People attend a product unveiling event of NTT Docomo in Tokyo, Japan, on May 11, 2016. Photo: Reuters

Japan’s biggest mobile carrier NTT Docomo will be taken over by its government-backed parent company in a US$40 billion tender offer, the firms said Tuesday, as telecoms competition hots up with 5G on the horizon.

The move comes with Docomo and other Japanese telecoms firms under government pressure to cut the price of mobile phone services, and is expected to help the company boost investment in next-gen technology.

“Today we decided to make Docomo a wholly-owned company,” Chief Executive Jun Sawada of Nippon Telegraph & Telephone (NTT) told reporters, promising the move would enhance the carrier’s “competitiveness and growth.”

NTT, which currently holds 66% of NTT Docomo’s shares, is proposing a price of 3,900 yen ($37) per remaining share to buy out the whole subsidiary, it said.

That represents a 40% premium on Monday’s closing price and values the purchase at about 4.25 trillion yen – a record amount for a takeover bid in Japan, local media said.

Japan’s new Prime Minister Yoshihide Suga has repeatedly said the country’s mobile rates should be reduced, as they are relatively high compared to prices abroad.

By taking full control of the carrier, NTT may be able to push down prices quickly and force competitors to follow suit.

But the heads of both companies denied that pressure over pricing was behind the deal.

“We are not doing this because of cutting service fees,” Sawada said.

But, he added: “Docomo will get stronger with the move, which would strengthen its financial foundation and room to cut prices.”

Docomo’s CEO Kazuhiro Yoshizawa said the decision was about responding to a changing business environment, including the coronavirus pandemic.

“The background of the move is that our market environment is facing a big change … and competition is intensifying.”

Competition in the telecoms market is also hotting up with the advent of next-generation 5G networks, which promise radically quicker data transfer.

The tender offer, which will be launched on Wednesday and remain open until November 16, with the proposal almost sure to pass, was announced shortly after the market closed on Tuesday.

NTT Docomo shares ended up 15.78% at 3,213 yen, with trading overwhelmed throughout the session by an excess of buy orders following reports about the takeover.

Shares in NTT, a third of which is owned by the Japanese government, fell 2.85% to 2,230.5.

And rival carriers KDDI and SoftBank Corp both lost more than 4% on speculation that NTT’s move could accelerate price competition.

The full buyout of NTT Docomo is expected to be finalized by the end of the fiscal year in March 2021.

AFP

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