In what could be the largest tender offer for a Japanese firm in corporate history, telecom giant Nippon Telegraph and Telephone Corp. (NTT) said Tuesday it will buy all shares of its subsidiary and mobile phone unit NTT Docomo Inc. in an eye-popping ¥4.3 trillion takeover bid.
The deal between the two, which would give NTT Docomo solid financial backing to engage in price wars, may trigger even more intense competition among the nation’s major wireless carriers.
While the suggestion was disputed Tuesday by NTT President Jun Sawada, the deal was reportedly prompted by pressure from the new administration led by Prime Minister Yoshihide Suga to lower mobile phone charges. The government is NTT’s largest shareholder, owning around 34 percent of the corporation as of June.
By making NTT Docomo a wholly owned company, NTT would be able to make changes that directly reflect government requests at the mobile phone service provider, which is the largest domestic carrier in terms of its number of subscribers. NTT is also expected to streamline operational costs by strengthening collaboration.
The same day, NTT Docomo also announced that Vice President Motoyuki Ii, who was transferred to NTT Docomo from NTT in June, will replace the current president, Kazuhiro Yoshizawa, from Dec. 1.
“This deal is not linked to the government's request to lower phone charges,” Sawada said during a joint news conference with NTT Docomo. “But this deal will make Docomo stronger … as a result, Docomo’s financial base will be more solid, so there will be room to cut the fees.”
NTT currently owns about 66 percent of NTT Docomo shares and will purchase those remaining for about ¥4.3 trillion from Wednesday to Nov. 16. NTT Docomo will be delisted from the Tokyo Stock Exchange after the transaction is completed.
As a 100 percent NTT subsidiary, “NTT Docomo will be able to introduce some bold price policies without worrying about its earnings,” said Kei Takahashi, analyst at UBS Securities, in a report, adding that NTT Docomo’s move could pose “a big threat to rival firms.”
NTT Docomo has been a top profit generator within the NTT group, which is made up mainly of five firms — NTT East Corp., NTT West Corp., NTT Communications Corp., NTT Data Corp. and NTT Docomo. In fiscal 2019, over 50 percent of the parent NTT’s operating profit came from NTT Docomo. The mobile phone carrier’s market value has topped that of its parent as well.
However, the outlook for the domestic mobile phone market is not necessarily bright, with the growth of smartphone sales appearing to have peaked out while Japan’s population is expected to continue to shrink.
In addition, amid a tough competitive environment where overseas internet giants, such as Google and Amazon, are increasing their presence, NTT was concerned that NTT Docomo was losing its edge.
“Docomo has a big market share but the size of profits has fallen to third place (among the three major carriers),” said Sawada.
To turn the situation around, Sawada said he proposed the idea of making NTT Docomo a 100 percent subsidiary in April to Docomo President Yoshizawa.
As 5G ultrahigh speed networks will further intensify competition in the communications industry, Yoshizawa said NTT Docomo needed to widen the scope of its business beyond mobile network operations.
Sawada and Yoshizawa stressed that the latest move is intended to strengthen NTT Docomo’s competitiveness through closer cooperation with other NTT group firms, especially IT service providers NTT Communications Corp. and NTT Comware Corp.
But whether they will be able to establish a fruitful relationship is unclear.
NTT used to be a public firm that essentially monopolized the telecom market. When it was privatized in 1985 and split into several firms later on, the government imposed restrictions on major NTT group firms to prevent them from disrupting fair competition.
For instance, in principle they are not allowed to engage in joint procurement.
When the government decided to make exceptions for NTT East and NTT West last year, other companies in the industry including KDDI Corp. and SoftBank Corp. asked the Internal Affairs and Communications Ministry to draft specific guidelines to make sure fair competition was maintained.
NTT’s move this time “is likely to be contested by competitors and trigger various discussions,” wrote Takahashi of UBS Securities.
NTT Docomo was spun off from NTT in 1992 after a government panel suggested NTT break up its businesses to spur competition. It became a listed company in 1998 and its business steadily prospered as cell phones became must-have gadgets.