be easy, because each of us was set up to serve local communities with different service programs.”

TTNet, which is owned 36.2 percent by Tokyo Electric Power Co., has gradually expanded its scope of operations since it began leased-line services in 1986.

TTNet uses a 60,000-km optical-fiber network that runs along the electric power cables of the Kanto region to offer data and voice transmission services to corporate users in its nine prefectures.

Its high-speed digital data transmission service, which uses leased lines, has captured 30 percent of the market, according to Iwasaki.

To branch out into consumer fields, TTNet started local and long-distance telephone services by the name of Tokyo Denwa in January 1998.

“With our (optical-fiber) lines spread almost all over the region, we depend less on NTT’s network and thus set lower charges for our services,” explained Iwasaki, who jumped from Tepco to TTNet in 1996.

As the first entrant to a local call market newly freed from the grip of Nippon Telegraph and Telephone Corp., TTNet announced its presence by charging 9 yen for local three-minute daytime calls, compared with NTT’s rate of 10 yen for the same call.

KDD and Japan Telecom followed TTNet but basically rely on NTT’s local network, charging 20 yen for a three-minute daytime call.

The number of Tokyo Denwa subscribers has reached 2.5 million, accounting for more than 10 percent of the local call market in the Kanto region.

However, Iwasaki admits that analog communication services like Tokyo Denwa will be gradually replaced by digital network services.

“The more people get to use Internet services, the more they need high-speed, large-volume transmission services,” said Iwasaki. “We will gradually shift our focus from analog services to low-rate digital services using ISDN (integrated services digital network) and ADSL (asymmetrical digital subscriber line).”

TTNet offers ISDN services, first provided by NTT in 1988, but is planning to introduce high-speed, voluminous ADSL services this fall.

As part of its efforts to diversify further, TTNet fully absorbed personal handy phone firm ASTEL Tokyo, which is also affiliated with power company-based carriers, last April. It is also launching Internet services and has branched out into the international call market.

PHS services were first introduced by NTT DoCoMo Inc., the DDI Pocket group, and the ASTEL group in 1995 as a less-expensive alternative to mobile phones. Service, however, was limited to urban areas.

Now that the cost of buying and operating a mobile phone has rapidly dropped, the number of PHS subscribers has declined steadily to about 5.7 million from its peak of 7 million in 1997, according to Telecommunications Carriers Association.

Still, Iwasaki pointed out that the PHS business has the potential to grow into a high-speed, low-cost data transmission device.

“More and more companies looking to reduce communication costs are now using personal handy phones instead of cellular phones,” he said. “A PHS can also be used for positioning and telemetering services.”

A PHS emits a radio signal that indicates the position of the user, making it useful for keeping track of kids, wandering spouses or elderly people.

Telemetering involves installing PHS units in vending machines, elevators and gas or electric power facilities so that sales and maintenance information can be automatically sent to the operators of the machines.

Iwasaki predicts the number of PHS subscribers will recover to 7 million in a few years. In fact, the number of subscribers to ASTEL Tokyo services rose to about 390,000 in February from 372,000 in October due to an increase in corporate users, he said.

Like other telecom carriers, TTNet, which expects to post 180 billion yen in sales for fiscal 1999, is trying to find business partners — foreign or Japanese — to grow further and survive intensifying competition.

“We are in talks with several foreign carriers about setting up business alliances to acquire their advanced Internet technology,” Iwasaki said. “But we are not thinking about capital tieups for the time being.”

Iwasaki has put top priority on promoting integration of the 10 power company affiliates into a single local carrier.

The 10 firms are planning to jointly set up a venture called Power Nets Japan Communication in June to provide network services based on Internet protocols nationwide this summer.

“A growing feeling of alarm is telling me it’s getting difficult to survive alone,” Iwasaki said.