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February 23, 1987

CABLE & WIRELESS JAPANESE TELECOM CONSORTIUM MAKES ITS FINANCIAL CASE

By CBR Staff Writer

International Digital Communications Planning, the telecommunications joint venture formed by Cable & Wireless Plc and C Itoh & Co last Thursday released the results of the survey conducted by its investor companies into the prospects for the venture if it were to win the contract, reports our Tokyo correspondent. International Digital Communications is the company formed by the British and Japanese partners to bid for the contract to provide an alternative international telecommunications service to the one operated by current monopoly holder Kokusai Denshin Denwa. The figures in the report demonstrate that it would be a viable commercial venture, and represent its response to the proposal from the Ministry of Post & Telecommunications that it should merge with the rival – but inexpert – International Telecom Japan consortium formed by a group headed by Mitsui & Co and Mitsubishi Corp.

Making a mess

Cables and Itoh forecast 2.8-fold growth in local demand for international communications over the next 10 years to create a market worth $4,000m-a-year by then. The partners set out to demonstrate that the consortium needs to win less than 9% of that business to be profitable, even taking into account the cost of laying the planned fibre-optic cable across the Pacific to the US. They quote figures drawn up by Arthur D Little that suggest that international communications traffic will increase more than fivefold over the next 10 years, and even assuming three rounds of price reductions of 10% each by Kokusai Denshin over that period, the market will reach the $4,000m figure, which is 5% more than Kokusai is forecasting – and that 5% works out at healthy $200m a year business. On that basis, International Digital Communications envisages investing $409m in its system, with the cable costing $233m. And if the consortium succeeds in winning 9% of the market share within seven to eight years, it would not only recoup its investment but start turning profits. It would pitch in with leased line and telephone call charges 20% lower than those charged by Kokusai, and looks to employ 280 people by 1996. Joining in the local controversy over Cable & Wireless Plc’s participatation – in a management role – in the International Digital consortium, president Hideo Suetsugi declares that he has canvassed the opinions of the major foreign telecommunications operators, none of which had any objection. With regard to the proposal that his consortium should merge with the rival bidder International Telecom Japan, he is agnostic: It is a matter for their shareholders, it’s no concern of ours. The internal disagreement within the government over whether or not Cable & Wireless should be permitted a leadership role continues unabated, with the Foreign Ministry backing Cables against the Post & Telecommunications Ministry’s fierce opposition. To a comment from the UK Department of Industry that the rules permit foreign financial participation of up to a third of the total, the Postal Ministry complains that if Cables were allowed in, other foreign operators such as AT&T and British Telecom might want to become involved too, possibly making a mess out of international telecommunications in Japan. The dispute is too close to call, but the PTT is junior to Cables’ backers, MITI and the Foreign Ministry.

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