NTT profit hit by fixed-line cancellations

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Nippon Telegraph and Telephone, the world’s biggest telecoms group by revenue, on Thursday said its quarterly earnings were hit by fixed-line cancellations and high investment costs.

First-quarter operating profit dropped 10 per cent, a large contrast to the 39 per cent jump in operating profit reported last month by KDDI, NTT’s biggest domestic rival.

Although KDDI’s fixed-line revenue is also weak, it is gaining share in the mobile market, seducing customers with popular music and internet services.

NTT could be placed under still further pressure later in the financial year, when number portability arrives in November. From then mobile phone users will be able to change provider without changing their number.

Some analysts think this could significantly increase defections among mobile phone providers’ customers. Surveys suggest that, if customers do switch in large numbers, NTT DoCoMo, NTT’s mobile subsidiary, is likely to lose far more customers to KDDI than it will poach. This could create a double drain on NTT’s revenues as customers defect from both its fixed-line and mobile subsidiaries.

Operating profit at NTT fell to Y359bn in the quarter, down from Y399bn the previous year. The result was slightly lower than some analysts’ estimates.

Revenue inched up 0.9 per cent to Y2,624bn in spite of the loss of almost 1m standard fixed-line phone users to 46m. This loss was counterbalanced by a 657,000 increase to 4.08m in subscribers to NTT’s fibre-optic services, which offer fast downloading of services such as music and video.

But heavy investment in fibre optic services bit into revenues.

Despite its weak quarterly results, NTT stuck to its earlier full-year forecast of Y1,200bn in operating profit. It justified this by saying it would continue to cut costs. NTT has high labour costs, a legacy of its days as a state-run corporation.

Although there are fears over its fixed-line and mobile businesses, NTT still holds the trump card of high political influence.

The possible break-up of NTT’s five units was abandoned this summer, when the government said that it would not even begin to discuss the idea until 2010.

If NTT DoCoMo is separated from other NTT units, some of these companies could struggle if forced to survive independently. NTT DoCoMo provides about two-thirds of the group’s total profit.

NTT’s four other units are local fixed-line phone companies NTT East and NTT West, long-distance and international fixed-line company NTT Communications, and systems provider NTT Data.

Pressure on NTT’s mobile business increased on Thursday after Softbank, which this year bought Vodafone Japan, the number three player, said it would raise about Y65bn from the sale of its 27 per cent stake in SBI, the venture capital company. Softbank will use the money to repay debt and fund its mobile phone operations.

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