BT clinches J-phone deal

April 13, 2001
Web posted at: 1028 GMT

TOKYO (Reuters) -- British Telecommunications, burdened by heavy debts but eager for a bigger piece of Japan's high-flying wireless market, got a bargain on Friday on options for stakes in Japan Telecom Co's mobile operations.

Japan Telecom, the country's number-three carrier, said it issued options allowing BT to pay ¥68 billion ($550 million) for stakes of nearly five percent in the three operating units of its wireless subsidiary, J-Phone Corp.

This implied the units were worth ¥1.4 trillion, said Kirk Boodry, telecoms analyst at Dresdner Kleinwort Wasserstein.

"But with revenues at about one trillion yen, this is incredibly cheap," he said.

Tadae Kataoka, a senior managing director at Japan Telecom, said the company agreed to the deal, which was under negotiation for a year and a half, to bolster its ties with BT (BT-A).

"We're currently operating J-Phone in conjunction with BT and Vodafone, and we'd like maintain a good relationship with BT," he told a news conference.

Analysts also said the move may give Japan Telecom some leverage in its dealings with Vodafone Group (VOD), which concluded a deal in February that will make it the carrier's largest shareholder.

Intricate ownership

BT and Vodafone both have a keen interest in Japan's cutting-edge wireless market, where high-speed third-generation mobile services are due for launch well ahead of the rest of the world.

The options, which expire on September 29 and are non-transferable, also give BT some breathing space to clean up its balance sheet before it has to produce any cash.

The beleaguered British carrier has been selling off assets as it seeks to pay down two-thirds of its £30 billion ($43.16 billion) of debt by March 2002.

A spokesman for BT in London declined to comment on how the company would fund its exercise of the options.

By contrast, cash-rich Vodafone has signed deals in the past five months to boost its stake in Japan Telecom from zero to 25 percent at a cost of more than $3.5 billion.

That will vault Vodafone's stake in Japan Telecom past BT's 20 percent and set the stage for potential rivalry for influence in the Japan Telecom group.

J-Phone, a holding company, is owned 54 percent by Japan Telecom, 26 percent by Vodafone and 20 percent by BT.

Further complicating the group's ownership structure, J-Phone's three operating units are owned partly by J-Phone, which has slightly more than 50 percent of each, and partly by Japan Telecom itself, which holds stakes of about 20 percent. Part of those latter stakes will now be sold to BT.

3G capital

Japan Telecom President Haruo Murakami said early last month that J-Phone would need to be recapitalised to be able to offer third-generation, or 3G, wireless services, which will allow data transmission many times faster than existing services and will require extensive investments by mobile carriers.

At that time, J-Phone said it would delay the launch of 3G services for major metropolitan areas until June 2002 from an initial target of December of this year.

The postponement would leave it more than a year behind rival NTT DoCoMo, Japan's dominant wireless carrier, which plans to launch 3G services in Japan at the end of May.

Speculation had mounted in recent months that BT, which is eager to trim its heavy debt burden, might sell all or part of its shares in the Japan Telecom group after rival Vodafone increased its holdings.

Officials from both BT and Japan Telecom have dismissed that possibility, however.

"We don't think BT wants to sell its shares," Kataoka told Friday's news conference.

Japan Telecom's shares finished down 1.3 percent at ¥2.28 million underperforming the benchmark Nikkei share average's 0.25 percent gain.

Vodafone buys AT&T's Japan Telecom holding for $1.35 billion
Feb. 27, 2001
BT boss admits the firm overspent by $14 billion on new cellular permits
Feb. 19, 2001
British Telecom's earnings slump as its interest bill triples
Feb. 8, 2001

British Telecom
Japan Telecom

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