NTT's Mega-Merger, Brand-Cutting Plan for Another $4B in Sales

The organizational structure of Japan's NTT resembles the complex family tree of some incestuous European royals. Adding to the confusion is a royal-like tendency to throw the occasional outlier into the mix of near-identical names. George III and IV had an Adolphus as relative. NTT Inc and NTT Ltd have Dimension Data.

Or did.

Under plans first announced in July, NTT is gathering up some 28 different subsidiaries and melding them into one enterprise-focused organization under the NTT Ltd brand. Dimension Data, a big part of that, will disappear; the system integrator's CEO, Jason Goodall, is now chief exec of NTT Ltd, where he oversees an enlarged business generating $11 billion in annual revenue, serving 15,000 customers and employing 40,000 people worldwide.

Figure 1: Family Tree A simplified version of the NTT structure, with NTT Ltd and three of its core subsidiaries shown in yellow.

Three months on from his promotion, South African Goodall is under pressure to deliver on some ambitious financial targets. By 2023, NTT Ltd is targeting $15 billion in annual sales, which means it will have to grow about twice as fast as the overall market. Boosting profitability is another must.

"Parts have been loss-making," says Goodall during a press day in London, where NTT Ltd. now has its headquarters. "I won't be around for very long unless we are profitable."

The restructuring is a long-overdue no-brainer. NTT's sprawling accumulation of businesses meant it was competing against itself in some markets. Take security, for instance, where NTT Ltd supported five different security platforms from ten security operation centers (SOCs) worldwide.

"We probably need four SOCs so there will be some consolidation there," says Goodall. "We are far down the line of getting a consistent service catalog and pricing." Managed services was similarly messy. Consolidation here started long before the internal merger plans were revealed. A baffling menu of 482 managed service offerings has been cut sharply, to just four broad options.

In the fiercely competitive market for enterprise IT and communications services, consolidation simplifies NTT's message to customers, too. Multinationals are struggling to manage, make sense and extract value from a deluge of data, Goodall tells Light Reading. "We can aggregate all that information and put it in a single pane of glass and user-friendly GUI [graphical user interface]," he says.

Being able to package a managed or security service into a data center deal could turn NTT Ltd into what the industry likes to call a one-stop shop, he says. That could be a major advantage over rivals with a narrower focus, notes Goodall.

Figure 2: Under Fire NTT Ltd CEO Jason Goodall takes questions from reporters at a press briefing in London.

To realize its revenue goals, NTT Ltd will have to grow by around 6% annually, about twice as fast as the rate projected for the overall market. NTT can achieve this for multiple reasons, Goodall believes.

First, an average client today buys just 1.75 services from NTT Ltd businesses. NTT brands started a cross-selling program to promote services from different divisions about six years ago and that has already generated about $4.4 billion in additional revenue. But the figure for the last 12 months alone is an impressive $1 billion. Confidence is high a full merger will deliver an even bigger cross-selling boost.

Second is NTT's ability to bundle related products in one service package. Unlike some rivals, the operator can take an SDN service that runs largely over its own infrastructure and wrap this up with data center and security arrangements. Such capabilities could be critical when NTT Ltd is competing against data center giants like Equinix. "We're providing a management layer so that you can look at workloads across a hybrid IT environment," says Goodall. "In some cases, we will compete in silos, but our integrated proposition is different."

Upselling to Japanese multinationals may well be important, too. Many of these customers take services from corporate networks subsidiary NTT Communications, but not from other NTT brands. "We didn't get our stuff together," says Goodall when asked why. If combining NTT Communications and others into NTT Ltd succeeds, then Japanese clients are "incredibly loyal" and will always look to support other Japanese companies, he says.

What possible upset?
Plenty could go wrong, though. One concern is whether NTT Ltd has the data-center muscle to compete against Equinix and Digital Realty, the leaders in the global market for colocation services. NTT is overhauling its regional approach so it can offer clients a similar price and experience, regardless of geographical location. That capability, however, is still a "work in progress," admits Goodall. Expanding its footprint of power-hungry data centers will be difficult, as groups like the sinister-sounding Extinction Rebellion fulminate about climate change and those organizations responsible.

That said, NTT Ltd already ranks third in that colocation market, and is the biggest provider outside the US, insists Goodall. The provider has about 5 million square feet of data center space globally, including facilities in Germany and the Netherlands, as well as Asian markets. Extinction Rebellion notwithstanding, parent company NTT plans to invest another $7 billion in data center expansion in the coming years, says Goodall. "We have more land than buildings right now," he says.

Integrating so many different businesses could also throw up all sorts of internal and external problems, especially while NTT continues to shop for other companies. In the last few weeks alone, it has bought three: Capside, a managed services business in Spain; Transatel, a mobile virtual network operator in France; and WhiteHat Security, a US application security specialist. The list of brands has suddenly gone from 28 to 31.

For more data center-related coverage and insights, check out this dedicated content channel here on Light Reading.

Senior executives insist the cultural and business profiles of the 28 original brands are already very similar. "Integration usually fails because of culture and people and we are fortunate," says Goodall. "We know each other's businesses. We are determined to ensure we don't become internally focused."

From a systems perspective, NTT Ltd has spent much of the past year laying down the "architectural rails" and mapping out its future IT estate, says Etienne Reinecke, NTT Ltd's chief technology officer. "We have a good idea of where we want to go. Now it is about execution."

Inevitably, there will be layoffs as NTT Ltd targets an increase in profitability. Goodall plays down any suggestion thousands of jobs may disappear overnight but anticipates "two waves" of headcount-related cost savings. In the first, the company will seek to cut out any duplication in central functions. "We don't need five lawyers," says the CEO by way of example. The subsequent wave will bring a move to a shared services model in the back end, such as one accounting department for the whole business. Balancing this, to some extent, will be reinvestment in customer-facing departments. "We need lots of heads in different places," says Goodall.

Hovering above all this is the specter of Brexit, raising questions about NTT Ltd's decision to be headquartered in the UK. But Goodall rules out any relocation in the event of a painful "no-deal" break-up with the European Union, insisting NTT Ltd does not face the same constraints as more heavily regulated businesses, like the financial services industry. "At a macro scale, none of the potential impact of what Brexit could be has a direct impact on our operating model," he says.

Any Brexit concerns relate solely to the economic disruption for NTT's UK business, says Goodall. But he remains far more optimistic than many UK natives. "The UK is in a fantastic time zone and it is a good place to run a global company," he says. "London is an innovative city with great skills and so there are lots of positives." UK authorities must pray the bosses of other global corporations feel the same way.

ADDENDUM: NTT got in contact with Light Reading after this article was published and said it was not planning to close any SOCs. It issued the following statement: "We can confirm that NTT is currently conducting a review and will be repurposing four out of ten of its global SOCs to become 'super SOCs.' The remaining six will continue as security operation centers."

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— Iain Morris, International Editor, Light Reading