TOKYO -- Japanese telecommunications group Nippon Telegraph & Telephone announced Thursday that it would invest 64.5 billion yen ($597 million) for a 4.8% stake in IT services group NEC to launch what both companies called a "made-in-Japan" alliance in 5G technology.
The deal will make NTT, which owns Japan's largest telecommunications carrier, the third biggest shareholder in NEC. The partnership will also give both companies an opportunity to catch up with Chinese equipment makers at a time when those entities are under global political pressure.
"While the U.S.-China relations may become extremely difficult, there is an opportunity to make globally competitive products and systems from Japan," NTT CEO Jun Sawada said in a news conference on Thursday. The two companies plan to develop equipment for fifth-generation core networks.
The tie-up was first reported by Nikkei on Wednesday.
The partnership comes as China's Huawei, a leading telecommunications carrier and equipment manufacturer, is embroiled in political turmoil between Washington and Beijing. On Wednesday, Singapore's three biggest telecommunications companies said they chose Sweden's Ericsson and Finland's Nokia as main equipment suppliers for their 5G networks.
NEC has a mere 0.7% share of the networking equipment market which is dominated by European and Chinese players. It aims to boost its share to 20% by 2030 by building an alliance of partners in an industry where "vertical integration" -- a strategy in which a single company controls the entire supply chain -- is the norm.
"We will create a system by partnering with reliable countries and players. It is consistent with the trend of economic security," Sawada said.
NEC CEO Takashi Niino said, "We have not be able to enter the overseas market in base stations." And he added, "This is the last chance for us to compete in the world."
NTT and NEC will also work together to develop 6G technology. The tie-up is an uphill challenge as NEC has little presence outside Japan in supplying equipment. NEC and its rival Fujitsu were known to have close ties with NTT, which was privatized in 1985.
"It is extremely important that Japan's most advanced technological products be developed and rolled out globally," Chief Cabinet Secretary of Japan Yoshihide Suga said in the news conference on Thursday.
"We hope that Japan's industrial competitiveness will be strengthened and the safety and reliability of next-generation communication infrastructure will be secured by the alliance of NTT and NEC," he added.
Coincidently on Wednesday, U.S. Secretary of State Mike Pompeo in a statement praised some telecom companies including NTT, India's Jio and Australia's Telstra as "clean telcos" because they do not use Huawei technology in their 5G networks.