NTT Docomo Is Reportedly Planning To Privatize Its Wireless Carrier Business Unit Docomo

The Japanese telecommunication company Nippon Telegraph and Telephone Corporation (NTT) is preparing to take their mobile phone carrier business NTT Docomo private.  After the news was reported, the company’s share fell as much as 5.8% while its business unit share plummeted by 16% and was later suspended for trading.

NTT said that it will take the Docomo business private in a deal worth USD 40 Billion, which is expected to lower wireless carrier services, Reuters reported. The company will offer approximately USD 37 per share to its shareholders. NTT’s move to make the business private comes amidst new prime minister Yoshihide Suga’s call on lowering the mobile carrier charges.

The government document shows that Tokyo’s consumers pay over three-time more for wireless carrier services than those in Paris. Thus, lowering the phone bills has been a prime priority for Suga as it will help him to become popular amongst the voters. In 2018, then Chief Secretary Suga had run a campaign calling for lowering the mobile fees by 40%. He also encouraged Rakuten Inc. to enter the telecom market to create a competitive market. This led SoftBank, NTT Docomo, and KDDI to introduce cheaper plans.

Meanwhile, NTT’s CEO Jun Sawada and Docomo CEO Kazuhiro Yoshizawa denied any links between the buyout and government pressure to lower the prices. Sawada told that the talks about the buyout were initiated before Shinzo Abe relinquished his title as a prime minister. Amidst Suga’s attacks on the telecom company in 2018, Docomo had already signaled that its profits would drop until fiscal 2023.

NTT listed the NTT Docomo in 1998 which is said to be the biggest initial public offering (IPO) at that time in Japan. Japan’s state-backed company will find its funds for acquisition through Japan’s three biggest lenders which includes Mitsubishi UFG Financial Group Inc, Reuters reported, citing people familiar with the matter. Meanwhile, Nikkei reported that NTT will turn to longer-term loans and debt issuance. The state government has around 34% stake in the company.

The prime reason behind Docomo’s buyout is the slip in Docomo’s dominance in Japan. It has stumbled to the third position in the earning power and its competitors have been aggressively capturing the market. Sawada says that bringing the Docomo under NTT’s control will help it to become stronger and enable the executives to make faster decisions.

Analysts Call On the Decision

“Post acquisition, Docomo will no longer be answerable to shareholders. If the government instructs it to cut prices, it will oblige,” Jefferies analyst Atul Goyal wrote in a client note. While, Kirk Boodry, an analyst at Redex Research said that this buyout “is driven more by the potential to develop 5G and IoT services than regulatory pressure.” Earlier, telecom companies conveyed that lowering the prices might impact their resources to invest in 5G.

Besides the buyout, NTT Docomo reportedly failed to notify all its partners about the deposit theft from its e-money payment service. Earlier this month, the company said fraudulent money withdrawals using its payment services had happened last year.