Tokyo, Nov 7: Deregulation of Japan's telecom market since early this year has widened a gap in earnings performance between giant Nippon Telegraph and Telephone Corp (NTT) and other smaller carriers.

New entrants into Japan's segmented telecom markets have accelerated the competition to lower rates, hitting hard Kokusai Denshin Denwa Co (KDD), Japan Telecom Co and DDI Corp.

NTT, with its huge spending power, has subjugated the competition through aggressive pricing, they said.

"Deregulation has weakened the competitive positions of KDD and others relative to NTT," said Hironori Tanaka, analyst at Yamaichi Research Institute of Securities and Economics.

"It's now clear that NTT is the sole winner in the market." KDD, Japan Telecom and DDI all expect sharply lower profits for the year to March 1998 since tariff cuts as well as various discount services they introduced to survive are cutting into profits.

On the other hand, the NTT group, which effectively controls pricing in both the long-distance and mobile segments, is expected to post more than a 50 percent jump in group net profit to 222 billion yen ($1.79 billion).Telecom carriers will announce their latest forecasts for1997-98 earnings, as well as their first-half results, on November 13.

DDI sharply lost its market share in mobile phone operations in the first half to NTT's mobile phone unit NTT Docomo. DDI recently cut its full-year group net forecast to 10 billion yen ($80.6 million) from its earlier forecast of 29 billion yen ($233 million).

NTT Docomo's aggressive pricing also dealt a severe blow to DDI's personal handyphone system (PHS) service, a cut-rate mobile phone designed for those not requiring full-scale cellular phone service.

DDI said it expects to post a 16 billion yen ($129 million) net loss in the PHS business in 1997-98, larger than the earlier estimated 10 billion yen ($80.6 million) loss.

Japan Telecom also cut its full-year parent current profit forecast to 33 billion yen ($266 million) from earlier forecast of 41 billion yen ($330 million), citing lower revenues from its basic long-distance call business following February 1997 tariff cuts.

Current profit is pre-tax and includes gains and losses from securities investments and other non-operating activities.

The company, which reaps 90 per cent of its operating profit from the long-line business, does not announce group results.

"With TTNet and other new entrants launching cut-rate services, the long-distance business is becoming less and less profitable," Hironobu Sawake, analyst at Nikko Research Centre, said.

Japan Telecom merged with international operator ITJ on October 1 to launch a comprehensive long-distance and international service.

KDD, meanwhile, expects its group net profit to fall 30 per cent to 9 billion yen ($72.5 million) due to international tariff cuts.

"International tariffs are still at a high level and more rate cuts are imminent," said Toshiaki Iba, analyst at ING Baring Securities (Japan).Analysts say lifting of foreign ownership restrictions in KDD and other Japanese carriers in 1998, except for NTT, will intensify competition further, sparking mergers and acquisitions involving foreign carriers.

Some analysts have upgraded ratings on Japan Telecom, saying its high-capacity optical-fibre network is well positioned to benefit from explosive data traffic growth. The network is also expected to help lessen its dependence on NTT's facilities when it moves into the profitable local call business.

"These relatively favourable factors will prevent Japan Telecom's profit from sagging in the medium-term, Iba of ING Barings said.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.