BT and AT&T, America's largest long-distance telephone operator, will each buy 15 per cent of Japan Telecom, the country's fourth-biggest phone operator. The deal will give BT a slice of the second-biggest phone market in the world after the US, giving the British company a head start over its European rivals in the region.
Entry into Japan's $108bn (pounds 68bn) annual telephone services market will give the partners an edge over America's MCI World-Com, Germany's Deutsche Telekom - which this week announced plans to merge with Telecom Italia - and others considering moves in Japan.
"This means a lot to AT&T and BT," said Yoshio Ando, analyst at Nomura Securities. "They must have access to Japan to serve multinational companies. And the alliance will help Japan Telecom improve its corporate identity as a global carrier."
Last week, the UK's Cable & Wireless, the rival cable and telephony group, made a new bid to buy International Digital Communications, a Japanese provider of international telephone services. Nippon Telegraph & Telephone is also bidding to buy IDC.
The Japan Telecom deal will also enable BT and AT&T to participate in Japan's next generation of mobile phone services, which Japan Telecom is developing with Nissan Motors and AirTouch Communications, the largest American mobile phone company.
The venture, called IMT-2000 Planning, in which Japan Telecom has a 40 per cent stake, needs as much as 600bn to start the new phone services, Japan Telecom said in December. IMT-2000 Planning is now capitalised at just 200m.
Growth in Japan's telecommunications market will be led by data transmission, especially through mobile phones, according to analysts.
NTT Mobile Communications Network, Japan's largest mobile phone company, is expected to be the world's first mobile operator to introduce the next generation standard, which allows data and image transmission at much faster speeds.
AT&T is involved in a venture with 25 Japanese corporations, including KDD, Fujitsu and Hitachi, to offer internet access and other services to business. AT&T Jens, formed in 1994, was Japan's first commercial internet service provider.
BT already has a licence to provide phone services in Japan, through a joint venture called BT Communications Services with Marubeni, a Japanese trading company. Under the brand name Harmonix, the company started offering international direct phone services this month. BT is also building a fibre-optic network and also has licenses to offer wireless local phone services in Tokyo, Osaka and Nagoya.
Japan has long been a hole in BT's portfolio and is a key market in the quest to build a truly global alliance with AT&T. But some analysts have argued that Japan Telecom is too small and BT and AT&T should be setting their sights higher.
"They need to pick up a big player which would give them access to large Japanese multinationals," said John Matthews, principal consultant at analysts Ovum. "A deal with NTT or KDD would be a big prize."