During the fourth quarter, we added NTT (Nippon Telegraph & Telephone) (NTT), the state-owned fixed line telecom company that also owns a majority stake in the largest wireless service provider NTT DoCoMo. We had been wary of engaging in Japan's telecom sector due to intense pressure from the government to lower mobile tariffs. This culminated in the announcement by NTT DoCoMo in late October that it would sharply lower its mobile phone fees in 2019, resulting in a correction of share prices in the telecom sector. We began adding NTT after this event as we believed the negative impact from tariff cuts will not be as severe as touted while we also expected declining capital intensity and a reduction in working capital combined with the rollout of 5G services would lead to a gradual expansion in the future returns on invested capital.
From Matthews Japan Fund (Trades, Portfolio)'s fourth quarter 2018 shareholder letter.
