Home - Key Questions - Fixed Networks: Section 1 - Question 8

Section 1: Questions regarding the incumbent telecoms companies and the new facilities-based operators

Question 8: How will the incumbents organise themselves to compete?

Until the 1990s the incumbents such as AT&T, BT, France Telecom, Deutsche Telekom and NTT tended to operate as tightly vertically integrated companies reflecting their past as monopoly PTTs. In the late 1990s, however, there were some signs that this dominant corporate form of organisation was beginning to change. Forces for change included:

• strong competition from new operators who were smaller, flatter, faster, and more focused and flexible
• new business areas such as the internet and mobile communications
• regulation induced changes

An indicator of these changes, and perhaps a model for the future, is NTT’s transformation from a tightly vertically integrated company operating only in Japan to a globalising family of companies each of which has a significant degree of autonomy under the overall control of the holding company. Although this change was initially the result of a compromise between NTT and its regulator, the Ministry of Posts and Telecommunications, the new form of organisation seems to have advantages that may allow the company to address the evolving requirements of the industry. Not only has NTT divided its fixed network operations into three separate companies – NTT East (operating in the eastern part of Japan), NTT West (in western Japan) and NTT Communications (focused on long distance and global communications) – it has also spun off majority owned subsidiaries such as NTT DoCoMo, its mobile division, and NTT Data, its information processing business.

Broadly speaking, there are three organisational options:

1. To remain tightly vertically integrated.
2. At the other end of the spectrum, to split the company up into entirely separate, legally distinct, companies.
3. In the middle, to re-invent the company as a family of highly-autonomous, but loosely co-ordinated, companies with financial control and broad long term strategy being established by a central headquarters.

Which of these options will the major incumbents favour? Will the change be sufficient to enable them to compete successfully with the new operators? What continuing dilemmas and problems are the incumbents likely to face?

If you wish to express your views on questions such as these go to the Workshop (Area 1). To compare your visions with those of others go to Vision Check.