Telecommunications operators risk going out of business if they fail to diversify into value-added services, NTT Com Asia managing director Kenji Sakata has warned. 'Global telecom carriers cannot survive by providing network services alone,' Mr Sakata said. 'The price for pure network services is going down and down.' However, Mr Sakata said carriers could halt falling profit margins by providing value-added services, such as system integration services, Internet Protocol solutions and consultancy services. The global telecom market had been suffering from overcapacity, slow growth and high competition, clouding earnings prospects of carriers, he said. Mr Sakata said the firm had been beefing up its efforts to diversify into value-added services, especially in China. Two weeks ago, NTT Com Asia, the Greater China arm of Japanese telecoms giant NTT Communications, established a solely owned company in Guangzhou. He said the company aimed to provide system integration and consultancy services for Japanese companies in Guangdong. Together with its two mainland joint ventures - Shanghai NTT Telecommunications Engineering and Beijing Telecom NTT Engineering - NTT employs about 200 staff in China. Mr Sakata said value-added businesses in China contributed about HK$400 million last year, a figure expected to more than double to HK$1 billion by 2006. 'This business portion is going up,' Mr Sakata said. 'Without it, network service revenue can't go up.' Aside from boosting profit margins, value-added services also increased network traffic, Mr Sakata said, adding that customers were becoming more demanding and pure network connectivity was not enough to satisfy corporate clients' needs. 'If we can't provide system integration services, they won't accept our network service,' Mr Sakata said. NTT is targeting sizeable Japanese companies in China, providing Japan-China-Hong Kong network connectivity. Mr Sakata said focusing on Japanese clients on the mainland would provide plenty of business opportunities. Foreign companies are not yet allowed to invest in building telecoms network infrastructure in China. However, Mr Sakata said NTT's partnership with Shanghai Telecom gave it access to the infrastructure of domestic carriers. 'A lot of Japanese companies have come to China or will come in the future,' he said. He estimated there were about 5,000 to 6,000 Japanese companies in China, most of them in Beijing, Guangzhou and Shanghai. NTT is hoping to capture more than half of the 2,000 bigger companies. 'We are only focusing on the big ones,' Mr Sakata said, adding that the company's China operation was profitable.