NTT Unit Buys Stake in Dutch Carrier

TOKYO (05/10/2000) - Japan's top cell phone carrier, NTT DoCoMo Inc., announced yesterday that it has acquired a 15 percent stake in the Dutch carrier KPN Mobile NV for about $4.6 billion. This would be the biggest overseas investment for the cellular phone unit of Nippon Telegraph and Telephone, Japan's largest telecommunications company.

The deal is seen as a way for DoCoMo to persuade the world to adopt its version of third-generation, or 3G, mobile phone technology - wide-band CDMA - as the global standard. "This is not a regular M&A because we do not intend to simply boost the number of our subscribers through this deal," said NTT DoCoMo President Keiji Tachikawa at a press conference in Tokyo. "Rather, we see this deal as a way to use our technology and capital for the world. If everyone can enjoy an effective and uniform 3G technology, that will benefit users in Japan."

The announcement came shortly after merger talks collapsed between KPN Mobile, a subsidiary of the Netherlands telecommunications company Royal KPN, and Spain's Telefonica. NTT DoCoMo's name had been mentioned since the Dutch and Spanish carriers announced a possible merger last week, and industry sources had said a Dutch-Japanese deal or a three-way deal could happen. KPN's talks with the Spanish carrier broke down in part because Telefonica had demanded that the Dutch government sell its 43.5 percent stake in KPN in one month. The $27 billion Latin American purchases that Telefonica had planned were another factor. Complications surrounding KPN's two powerful U.S. partners, BellSouth and Qwest Communications, also affected the deal, according to industry sources. KPN has a pan-European fiber-optic network joint venture with Qwest, called KPNQwest. BellSouth, meanwhile, earned option rights over KPN's stock when the two groups took control of German cellular phone group E-Plus last year.

"KPN Mobile has sought us out," said DoCoMo's Tachikawa. He said his company then checked the background of the 7-month-old baby of Royal KPN and found nothing problematic. Tachikawa jokingly mentioned the 400-year anniversary of diplomatic relations between the Japanese and the Dutch. "We've clicked well," he said. "Management is about sharing the same fighting spirit. If you don't get along, it's over." Industry experts also see the deal as a way for DoCoMo to further its plans to get its hands on Orange, the U.K.'s third-largest portable phone firm.

German communication and machinery maker Mannesmann had to sell Orange last year because of its earlier merger with Vodafone-Airtouch. Orange recently won a 3G mobile phone business license from the British government for $6.27 billion. Tachikawa said he has never identified Orange as a particular target for DoCoMo's global 3G businesses and added that there are many other mobile phone operators in Europe. He also said DoCoMo has no intention to join any 3G auctions there. "It is the best strategy to join hands with a European company to make sure their w-CDMA (wide-band CDMA) technology will proliferate," said Hironori Tanaka, a telecom analyst at Morgan Stanley Dean Witter in Tokyo.

"Asia and Europe are the biggest of wireless markets. DoCoMo has the technology that enables it to compete equally with other international telecom giants such as Vodafone-Airtouch. When you look at the level of technology that DoCoMo uses for i-mode cellular phone services, DoCoMo has even better technology than its competitors in Europe."

That superior cellular phone technology has enabled DoCoMo to move quickly on a relatively inexpensive deal, rather than wait for more capital and better timing for a full takeover. "Small investments in overseas companies are still attractive for DoCoMo because it is crucial for the company to find allies around the world," said Shinji Moriyuki, a senior analyst for Daiwa Securities in Tokyo. "And its operational expertise has made it possible to strike a deal with a relatively inexpensive price. Foreign companies are eager to learn from DoCoMo's know-how."

Last December, DoCoMo bought 19 percent of Hong Kong's largest mobile phone company, Hutchison Telephone, for $410 million. Like KPN, Hutchison wanted to introduce DoCoMo's i-mode technology and contents to the Hong Kong market.

DoCoMo also bought a 3.5 percent stake in Tele Sudeste Celular Participacoes, Brazilian cellular phone operator, for $54 million.

"This deal, as well as Monday's deal between NTT Communication and Verio, is a positive sign that the NTT group is quick, eager and serious about its international business strategies," said Morgan Stanley's Tanaka. The deal would pit NTT against Vodafone-Airtouch for Europe's lucrative cell phone market. But that does not mean that the competition for market share will intensify immediately. "In today's data communication, the mainstream is text," said Moriyuki of Daiwa. "Looking ahead to tomorrow's data market, it will be music and video. That means the market has a capacity to have several companies to coexist for its expansion.

The competition between Vodafone-Airtouch and DoCoMo-KPN is a good thing."

DoCoMo Managing Director for Global Business Kiyoyuki Tsujimura said the company would finalize its stock purchase by the end of June. Meanwhile, DoCoMo will send one of its senior executives to KPN Mobile. Asked about possible alliances with other foreign mobile operators, Tsujimura said DoCoMo wants to limit capital alliances to companies that have already been operating in a number of countries.

He said DoCoMo is open to a KPN-like deal with companies such as Tele Sudeste of Brazil Celular Participacoes, in which it has already taken a minority stake. NTT DoCoMo shares fell 170,000 yen ($1,500), or 4.4 percent, to 3.69 million ($34,000) on Tuesday, before the agreement was announced.

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