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February 12, 1987


By CBR Staff Writer

The Japanese Ministry of Foreign Affairs last week hit out at the Ministry of Posts and Telecommunications, saying that it wants to see Cable & Wireless included in the management team of whichever consortium gets the licence to operate an alternative international telecommunications service from Japan in competition with the present monopoly holder Kokusai Denshin Denwa. The foreign ministry is concerned that UK-Japan industrial relations would worsen if Cables were refused management participation and it argues that there is no reason why the UK company should not be heavily involved in running a second international telecoms service. The foreign ministry points to the fact that the Telecommunications Business Act, written in 1985 by the Postal Ministry, permits directors from foreign companies to form up to a third of the board; that in the event of a threat to national security, Kokusai would still be available; and that lack of demand is not a restraint on the setting up of the business. The Postal Ministry is against the 20% shareholding that Cables presently has in the more capable of the two consortia, International Data Communications. This is partly because of pressure from Kokusai Denshin Denwa, KDD, which does not want competition; but the Postal Ministry is less influential than MITI, the Ministry of International Trade and Industry, with which the UK and US governments are negotiating to lift trade barriers, and the two have crossed swords before with MITI coming out on top.

Japan in perspective

Graham Meek, electronics industry analyst at stockbroker Wood Mackenzie is confident that Cables will have a place in the coming service but that a compromise may be necessary, with the most probable outcome being that two licences will be awarded around May 1987, one to the IDC consortium and another to the ITJ consortium. The important point here is that ITJ, made up of Japanese trading houses with no telecoms expertise, has elected to use KDD’s existing network. Almost as likely is the possibility of the two consortia merging. Director of corporate strategy at Cable & Wireless Jonathan Solomon says, Anything is possible in Japan. Graham Meek says that it is important to keep Cables’ Japanese plans in perspective and that even if it does not win a place, its position in the Pacific Basin will not be seriously affected. Although the granting of the licence would help fill its planned transmission facilities in the area by opening up a modest direct profit centre for the company. Wood Mackenzie reports that in the year to March 1986, KDD did turnover was UKP930m, of which pure telephone business was 66%. Net profits at UKP74m left a margin of 8%. By volume, the telephone call rate rose 38%. Even if Cable & Wireless gets no part of the planned international licence, growth in international telephone traffic in Japan will ensure that its fibre optic links are fully used by third parties. Wood Mackenzie expects the turnover growth to be in the region of 10% to 15% per year and given that capacity will increase and that competition will result in further call stimulation, it expects the basic telephone market to double in value by 1990 and treble by 1995. Cable & Wireless announced a broad business plan in October 1986, the first phase of which centred on leased circuit services via the Intelsat satellite system and existing Pacific cables, due to start at the end of 1988. The second phase brings in switched services in 1989 as well as a full range of digital leased and switched services in 1990, available on the PPAC trans-Pacific fibre optic cable, jointly owned by IDC and Pacific Telecom Cable of the US. The fourth phase would connect Japan with Hong Kong and Korea, Taiwan, the Philippines, China and other Pacific Basin countries with further submarine cables. Wood Mackenzie estimates that a market share of 10% in the early 1990s would be worth turnover of UKP150m.

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