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. Last Updated: 07/27/2016

BT, AT&T in $2Bln Japan Deal

TOKYO -- In the first wave of a global telecoms industry shake-up hitting Japan, Japan's No. 3 telecoms operator Japan Telecom Co. said over the weekend that it had sealed a partnership with heavyweights British Telecommunications PLC and AT&T Corp.

British Telecommunications and AT&T will each acquire a 15 percent stake in Japan Telecom for a total of 220 billion yen ($1.85 billion), the three companies said.

Japan Telecom will absorb the two Western companies' Japanese affiliates, while the two firms will each send a senior director to the board of Japan Telecom as part of their move to integrate the three companies' data businesses.

BT will also line up as the core member of Japan Telecom's next-generation mobile phone venture, owned jointly with the world's largest mobile phone operator, Air Touch Communication.

The deal, announced Sunday, is the first large investment by foreign majors in Japan's deregulating telecoms sector.

It will give the two Western operators a significant foothold in the Japanese telecoms market, the world's second largest and an important missing link, as they try to offer seamless data services that cover the global market.

The deal comes amid a heated takeover battle between Japan's former state-monopoly Nippon Telegraph and Telephone Corp. and Britain's Cable and Wireless PLC over International Digital Corp, a small international service provider. The battle is expected to drag on for months.

Sunday's move is also expected to spur a wave of consolidation in Japan's crowded telecoms sector, now dominated by NTT.

"The alliance will reinforce our position as a No. 1 challenger to the Japanese market," BT's chief executive officer, Peter Bonfield, told a news conference, stressing that BT's investment in Japan Telecom is by far the largest in Asia.

AT&T President John Zeglis said: "Japan is a must-do market for us ... and Japan Telecom is well positioned to finish [our] end-to-end seamless products."

Japan Telecom provides leased-line and long-distance services through fiber optic networks running along railway lines owned by its major shareholders, the Japan Railway Co. group. It has a long customer list of Japan-based giant multinational companies, and is a player in the mobile phone market.

Japan Telecom reported a net profit of 8.1 billion yen on a consolidated base in the year ended March 31. But like other newcomer Japanese telecom operators, it expects profits to sharply shrink in the current year - to around 5 billion yen - amid competition to cut rates and heavy investment burdens.

Given Japan Telecom's huge funding requirements, some analysts say BT and AT&T will have to make additional investments soon, with the Japanese carrier eventually ceding substantial management control to them.

Industry sources said BT and AT&T were pushing to take more than 33.4 percent of Japan Telecom - enough to have a veto over major management decisions.

"Whether and when Japan Telecom will become a full subsidiary, both in name and in substance, is the issue that is attracting keen industry attention," said Credit Lyonnais Securities analyst Atsuo Takahashi.