Nippon Telegraph And Telephone Corporation Business Information, Profile, and History

History of Nippon Telegraph And Telephone Corporation

Nippon Telegraph and Telephone Corporation (NTT) is the largest investor-owned company in Japan, with an annual turnover equivalent to 10% of the Japanese national budget. Until 1986 NTT was the sole telecommunications organization in Japan, but after privatization NTT not only had to cope with fierce competition from newly legalized common carriers but also had to go about reforming itself from a large overstaffed monopoly to a new streamlined organization. NTT's role is separate from that of Kokusai Denshin Denwa Co. Ltd. (KDD), the International Telegraph and Telephone Company, as NTT is limited to active trading in the domestic market only. This strict separation is required by Japanese law. Since privatization, however, NTT has managed to extend its business abroad through the formation of subsidiaries such as NTT International Corporation (NTTI) and the International Affairs Department of NTT. The company has been quick to respond to the need for more technically advanced services. Diversifying from conventional network services, NTT has devoted its energies to developing in many different areas, including providing digital data transmission and digital data exchange services. Recent advances have been made in areas such as videotex, facsimile, and video conference services. Terminal equipment sales and telecommunications consulting are also part of NTT's varied range of services. Traditional telephone sales, however, remain NTT's largest business area. In 1990 they provided 78.4% of the total operating revenue. A series of subsidiaries and affiliates extend NTT's business into different areas, such as real estate, construction engineering, and advertising. In addition, NTT owns an extremely valuable asset, 33 million square meters of land.

In 1877, one year after its invention by Alexander Graham Bell, the telephone became available in Japan. At first its use was reserved for the government, public affairs organizations such as the police, and a few businesses. It was not until 1890 that telephone services became available to the general public. Lines were laid between Tokyo and Yokohama, connecting 155 Tokyo subscribers to 42 in Yokohama. The first long-distance service became available in 1899 between Tokyo and Osaka, and discussions began as to how the telephone industry could best be developed. In 1889 the government approved a state-run telephone system. Although there were calls for a privately run company to be established, the Sino-Japanese War of 1894 to 1895 and the Depression of the 1930s meant that calls for privatization went unheeded. In the 1930s the Ministry of Communications created the special telegraph and telephone system research committee, which discussed the establishment of a half-government, half-private company. Initial plans were made for the formation of Nippon Telegraph and Telephone Corporation, but were abandoned again due to an economic downturn and a sudden decline in the number of telephone subscribers. The outbreak of World War II led to another drop in telephone subscribers, to 468,000. It was not until 1952, after a bill for a public telephone company was passed, that the Nippon Telegraph and Telephone Public Corporation (NTTPC) was formed, based on recommendations issued in a report by the government-run Telegraph and Telephone Restoration Council. In 1953 KDD Ltd. was established to facilitate international telecommunications, and international telegraph and telephone business was transferred to this company.

As Japan began to recover after World War II, the demand for telecommunication services increased. In 1953 NTTPC's first five-year expansion project of telegraph and telephone started, leading to an increase in the number of subscribers from 1.55 million to 2.64 million. Fueled by consumers' needs and advances in telecommunications technology, by 1963 the number of subscribers had increased to 9.89 million. As NTTPC's domestic market grew rapidly, NTTPC began to expand into the international market, although at this time technical cooperation was the extent of NTTPC's international involvement.

Within Japan the demand for telecommunication services continued to grow. By 1972 the number of telephone subscribers had reached 20 million, and despite the demand caused by such enormous growth, NTTPC saw two of its aims realized in 1977: telephone services became available nationwide, and the company was able to install services as soon as they were required. Automatic dialing also became nationally available, and with the goal of international involvement, an international office was opened in 1979.

Moves towards privatization came slowly. Meanwhile, NTTPC began to examine its infrastructure. The second ad hoc commission on privatization in 1981 examined the "public" corporate side of NTTPC and saw privatization as a way of improving efficiency. A third report detailed plans for privatization, reorganizing the company's structure and making independent the data communications systems sector; in May to July 1988, the latter was established as NTT Data Communication Systems Corporation (NTT Data), a wholly owned NTT subsidiary. NTT's corporation law went into effect on December 20, 1984. Nippon Telegraph and Telephone Corporation was newly launched as a privatized joint stock corporation on April 1, 1985, with the provision that the Nippon Telegraph and Telephone Law be subject to revision within five years. On an international level, similar events were taking place in the United States and the United Kingdom. In 1984 the British Telecommunications Bill came into force, allowing the privatization of British Telecom and liberalizing the British telecommunications industry, as competitors such as Mercury were issued licenses to operate. The United States followed a similar pattern in 1984, when American Telephone & Telegraph Company's Bell System was broken up and restructured into seven regional holding companies.

After privatization, the market opened to new carriers to start operations in competition with NTT. In April 1985 three carriers, Daini-Denden, Nippon Telecom, and Teleway Japan, applied for approval to operate as telecommunications companies. One effect of direct competition was that NTT was obliged to make a reduction in long-distance rates and upgrade its services. In July 1985, several new services were launched. A further measure to enhance performance was the restructuring of NTT's business into divisional organizations and the reorganization of the research and development headquarters from four to nine laboratories. NTT's first subsidiary company was launched in April 1985 and marked the opening of a chapter in NTT's history that would lead to the establishment of over 80 subsidiaries. The first was NTT Lease Co. Ltd.; its activities included the leasing and installment sales of terminal equipment.

In terms of international activities, privatization allowed NTT slightly more room to maneuver, through the creation of subsidiaries that had greater powers abroad. Prior to privatization, NTTPC's overseas operations on the whole had been restricted to participating in international exchanges, sending experts abroad and forming agreements with a number of countries. As early as 1954 NTTPC had accepted trainees from Taiwan, and up to the early 1990s accepted approximately 160 trainees from 60 countries a year. The expert dispatch scheme that started in 1960 has resulted in more than 500 specialists being sent to 54 countries. During the 1960s and 1970s a whole series of technical assistance programs were arranged between participating countries and NTTPC. Projects as diverse as assisting with the establishment of a training center in Thailand in 1961 or setting up a microwave radio system in Paraguay characterized NTTPC's activities abroad at this time. Kuwait, in particular, was involved in a whole series of projects. A contract was signed in June 1965 between Kuwait's Minister of Communications and NTTPC, and led to the launch of a ten-year project.

The setting up of representative offices was another method whereby NTTPC extended its operations overseas. NTTPC's first overseas office opened in Bangkok in 1958, offering technical assistance, and a European base was established in 1965 with the opening of the Geneva representative office. This was followed in 1973 with the opening of NTTPC's London representative office. Prior to NTTPC's privatization, the London office had concentrated on issuing bonds and collecting information. NTT Europe Ltd. was formally incorporated in the United Kingdom in 1989 to encourage cooperation with the United Kingdom's own telecommunications industry and to help extend global networks for Japanese business users. In similar fashion, the representative office in Brasilia, Brazil, became an officially registered overseas subsidiary company in November 1987. NTT do Brasil Comercio e Representacoes Lomita provides technical assistance and supports international exchange programs to countries in South America, in particular Brazil and Argentina, and also to Mexico. Representative offices also opened in Jakarta, Indonesia, in 1972; in Kuala Lumpur, the Malaysian capital, in 1986; and in Singapore in 1990. After the restoring of diplomatic relations between China and Japan in 1972, NTTPC made a technical exchange agreement with China in 1980, leading to the opening of an office in Beijing in 1985.

NTT has had a presence in the United States as early as 1966 when NTTPC employees were sent to New York. In 1970 a branch office was established, with the primary objective of forming connections with U.S. carriers, and that went on to play an important role in international procurement. Due to an increase in business, NTT's California representative office was established, and after privatization NTT expanded its U.S. operations, incorporating the two U.S. offices into NTT America Inc. NTT also established exchange programs with several U.S. companies, including NYNEX and Pacific Bell, and a number of equipment purchase agreements were made. In May 1986 a purchase agreement was set up with Northern Telecom in a $250 million deal.

NTT International Corporation was established in the year of NTT's privatization. Starting with ¥3 billion and 150 employees, it has become one of NTT's largest subsidiaries. Originally established with the aim of providing consulting services related to the telecommunications industry and providing products to overseas buyers, NTTI is able to carry out a number of functions overseas that the NTT Corporation is unable to do because of Japanese regulations. Marketing NTT's products overseas and carrying out market research to see which products would be profitable are two important functions of NTTI. A third is to provide services related to the establishment of telecommunications infrastructures. An example of such work was a development project funded through NTTI by the World Bank in Indonesia. Australia is another country in which NTTI has been active, helping to develop a facsimile mail service in 1987. In Finland, NTTI sold large numbers of hand-held computer terminals to a Finnish bank.

NTT's fluctuating fortunes since privatization have tended to be reflected in the company's share price. In October 1986 the minister of finance invited tender for the initial price of NTT stock before flotation. The initial price decided on was ¥1.97 million after NTT's original price was ¥50,000. By February 9, 1987, NTT was listed on the Tokyo, Nagoya, and Osaka stock exchanges and was soon to be extended to other Japanese stock exchanges. After shares were floated, they reached a high of ¥3.18 million in 1987 but then collapsed to ¥1 million by the end of 1990. Another contributing factor was the infamous Recruit scandal that hit Japan in 1988, when a number of senior officials were accused of accepting bribes. Scandal hit NTT when its former chairman Hisashi Shinto received a heavy fine and a suspended jail sentence for his part in the Recruit scandal. The post of NTT chairman was left open until Haruo Yamaguchi was appointed to the post in the middle of 1990. Although NTT corporation law originally obliged the government to hold one-third or more of the total number of outstanding shares at all times and stated that "no foreign nationals or foreign judicial persons" were allowed to possess NTT shares, after some deliberation in October 1990 NTT announced a plan overturning this law. In December 1990 the Japanese government announced that it would start selling 500,000 shares a year beginning in April 1991.

Privatization has also forced NTT to examine its operational efficiency and to provide better customer services. On May 23, 1988, NTT Data Communications Systems Corporations was established as a wholly owned subsidiary. Aimed at designing data communications that link hardware with software for financial institutions, private companies, and government organizations, NTT Data also provides training seminars and consultation facilities. It has proved to be a profitable part of the NTT group. In 1990 operating revenues from NTT Data increased to ¥306.1 billion. One of NTT Data's major achievements was helping to set up the Tokyo International Financial Futures Exchange System in June 1989. Further recognition came to NTT Data when its IC Card, a card that allows Nissan car owners to store car history information, won the 1989 Nikkei Annual Products Award. Another significant move was the introduction in April 1988 of INS-NET 64, described as the world's first wide-area commercial integrated services digital network (ISDN). NTT, KDD, and AT & T put together a three-day presentation simultaneously at sites in Japan and New York. Following this, NTT sponsored a global ISDN exhibition, NTT Collection '90. Approximately 40,000 visitors attended this exhibition, that demonstrated the capability of ISDN and featured an actual ISDN link-up between NTT, AT & T, British Telecom, France Telecom, and Singapore Telecom.

In the area of international equipment procurement NTT has begun to play a greater role. In accordance with the general agreement on tariffs and trade (GATT), by 1990 orders had grown by 9% to $352 million and included purchases as diverse as digital transmission equipment from AT & T, digital switching systems from Northern Telecom, and pocket bell pagers and cellular telephone equipment from Motorola. Procurement seminars were held at various European sites to encourage European suppliers, as well as in various cities in the United States.

By March 1989, NTT's performance was suffering because of increased competition from other common carriers, the cost of launching NTT Data, and the enforced reduction in long-distance telephone rates. In order to bring about recovery, NTT re-examined its administrative structure and in April 1989 reduced its four-tiered administrative structure to three levels. Another cost-cutting reform has been the reduction in staff numbers. At its peak in 1979, NTT had 330,000 staff, but by 1989 the company had managed to reduce this number to 276,000. Not satisfied with this, however, there were further plans for greater reductions in staff, the target being 230,000 by the year 1994.

In an interview with the Financial Times in January 1991, the president of NTT, Masashi Kojima, spoke of some of the problems NTT was facing. Enforced cuts in rates, because of increased competition from other carriers, and a scheme whereby competitors are connected to the network at a rate that reduces NTT's profitability, have led to some resentment. President Kojima favored the introduction of a new kind of access charge or fee system to create a fairer market. In terms of long-term international strategy, Kojima does not have ambitious plans for NTT to play a full international role yet, but favored a specific international strategy that might mean installing a network in a country with less developed telecommunication systems. In March 1991, however, discussions were under way for a joint venture between three of the most powerful telephone companies: NTT; the British telecommunications group; and Deutsche Bundespost Telecom, the German telecommunications group. This joint venture, called Pathfinder, promises to offer a telecommunications network to large international companies. This presents NTT with the problem of operating internationally within NTT corporation law. In an effort to exploit the potential of the European market as it moves towards greater unity, and the markets of Eastern Europe and the countries of the former Soviet Union as they become more accessible, NTT announced in June 1991 the establishment of a new subsidiary in Düsseldorf, Germany: NTT Deutschland GmbH.

NTT's plans for the future center around streamlining its operations in a cost-effective fashion and offering high-quality service to its customers. In an attempt to promote a fair and open market, NTT opened the Fair Competition Promotion Office in 1990. In the long term, NTT stresses the need to develop ISDN technology and to realize the importance of the cellular mobile market. NTT's future remains far from certain. In 1995 discussions reopen on the future of NTT and the threat of the huge NTT empire being broken up into smaller components still lingers.

Principal Subsidiaries: NTT Data Communications Systems Corporation; NTT Chuo Mobile Communications Corporation (43.4%); NTT Urban Development Co., Ltd.