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. Last Updated: 07/27/2016

Japan Telecom Hires Ex-Sprint Chiefs

TOKYO -- Two former Sprint Corp. executives were picked Wednesday to head Japan's third-biggest telecommunications company, denying any wrongdoing in a tax controversy that led to their departure from the U.S. company.

William Esrey, former chief executive at Sprint, was named chairman of the board of Japan Telecom Co. and Ronald LeMay, former Sprint chief operating officer, was named a director on the board by Ripplewood Holdings, a U.S. investment fund that is carrying out a 260 billion yen ($2.3 billion) leveraged buyout of Japan Telecom.

Esrey and LeMay left Sprint, based in Overland Park, Kansas, in April amid controversy over a tax shelter they used to defer $123 million in taxes on their earnings from stock options. They are credited with building Sprint from a tiny phone company serving mostly rural areas in the 1980s to a communications giant with annual revenue of $28 billion.

"Bill and Ron amassed a proven track record and are widely considered to be among the most innovative, creative and effective marketing executives in their field," Ripplewood chief executive Tim Collins said. Esrey and LeMay said they need time to mold strategy, but that the changing market is creating opportunities for innovative companies. They were confident that their past success -- including management that can motivate workers and the ability to differentiate their products from rivals' -- will carry over as they absorb the challenges of a new market.

"I have a lot to learn. I'm very humble about that," LeMay said.

Ripplewood has been searching for a Japanese president, and Jeffrey Hendren, Ripplewood managing director who is also joining the Japan Telecom board, said the new executives' specific positions will be decided after that search ends. The buyout of Japan Telecom is expected to be completed in November or December, Hendren said.

Meeting with reporters, Esrey and LeMay brushed aside the tax scandal, saying they were following an accounting company's advice and were willing to pay additional taxes if an Internal Revenue Service audit finds they owe more.

"In my point of view there is no scandal involved whatsoever," Esrey said. "If there are more taxes required, of course, as we always have, we will pay them."

"We've always paid the taxes we believed we owed," LeMay added. "We had a very good career at Sprint. I think we are very well respected at Sprint. I think we did everything right."

Global mobile giant Vodafone PLC owns about 70 percent of what was the wireless unit of Japan Telecom but it is selling the shaky fixed-line business to Ripplewood to concentrate on the mobile business.

Japan's telephone operators have been struggling in recent years as increased competition brings down rates and Japanese increasingly shift to mobile phones and broadband use.

Japan Telecom returned to profitability in the fiscal year ended March 31, posting a profit of 79.5 billion yen ($680 million), compared with a loss of 66 billion yen in fiscal 2001. Japan is a difficult market because the dominant carrier, Nippon Telegraph and Telephone, a former government monopoly, owns almost all the fixed telephone lines. Foreign companies and startups often complain that the government favors NTT although the market has gradually opened up to competition.

NTT is expected to be a powerful player in Japan's growing broadband market and has an edge in optical fiber networks, still a nascent business here. Japan Telecom also faces other tough rivals, both Japanese and foreign, in the intensifying battle to woo users with new technologies.

Ripplewood has been acquiring troubled Japanese companies, including a seaside resort, auto-parts maker, bank and recording company. Ripplewood previously announced that Robert Aquilina, formerly of AT&T, and Merle Gillmore, formerly of Motorola, have agreed to join the Japan Telecom board.