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Preliminary Recommendations on
the Restructuring of the Legal System Governing Telecommunications
to Propel the IT Revolution

From a System of Business Regulation to the Promotion of Competition

March 28, 2000

(Japan Federation of Economic Organizations)


  1. A combination of changes, including the rapid growth of the Internet and advances in information technology, are driving a transformation known as the IT Revolution. For individuals, IT offers opportunities to express individuality and creativity and overcome handicaps. For companies, governments, and local authorities, IT provides ways to improve the efficiency and quality of services. There is a need to exploit IT positively as Japanese society strives to adapt to a future of expanding global megacompetition, falling birthrates, and increase of aging populations by improving the competitiveness of industries, growing new industries and businesses, expanding employment opportunities, improving national living standards, and revitalizing the regions.

  2. Japan has fallen far behind the United States in terms of both the extent and sophistication of information networks and Internet use. The lag in information network use in the private sector threatens to deal Japanese industry a fatal blow in international competitiveness. The slow pace at which IT is being applied to government administration has become a drag on living standards and industrial activity.

  3. Under the leadership of the prime minister, the government has started to apply the "virtual agency" concept, including the establishment of one-stop service for all automobile-related formalities, the introduction of electronic processing for government procurement, the development of paperless systems for government administration, and the application of IT in education. The government is also implementing the Millennium Projects, the aim of which is to facilitate electronic government, IT-based education, and IT planning for the twenty-first century. Meanwhile, government systems relating to information technology are being reviewed, and efforts are being made to improve the environment for electronic commerce. The government is also formulating a national technology strategy for IT industries and encouraging the strategic development of information science and technology. In addition to these efforts to foster technology development and improve the environment for IT use, it will be necessary to ensure that user needs are sensitively reflected in IT service supply structures, which are the basic infrastructure for consumer lifestyles and business activities, through fair competition, and also to implement reforms to ensure that systems can be adapted quickly in response to advances in technology.
    These recommendations concern the future of government administration in the field of information and telecommunications technology. They were compiled by analyzing the concerns of industry, as users of telecommunications services, in relation to the preceding factors. Particular emphasis has been placed on ways to achieve free and fair competition in the telecommunications market, and on ways to ensure transparency in government administration.

I. The Current State of the Information and Telecommunications Market and the Need for Reform

Further revitalization of the information and telecommunications market is needed in order to create an environment in which IT-based information networks can be used to their full potential. The information and telecommunications market that Japan needs has the following characteristics.

  1. There should be a free and fair competitive environment in which multiple providers can apply their ingenuity and creativity to the improvement of services in terms of charges, quality, and convenience.
  2. User satisfaction should be maximized through the provision of low-cost, high-quality services.
  3. Providers should maintain their competitiveness in both domestic and overseas markets.
  4. The government should clarify its systems, policy implementation, judgment criteria, and procedures and make its decision-making processes transparent. It should also fulfill its responsibility to explain its actions to the public.
There is a need to develop a virtuous circle in which users can benefit from new technology, which leads in turn to the expansion of the IT market and further stimulates competition among providers. To create such a market, providers and the government must find appropriate responses to a number of factors, including advances in technology, especially in relation to the Internet, changes in market demand patterns, the convergence of telecommunications and broadcasting, and the promotion of competition in the telecommunications market.

  1. Adapting to the Internet Era
  2. The Internet Protocol (IP) allows various applications to be run in networked environments. This capability is reflected in the increasingly important role played by information and telecommunications networks as a social infrastructure. However, business users of IT services have raised a number of issues, including the need to reduce charges and diversify services. There is enormous latent demand for information technology, especially in relation to the Internet. Explosive growth, including the development of entire new industries, can be expected if services can be made more accessible. The market is now reaching the critical mass needed for demand-led growth.

    1. The Internet is a user-driven information network. It provides an easy way to access or distribute information on a global scale, to exchange information with large numbers of people, and to process information easily. The Internet is developing at an astounding pace. Advances in digital technology and other fields of technology and the growth of electronic commerce are expected to bring a dramatic increase in the demand for IP-based information transmission and communications. Eventually IP networks will be used for all kinds of applications and a wide range of data, voice, video, and image transmissions.
      With the spread of the Internet, telecommunications networks are playing an increasingly important role as social infrastructure. It will also be necessary to restructure telecommunications-related legal systems to reflect the use of the Internet.

    2. Japanese companies face many challenges, including the need to improve efficiency, restructure business operations, reform employment structures, speed up management processes and create new business activities. Telecommunications networks have become important tools for meeting these challenges. According to the results of a Keidanren survey, however, there are factors that prevent companies from taking full advantage of telecommunications networks. These include high charges, slow speeds, and limited service options.
      There are many examples of situations that limit opportunities for business development and efficiency improvements. For instance, the types of services that can be offered through electronic trading are limited, and online content provision has little business potential. Companies are unable to offer online real-time monitoring of clients' equipment. In addition, leased lines cannot be used to provide increased speed and bandwidth, which makes it impossible to improve the speed of intranets that include regional offices. The resulting need to focus on ways to minimize communications traffic is preventing companies from discovering positive ways to use information technology.
      Business users of information and telecommunications network want a number of changes, including the development of high-speed, high-bandwidth lines, the reduction of telecommunications charges, the expansion and diversification of discount services, the improvement of telecommunications service quality, shorter installation lead times, the improvement of maintenance and support services, and the availability of appropriate advice and know-how. Increasingly, users are demanding not only the provision of telecommunications services but also advice on solutions for their needs.
      Another reality of the situation in Japan is that Internet connection providers are still not able to source wide-bandth telecommunications infrastructure in a competitive market. Unless this situation is remedied, more and more major companies may shift their telecommunications processing centers offshore.

    3. The Japanese IT market is clearly lackluster compared with the buoyant American market. However, there is potentially huge business and consumer demand for IT, and especially for the Internet. If prices can be reduced, services diversified, and accessibility improved, there is likely to be explosive growth in business use of IT and the development of new industries. In this sense, the critical mass for demand expansion has been reached.

  3. Adapting to the Convergence of Telecommunications and Broadcasting
  4. Advances in technology, including digital technology, are leading to the integration of information transmission channels and terminals. Services that combine telecommunications and broadcasting are already starting to emerge, and this trend is likely to accelerate in the future. However, government systems have failed to keep pace with these changes. For example, separate administrative procedures are still required for communications and broadcasting, even though these activities can no longer be considered separately.

    1. Advances in such areas as digital technology and information processing and transmission technology, coupled with the growth of the Internet and other factors, are reflected in a trend toward the sharing and integration of information channels, terminals, and other infrastructure used in communications and broadcasting. Other changes include the integration and convergence of services and the reciprocal use of content.

    2. The telecommunications sector has been moving toward the use of digital technology for some time. In the broadcasting industry, digital technology is used not only in CS (communications satellite) broadcasting but also increasingly in formerly analog BS (broadcast satellite) broadcasting, cable television and ground-based broadcasting. This factor is expected to lead to a rapid convergence of telecommunications and broadcasting. If the government can create a suitable environment leading to the development of totally integrated digital networks that encompass telecommunications and broadcasting, the benefits will include increased business opportunities for providers, an increased range of channels for users, and opportunities to create and view programs based on user participation.

    3. Providers are actively working to meet changing user needs, make effective use of business resources, and exploit synergies among various business activities by developing activities that transcend the barriers between telecommunications and broadcasting. For example, the following services based on the convergence of telecommunications and broadcasting already exist, and new services are likely to appear in quick succession in the future.

      1. Real-time content playback via the Internet through the use of streaming technology (Internet broadcasting)
      2. IP multicast services based on communications satellites and other infrastructure
      3. Telephone and Internet connection services via the coaxial cables used in cable television
      4. Cable television services delivered via fiber optic telecommunications networks
      5. Delivery of information to specific individual users, such as the interactive programs that are now being considered for BS data broadcasting
      6. Provision of information programs produced jointly by providers and users or through user participation
      7. Use of Internet content via data broadcasting
      8. Distribution of programs received through CS digital broadcasting or other systems via fiber optic cables to specific users
      9. Providing information to specific users via communications satellites

    4. At present, the use of telecommunications systems to transmit information through wireless or cable formats for receipt by large numbers of unspecified people is regarded as broadcasting. The criteria for distinguishing between telecommunications and broadcasting include the closeness of the relationship between the sender and recipient, the importance of the recipient's attributes, and whether or not the material transmitted is based on the relationship between the sender and the recipient or on the attributes of the recipient. From the perspective of the private business sector, however, these criteria lack transparency. In practice, it is necessary to provide government officials with detailed advance briefings about the nature of any new information transmission services based on the convergence of telecommunications and broadcasting so that those officials can determine whether the service should be classed as broadcasting or telecommunications. Moreover, government officials are reluctant to add new service categories classed as telecommunications to the Guidelines Concerning the Distinction Between Telecommunications and Broadcasting Pertaining to New Hybrid Communications/Broadcasting Services Based on the Use of Communications Satellites. Another criticism is that the definition of "specific persons" in relation to the classification of a service as telecommunications is too narrow.

    5. With regard to the participation of telecommunications companies in broadcasting and vice versa, there is concern about how fair competition is affected by restrictions on entry into each area. For example, there are stringent limitations on the involvement of the NTT Group, which has considerable influence in the telecommunications market, in broadcasting. Similarly, existing broadcasters are prevented from developing their activities flexibly, in part because of the principle of preventing exclusive control of the mass media.

    6. The improvement of telecommunications channels, including the introduction of digital technology and the expansion of bandwidth, means that it is now possible to transmit various types of information, such as images, videos, voice, and data, through any telecommunications channel and to share or integrate transmission facilities. However, such activities are restricted by existing laws, which require different approvals, notifications, and other formalities for telecommunications and broadcasting.

    7. If there are further delays in bringing government systems up to date, service providers may be prevented from developing their business activities creatively, while users may be unable to benefit immediately from new advances in technology.

  5. Encouraging Competition in the Telecommunications Market
  6. The establishment of rules for the fully competitive market that is expected to evolve in the future and the development of transparent administrative systems that give priority to user interests are vital so that service providers can apply their ingenuity and creativity to the development of diverse, low-cost telecommunications services that meet user needs and benefit the public and the business sector. Moreover, the Japanese government should approach other governments to take the necessary steps, including the removal of restrictions on foreign investment, to facilitate the development of overseas activities by service providers.

    1. The Japanese telecommunications market is going through some major changes. These include the restructuring of NTT on July 1, 1999, the rapid growth of mobile communications, mergers and partnerships among carriers, and the entry of several foreign-owned companies into the market. A structure is evolving in which there will be competition among multiple all-round providers with a full range of services.
      A sustained increase in competition in the markets for long-distance, international and mobile communications has brought dramatic reductions in charges. Moreover, competition has finally started to develop in the local telecommunications market, as evidenced by the launch of telephone and Internet services by regional NCCs (new common carriers) and cable television companies and by the growth of local exchange connections. In the 1998 survey on the usage of telephones, etc., as monitored through traffic, the Ministry of Posts and Telecommunications reports that the NCCs' share of calls within prefectures has reached 6.3% (16% for long-distance calls within prefectural boundaries) and is rising.
      The most important perspective is that of users, including corporate users, who still harbor strong expectations of further reductions in charges. There is also strong demand for permanent, high-speed Internet access at affordable charges. These user needs will be satisfied not through government initiatives but through free and fair competition. There is a need, therefore, to create an environment in which competition is possible in all areas of the telecommunications sector.
      In relation to the Telecommunications Business Law, commendable steps have already been taken toward the creation of a competitive market and the improvement of transparency in government administration. For example, the supply-demand adjustment requirements have been deleted from the law, and controls on charges have been eased. In addition, restrictions on foreign investment have been abolished, connection rules established, and a public-comment system utilized. Now there is a need to establish rules that allow service providers to apply their creativity and ingenuity in relation to equipment sourcing and the provision of services so that the public and businesses can benefit from a wide range of low-cost telecommunications services in the fully competitive market that is expected to evolve. One of the barriers to competition at present is the high cost and physical difficulties associated with the installation of line facilities. We hope that the government will move to alleviate these problems through actions that transcend administrative structures, including a review and update of the regulations concerning line installation and measures to promote the construction of wireless transmission channels.
      Participants in a Keidanren survey on bureaucratic procedures highlighted a number of issues. For example, some were asked to furnish documentation or provide prior briefings on matters that were not stipulated in the regulations, while others found that judgment criteria varied according to the department or individual official or changed after personnel transfers. The government should establish transparent requirements and criteria concerning its systems and rules so that it can avoid future criticism about arbitrary behavior on the part of its officials.

    2. In case of international telecommunications markets, the globalization of economic activity is creating a growing need for globally seamless services that are not affected by national boundaries. In terms of Japan's role in the world, it is crucial that the Japanese IT industry is able to use its resources, including its technology, knowledge, personnel, and funds, to respond to global telecommunications needs and the needs of overseas users. Such a contribution would also help to strengthen the foundations of Japanese industry.
      Japanese IT industry is already becoming embroiled in escalating global competition. They are also becoming increasingly involved in cross-border mergers and partnerships. In the West and in Asia, the IT field is regarded as a strategic sector, and efforts are being made to develop systems that allow free and fair competition so that IT industries and industries that use IT can improve their international competitiveness. This contrasts with the slow pace of international expansion on the part of Japanese telecommunications service providers.
      There are certain fundamental requirements that must be fulfilled if Japanese companies are to offer the most accessible and affordable services to users around the world. First, we must develop a domestic environment that is conducive to free and fair competition so that widespread competition can spur rationalization, improvements in ability to adapt to environmental change, and the enhancement of business know-how. In addition, regulations should be drastically revised to make them more internationally compatible so that Japanese companies are able to move promptly and flexibly in such areas as the formation of voluntary partnerships with major overseas companies and mergers with or acquisitions of promising companies in Japan or overseas.
      Major problems can also occur because of market entry restrictions in some countries and because of differences in the systems and procedures used in various countries or individual states in the United States. The government should expand its involvement in bilateral and multilateral diplomatic negotiations in an effort to persuade other governments to eliminate barriers to market access and restrictions on foreign investment, and to make regulations more transparent so that service providers can expand internationally under conditions that do not discriminate on the basis of nationality.

II. Directions for Reform: Enacting a New Telecommunications-related Law

  1. New Legal Framework to Promote Fair Competition
  2. The various existing laws relating to information and telecommunications should be integrated into a comprehensive new telecommunications-related law based on fair rules of competition so that users can benefit fully from the Internet era and the convergence of telecommunications and broadcasting. Opportunities should be provided for wide-ranging discussion in order to form a national consensus on the development of a new telecommunications-related law.

    There are two key requirements if users are to take full advantage of the Internet era and the convergence of telecommunications and broadcasting. First, there should be a review of the distinction between telecommunications and broadcasting. This review should not be confined by existing concepts. Second, a new legal framework should be developed to provide a basis for free and fair competition. Japan's existing legal structure for information and telecommunications consists of numerous laws, including (1) resource-related laws, such as the Radio Law and the Wired Telecommunications Law, (2) business-related laws, such as the Telecommunications Business Law, the Broadcast Law, the Cable Television Broadcast Law, the Cable Radio Broadcasting Law and Wired Telephony Law, and (3) laws relating to specific organizations, such as the Law Concerning Nippon Telegraph and Telephone Corp.,Etc. (the NTT Law).
    These existing laws, though they differ in terms of former processes and legislative background, should be integrated into a single new legal framework designed to foster free and fair competition in the field of information and telecommunications. This integration is desirable in order to facilitate quick adaptation to rapid environmental change in an era in which the users and providers of telecommunications and broadcasting are increasingly fused together. The NTT Law would then be unnecessary, since provisions required to achieve and maintain fair competition would be absorbed into the new law.
    The creation of a comprehensive new telecommunications-related law will require a national consensus. This should be achieved by providing forums for wide-ranging discussion and by using the process of public comment. The abolition and review of problem regulations should be implemented simultaneously with this process.

  3. Advancing User Interests Through a Competitive Environment:
    From a System of Business Regulation to a System of the Promotion of Competition
  4. The structure that is now needed must be based not on business regulatory laws that impose prior requirements on providers but rather on laws that are designed to promote competition and advance the interests of users through competition. In particular, the new law should state explicitly that its purpose is to advance user interests through the achievement of free and fair competition. In addition, it should charge the government with responsibility for maintaining and promoting effective competition. Also, a clause should be inserted stipulating that the law must be revised at regular intervals to guarantee a flexible response to new technologies and market changes.

    There would be no IT market without users. The IT sector is expected to contribute to the advancement of user interests and the qualitative improvement of the life of the people and to play a leading role in improving the international competitiveness of all industries and the creation of new industries and businesses.
    Existing telecommunications-related laws are based on the use of prior regulation to ensure that the government controls the providers' operations appropriately and rationally. For this reason, the laws prevent providers from acting flexibly and dynamically, with the result that user needs are not being met satisfactorily. What is needed in the future is a structure based on a law that promotes competition as the mechanism for advancing user interests.
    In particular, there must be explicit recognition in the new law that its purpose is to advance user interests by ensuring free and fair competition. Other priorities include the establishment of conditions for fair competition, the creation of systems designed to encourage competition, the provision of mechanisms for the prompt settlement of disputes, the introduction of greater transparency into government administration, and the establishment of regulations to prevent anticompetitive behavior. In some countries, government administrators have a duty or responsibility to maintain and promote effective competition. It would be appropriate to introduce similar provisions in Japan.
    Because of the rapid pace of innovation in the IT sector, it is very difficult to predict which of the new technologies will be accepted by users or to forecast precisely how the market structure will change in the future. Accordingly, the regulations should be revised to allow flexible adaptation to new technology, market trends and other developments. In the United States, Article 11 of the 1996 Telecommunications Act requires that the Federal Communications Commission (FCC) review all regulations every other year. Those responsible for drafting Japan's new legal framework should include a clause providing for reviews at regular intervals, such as every two years, so that systems can be updated flexibly to reflect new technology, market trends, or other changes without being confined by the parameters of the structure that is initially created.

  5. Integrated Approach to Telecommunications and Broadcasting
  6. To accommodate the increasing convergence of telecommunications and broadcasting, the new legal structure should allow an integrated approach to these areas so that information channels and content can be combined freely to create new services. Information channels should be covered by a common administrative framework encompassing both telecommunications and broadcasting, while content should in principle be free of government regulation and left to self-regulation by the private sector. However, the present framework should be maintained for the time being in relation to basic broadcasting. Consideration should also be given to the rules governing terrestrial TV broadcasting, including the principle of avoiding concentrations of control over the mass media. These rules should be reviewed to allow the development of a wide range of business activities.
    The treatment of copyright is another area in which rules that reflect the realities of the networked society need to be established. This is important both to advance user convenience through the reliable and efficient distribution of software and the effective utilization of existing software and also to facilitate market expansion.

    (1) Basic Thinking

    In the future there are likely to be more and more services that cannot be categorized as either telecommunications or broadcasting. To ensure that companies have the freedom to develop their business activities in this environment providers must be able offer services based on unrestricted combinations of transmission facilities and content, provided that they do not engage in anticompetitive behavior.
    In November 1999, the European Commission announced its 1999 telecommunications review. The commission stated at that time that it was developing a policy under which information transmission channels and platforms would be covered by an integrated framework(telecommunications) with no distinction between broadcasting and telecommunications and that content would be dealt with according to the field concerned.
    Japan also needs to review its existing law structure which is separated into broadcasting and telecommunications, with a view to overcoming bureaucratic barriers and developing a simpler legal framework to provide integrated coverage of telecommunications and broadcasting. Like the European Commission, the Japanese government should create a common framework for telecommunications and broadcasting. Under such a system, it should be possible to use the information transmission channels that serve as network infrastructure for any purpose. Broadcasting should be treated as a kind of telecommunications, and a guarantee of freedom of expression with regard to content should be a fundamental part of the regulatory framework that is created for broadcasting.
    Moreover, the government should work toward the creation of a seamless digital network environment for telecommunications and broadcasting by actively developing the conditions required for the smooth introduction of digital technology. In this context, the government should also focus on the difficult problems affecting terrestrial TV broadcasting, such as frequency issues.

    (2) Distinction Between Telecommunications and Broadcasting

    Regulations relating to broadcasting deal mainly with content. Provided that content does not break criminal laws or otherwise infringe against general legal requirements, it should in principle be unrestricted, and the people's freedom to express themselves should be respected to the greatest possible degree. Basically, these matters should be left to self-regulation, including the formulation of private-sector guidelines, and the creation of systems that allow viewers and listeners to select content autonomously. Such an approach would allow the flexible provision of services to meet the diverse needs of users. It would also lead to the creation of new businesses.
    Ground-based broadcasting uses radio waves to provide the general public with a full range of news, cultural, educational, and entertainment programs via a small number of channels, with broadcasters themselves taking responsibility for the editing of content. Today almost 100% of the Japanese populace can access this type of broadcasting easily and cheaply. For the time being, it will be necessary to maintain mechanisms, such as those provided in the existing Broadcast Law, to ensure the suitability of programs provided through ground-based broadcasting and other core media.
    Where information is supplied only to specific viewers and listeners who have chosen to receive that information, it is appropriate to employ a different approach from that used for the direct provision of basic information to the general public. Examples include systems that transmit content in a secure form, such as with the use of encryption technology under pay-per-view agreements. Self-regulation should be the basic rule in such cases. The same is true of interactive services in which the senders and recipients of information are essentially integrated.
    Changes are needed in the Guidelines Concerning the Distinction Between Telecommunications and Broadcasting Pertaining to New Hybrid Telecommunications/Broadcasting Services Based on the Use of Communications Satellites. Either the range of categories treated as communications should be expanded so, for example, that all services involving simultaneous transmissions to the homes of specific individuals are treated as communications, or there should be a negative list of services that will not be treated as communications.
    It will also be necessary to consider ways in which to allow ground-based broadcasters to diversify their activities under the principle of self-responsibility, while maintaining their role as media organizations. Possible approaches include the expansion of broadcasting coverage areas, a review of the regional licensing system, and a rethinking of the principle of avoiding the concentration of mass-media ownership. The future of NHK (Japan Broadcasting Corporation) should be debated openly taking into account such factors as its role in healthy market development, the functions of public broadcasting, and the conditions required for fair competition with the private sector.

    (3) Promoting the Use of Content

    In Japan, there are no rules covering the treatment of copyright when content is distributed and used in multiple contexts. For example, while terrestrial TV broadcasting content has high utilization value and has the potential for wide-ranging uses, copyrights are treated on the assumption that the material be used primarily for terrestrial TV broadcasting. For this reason, it is difficult to use such content in other media, such as satellite broadcasting or the Internet. Moreover, while digital content can easily be distributed through the Internet or other media, distribution is currently hindered by the problem of illegal reproduction.
    Reliable, efficient distribution of software and the effective utilization of existing materials would result in enhanced user accessibility and market expansion. To achieve this it will be necessary to develop copyright rules that are suitable for the networked society and provide simple, appropriate protection for the rights of copyright holders. The Copyright Law is concerned primarily with the protection of the rights of copyright holders. For this reason, and also because of the wide range of people involved as holders or users of copyrights, it would be impractical to leave the development of rules to consultation within the private sector. Thus, the government should take urgent steps to foster debate and form a consensus regarding an efficient distribution system. This process should include the development of organizations to process copyrights competitively and efficiently and a sweeping review of the role of the protections provided in the copyright law. In the private sector as well, those creating content should take the possibility of its reuse into account at the time of production.
    The new legal framework should be designed not to create new rights each time a new utilization format emerges but rather to provide ways of seeking remuneration or restricting actions. It would not be appropriate to impose excessive obligations on networks or terminal equipment.
    Content owned by NHK is a valuable public asset. It must be distributed and used fairly and effectively.

III. Creating Systems to Promote Free and Fair Competition

  1. Transition to a Regulatory Framework that Reflects Progress Toward a Competitive Environment
  2. To create an environment of free and fair competition, the administrative framework covering the IT infrastructure should consist of regulations differentiated according to the level of competition. It should also include mechanisms to prevent anticompetitive behavior. Existing systems, such as the connection agreement approval system, the contract approval system, and the service category change approval system, should be abolished and replaced with ex-post-facto checks so that providers are able to develop their activities flexibly.
    In the case of markets in which competition has failed to evolve over long periods of time, it will basically be necessary to maintain retail charge ceilings and connection rules. Restrictions on providers that exert a major influence in the telecommunications market should be eased in step with the growth of competition.
    The NTT Law should be abolished so that NTT can operate on the basis of self-responsibility. Those provisions of the NTT Law that are essential to the achievement and maintenance of fair competition should be absorbed into the new telecommunications law.

    (1) Regulations Linked to the Level of Competition

    It is important, from the viewpoint of ensuring free and fair competition, to differentiate regulations under the new law according to the level of competition. Obvious requirements relating to the protection of users include maintenance of confidentiality in communications, protection of individual information and prompt processing of complaints. Because of the rapid pace of innovation, however, it is difficult to predict the future direction of technology and market trends. Providers must be able, therefore, to provide services and facilities flexibly according to their own judgment of the situation. If competition fails to develop over a long period to time, it will be basically acceptable to maintain connection rules and price-cap system, similar to the mechanisms provided in the existing legislation, for providers who have considerable power to influence the telecommunications market. Furthermore, providers should be allowed to source line capacity flexibly among themselves to encourage the expansion of markets based on the use of lines leased from other companies. However, restrictions on the activities of providers that exert considerable influence in the telecommunications market should be eased in step with the growth of competition, to prevent the regulatory system from distorting market development.
    Various approaches have been used in other countries. In Britain, for example, a provider with a market share of 25% or more is classed as a "significant market power." Such companies are subject to certain requirements, including the provision of interconnections on reasonable terms and the disclosure of connection agreements. British Telecom, which has an 80% share of the local telephone market, is prohibited from engaging in anticompetitive behavior, such as the setting of predatory charges, cross-subsidization, and misuse of its dominant position in the market. In the United States, the FCC is able, under certain circumstances, to waive requirements for some companies, such as providers that do not have market dominance. There is also an incentive system that allows the Regional Bell Operating Companies (RBOCs), which have a virtual monopoly in local telephone markets, to expand into the long-distance and international telephone markets, provided that they fulfill 14 conditions and establish separate subsidiaries that meet specific initial requirements. The government should study the regulatory frameworks used in other countries and apply this information to the development of a regulatory framework that reflects the level of competition.

    (2) Facilitating Interconnection

    An obligation to allow interconnection to existing facilities is an essential physical requirement for all forms of communication. In the case of connection agreements negotiated between experts, however, the approval system should be abolished to allow flexibility and reduce administrative costs. When disputes and problems arise between providers, the government should arbitrate on the basis of transparent procedures.
    With regard to the local telecommunications market, it will be necessary to facilitate connection and deal with issues transparently on the basis of existing rules as long as there are facilities that other carriers must use in order to provide services. Interconnection charges in such cases should be based on the long-term incremental cost methodology. The review of connection rules in 2000 must be accompanied by open and transparent debate.
    Similarly, when future advances in technology lead to the creation of new services, steps should be taken to ensure that interconnections are available by all technically and economically feasible means, to advance user interests, and stimulate expansion and demand in the telecommunications market.

    (3) Ensuring Universal Services and Essential Communications

    Universal telephone services are essential to the life of the nation. At present NTT and NTT regional companies are the only companies obliged to provide such services, which are stipulated in the NTT Law. When the new law is drafted, it will be necessary to subject the existing system to a transparent review focusing on such issues as the scope of universal services, whether or not specific measures are required, what constitutes a reasonable cost for ensuring access to universal services, and how universal services should be provided if they are necessary. This review should take into account the various changes that have occurred in the environment surrounding universal services, including the growth of competition in the local telecommunications market, the rapid expansion of mobile telecommunications, and changes to interconnection charge systems. Care should be taken to avoid actions that would distort market competition. Consideration should also be given to the funding of universal services through a social policy mechanism, rather than in a way that would place the entire cost burden on service providers.
    The provision of securement of essential communications during emergencies, such as natural disasters and civil disorder, is crucial to the prevention of social disruption. Like the existing legal framework, the new law will need to include provisions concerning securement of essential communications.

    (4) Flexible Business Development

    Article 31 (4) of the Telecommunications Business Law states that type 1 telecommunications carriers must stipulate the terms for the provision of telecommunications services in contract documents, which must be approved by the minister of posts and telecommunications. Article 14 of the law states that ministerial approval is also required for any changes to the categories of telecommunications services provided. This requirement to seek approval for contract terms or changes to service categories whenever new services are introduced limits the flexibility of service providers and their ability to develop and provide new services quickly in response to user needs. Few other major nations have a contract approval system. Contract approval requirements should be abolished and replaced with a system based on the disclosure of charges and contract terms to consumers, combined with an ex-post-facto checking system under which directives could be issued requiring prompt processing of complaints or the improvement of services, if it was found that consumer interests were being jeopardized.
    With advances in digital technology and other technologies, it is no longer meaningful to separate services into the categories of voice, data, and leased lines, and these categories should be abolished. The system requiring approval to be obtained for changes to service categories should also be abolished so that providers can quickly introduce new services to meet user needs. Moreover, the regulations governing international agreements among mobile service providers should be liberalized to reflect internationally accepted norms and to facilitate and speed up the establishment of such agreements.
    Providers face a number of challenges, including escalating global competition and technological innovation. To meet these challenges, they must be able to make decisions quickly, maximize their efficiency, and flexibly restructure their activities through partnerships, mergers, and acquisitions based on share swaps and other mechanisms. This is true even for NTT, which is listed on Japanese and foreign stock exchanges. NTT should be given the ability to manage its activities according to the principle of self-responsibility. The NTT Restructuring Implementation Plan, which was drawn up to guide NTT's restructuring until there is sufficient competition in the market, should be subjected to a transparent scrutiny process. The NTT Law, which regulates the activities of a single organization, should be repealed. Any provisions of the law that are essential to the achievement and maintenance of fair competition should be absorbed and integrated into the new IT law.
    Regulations that are not directly relevant to the establishment of fair competitive conditions in the market but allow the government to intervene directly in business activities or management should be abolished without delay. Such regulations distort the principle of self-responsibility in management and hinder global business development. Examples include approval requirements for directors and auditors, systems requiring companies to obtain government approval for business plans, changes in the articles of incorporation or new share issues, restrictions on foreigner's investment, and regulations concerning government shareholdings. All shares held by the government should be sold. Any review of the status of NTT's regional companies, including the scope of their activities, should focus on the conditions required for fair and effective competition, and appropriate information should be disclosed to the public.

  3. Creating Systems to Promote Competition
  4. Service providers should have the freedom to make their own decisions to establish facilities and combine reselling with unbundling, based on their own business strategies. When installing facilities, they should be able to acquire rights that enable them to build their networks flexibly, subject to network interconnection obligations. To encourage the development of facilities, restrictions on the exclusive use of roadways should be eased, and voluntary rules should be established regarding the disclosure of information about the space available in conduits and telephone tunnels. Other priorities include the reform of radio wave administration.

    (1) Review of Regulatory Structure Focused on Facility Ownership

    Article 6 of the Telecommunications Business Law defines a type 1 telecommunications carrier as a company that provides telecommunications services by establishing telecommunications circuit facilities . All other providers are classed as type 2 telecommunications carriers. In principle, type 1 carriers are not allowed to lease line facilities from other providers, while type 2 carriers are not allowed to install line facilities other than those required for operational purposes, and they must procure line capacity exclusively from type 1 carriers. For this reason, it is difficult to build networks efficiently by flexibly combining line installation with the reselling of unbundled services.
    New providers normally enhance their profitability by initially using leased facilities and then progressively expanding their line facilities as their user base grows. In fact type 1 telecommunications carriers are eager to gain greater flexibility in the area of line procurement through such methods as line facility reselling, the provision of integrated network services, and the provision of long-term indefeasible rights of use (IRUs) for line facilities or bandwidths. If type 2 carriers were able to procure line capacity through the establishment of IRUs or facility ownership, they would have increased freedom to develop their business activities, and there would be greater competition. Other advantages of reselling and IRUs are the potential for effective use of existing line facilities.
    Decisions about whether or not to own facilities are really aspects of basic business strategy and should be left to management. The new law should not include demarcations based on ownership of line facilities, such as the separation of type 1 and type 2 carriers under the existing system. There should be a notification system for the establishment of new business activities in stead of approval system, and providers should be free to combine line facility installation or the reselling of unbundled services according to their own management judgment.

    (2) Development of Circuit Facilities

    Changes designed to simplify official formalities and reduce the costs involved when service providers install telecommunications circuit facilities would contribute to the growth of competition in the telecommunications market.

    (2)-1 Cable Conduits

    When service providers wish to install lines in public spaces, such as roads and rivers, they must obtain exclusive use permits from the organizations responsible for the management of those spaces. The formalities involved are extremely complex, and it is difficult to obtain information about the location of public conduits and the availability of space in such conduits. In addition, the technical standards applied are inconsistent. These problems relating to regulations and formalities are clearly preventing flexible network development.
    To facilitate the development of user-friendly facilities, providers wishing to install facilities, including cable television systems, should be able to acquire the right to build networks flexibly with minimal government intervention. At the same time, they should accept certain obligations concerning the provision of services, interconnections, conformity with technical standards, and restrictions on the withdrawal of services.
    Where the regulatory authorities have approved line installation plans submitted autonomously by service providers, exclusive use of roads and rivers, etc., should be granted during the project, and support should be provided to allow the work to be implemented. In addition, criteria relating to construction work over short periods or distances should be relaxed.
    To promote facility development and encourage competition in the building of infrastructure, efforts should be made to promote the use of roads, rivers, and bridges, etc., through construction of more joint-use conduits, joint-use cable conduits, and data boxes, etc. In addition, the regulations governing the exclusive use of roads and rivers, etc., should be relaxed. Moreover, when road coordination meetings are held to coordinate locations and times for road excavation work, the results of those meetings, including the construction schedules, should be made available to nonparticipants so that new service providers can access the minimal information they require to develop their business activities. In addition, new service providers should be treated in the same way as existing companies.
    Rules covering the voluntary disclosure of information about the space available in ducts and tunnels and on telegraph poles should be drafted without delay. The authorities should develop a common database containing information about duct facilities already installed under public places. To facilitate line installation by service providers, it will also be necessary to develop an integrated manual covering such aspects as legal and procedural requirements for road works and to develop common technical standards covering all service providers.
    Rights of way(the right of telecommunications service providers and cable service providers to use land that they do not own, including the beds of bodies of water, to install or maintain lines and overhead cables) should be debated more fully and in open forums. Aspects that need to be discussed include the need for such rights, whether or not they should be granted, and the problems that may arise. The debate should also take into account trends in other countries.

    (2)-2 Radio Waves

    At present, a license as stipulated in Article 4 of the Radio Law is required in order to establish a radio station. The purpose of this regulation is to ensure that the general public can benefit from the use of radio waves. However, there is considerable variation in the efficiency with which radio waves are used. For example, there is a shortage of bandwidths for portable telephony, while ample bandwidths have been allocated for other types of services. To ensure that frequencies are used effectively in the future, procedures should be established to assess bandwidth use and ensure that usage patterns reflect the level of contribution to the national economy. Bandwidths should be allocated and allocations should be reviewed from the viewpoint of fair competition. It will also be necessary to establish a basic principle that frequencies may be used for either telecommunications or broadcasting. The functions of the Radio Regulatory Council should be reinforced, and transparent bandwidth allocation procedures should be established.
    Depending on the purpose for which it is used, wireless equipment is subject to various regulations, including technical standards and such detailed requirements as connection methods, modulation system, transmission speed, and call time. These regulations should be reviewed flexibly so that new technology can be used to benefit users. Government intervention should be kept to a minimum, and service providers should be encouraged to maintain their systems independently. To achieve these goals, changes should be made to the types of information that must be provided when applying for a frequency license. Applicants should no longer be required to state the content of their telecommunications or broadcasting, the names of other parties to communications, the installation and operating costs for wireless equipment, payment methods, business plans, and estimates of income and expenditure. In addition, equipment inspections should, in principle, be based on self-inspection.

  5. Prevention of Anticompetitive Behavior
  6. The prevention of anticompetitive behavior is essential to the promotion of fair competition. The various government agencies involved should work together in this area. For example, government ministries should coordinate their activities with the Fair Trade Commission to develop the necessary guidelines.

    To advance user interests and ensure the sound development of IT businesses, it will be necessary not only to establish systems that encourage competition, such as by allowing flexible network development. The creation of mechanisms to prevent anticompetitive behavior will also be extremely important. These mechanisms must be designed to prevent service providers from engaging in anticompetitive practices in the IT or related markets, either singly or together with group companies. Examples of the practices that must be prevented include behavior that contravenes the Antimonopoly Law, such as the illegal restriction of trading, the establishment of private monopolies, and unfair trading methods (discriminatory treatment, illegal discounting, discriminatory pricing, collusive selling, illegal solicitation of customers, trading under restrictive terms, misuse of a dominant position, etc.), as well as cross-subsidy pricing. The relevant ministries and agencies should work together and cooperate with the Fair Trade Commission on the development of such policies.

  7. Reinforcement of Government Monitoring and Arbitration Functions Relating to Competition
  8. The government is expected to monitor fair competition in the IT market from a neutral standpoint and to arbitrate fairly and appropriately in disputes between service providers. It is likely that the authorities will increasingly be called upon to review policies and issues relating to charges and services. A petition system should be established to allow individuals, businesses, and service providers to make direct requests to the government concerning existing systems and policies. Mechanisms should also be created to facilitate the prompt settlement of disputes.

    (1) The Role of Competition Supervisory Agencies

    Government agencies involved in the IT field currently carry out four functions: (1) supervision and regulation of the business activities of service providers, (2) formulation and implementation of IT-promotion policies, (3) supervision and regulation of NTT because of its considerable influence in the IT market, and (4) major holder of NTT shares. Government agencies responsible for supervising fair competition should act independently of the interests of the service providers and work from a neutral stance to create an environment for fair competition in the information and telecommunications market, ultimately, to advance the interests of users. However, the above four functions of government agencies can sometimes result in conflicts of interest, and it is extremely important to ensure that government agencies are able to carry out supervision for fair competition from a neutral stance and with the greatest possible degree of independence from service providers and the agencies responsible for IT promotion. As part of this process, the government should sell its NTT shares as soon as possible.
    Industrial Western countries have agencies that carry out regulatory functions and provide prompt arbitration of disputes independently of political interests or the interests of service providers. Examples include the Office of Telecommunications (OFTEL) in Britain and the Federal Communications Commission (FCC) in the United States. These agencies help to advance user interests and stimulate activity in the telecommunications market. Although it is important to avoid bureaucratic expansion, consideration should be given to the creation of a similar agency in Japan in the future. Such an agency must be able to act independently of service providers and the agencies responsible for promoting the industry. Its tasks would be the development of competition rules, the supervision of competition, and the prompt arbitration of disputes.
    In the context of the global IT revolution, information and telecommunications technology has become a key strategic area in terms of ensuring the international competitiveness of Japanese industry and also from the viewpoint of national security. The government, especially the cabinet, should also consider the creation of a structure capable of implementing IT policy on an integrated basis.

    (2) Strengthening Competition Supervision and Arbitration Functions

    The incidence of disputes among service providers and problems between consumers and service providers over charges and services is expected to increase in the future. The government is likely to be called upon increasingly to resolve these problems and review systems and the way they are administered. The government has an extremely important role to play, both in the supervision of competition in the market and also in the arbitration, settlement, or mediation of disputes from a fair and neutral stance. Because of the rapid pace of innovation and the rapid reaction of users to new advances, it is especially important to resolve disputes quickly.
    The Telecommunications Business Law already includes a system for making submissions relating to charges and other matters, as well as an arbitration process relating to connections. However, it is clear that these systems are not functioning adequately. Moreover, there are only limited opportunities for users and service providers to make submissions about system reforms and policy changes, and the submissions from the private sector are adopted or rejected at the discretion of the government.
    The arbitration, settlement, and mediation functions of government should be enhanced to allow quick resolution of problems, such as disputes among service providers, through the application of fair and transparent procedures. The rules of fair competition should be progressively refined to reflect accumulated precedents from previous arbitration cases. In addition, a limited period, such as three months from the initial registration of the dispute, should be stipulated, and government administrators should be required to produce a decision before the end of that period.
    There should be a system that allows individuals, general businesses, and service providers to petition the government directly on such matters as the reform of existing systems and policies, the rectification of anticompetitive behavior, and problems relating to services and charges. The government should respond to such petitions fairly, promptly, transparently, and from a neutral stance. The process should include opportunities for public comment and the inspection of premises.
    Alternative dispute resolution (ADR) mechanisms should be established to allow disputes among service providers to be settled more quickly than would be possible through the court system or the petition system. An example of such a mechanism is the expedited dispute resolution (EDR) system used by the Public Service Commission of the state of New York. Under this system, disputes are resolved through negotiations among the parties involved, but the process is speeded up by means of mediation by a regulatory agency with judicial enforcement powers. Japan should study systems such as this.
    The government should periodically seek complaints and views about systems and policies in the form of public comments. The government should respond to such comments by stating its own position and its policies in relation to the issues raised. Such a system would help to produce appropriate solutions to problems that directly affect individuals, businesses, and service providers. It would also facilitate market growth and development.

  9. Securing Transparency in Government Administration
  10. Government administrators must be under a clear obligation to explain their decisions to the public and to businesses. The prior disclosure of proposed measures for public comment should be a fundamental rule for decision-making. Government decision-making processes should be transparent. For example, related councils sessions should be open to the public, and detailed minutes from such meetings should be published. There should also be an electronic disclosure of information.

    Information technology has become a major influence on business activity and the life of the nation. The government has a responsibility, therefore, to inform the public and service providers accurately. However, many of the councils and research committees concerning information and telecommunications field that play an important role in government decision-making do not publish detailed records of their deliberations. The Ministry of Posts and Telecommunications deserves considerable credit as the first government agency to introduce a public comment system. Some features of the system have drawn criticism, however, including the limited range of issues on which views are sought, the short period during which comments can be submitted, and the lack of transparency about the extent to which comments are reflected in policy decisions. If government decision-making is based on processes and criteria that are not transparent, service providers risk losing business opportunities.
    Decision-making processes relating to information technology should be more transparent. For example, meetings of councils and research groups should be open to the public, and detailed minutes should be published. Information should also be made available electronically. There should be a mandatory public comment system under which government decisions are, in principle, preceded by the publication of draft decisions. Sufficient time should be provided for public comments, and those comments should be carefully studied. The government should also disclose its thinking on the comments received. Another crucial task is the clarification of procedures and decision-making criteria relating to permits, approvals, and notifications.


  1. Information technology is an effective structural reform tool for both government administration and business. The creation of an environment for the use of IT in the private sector and the application of IT to government administration are essential to Japan's future development. The use of IT in these areas must be accompanied by the improvement of information literacy and by organizational, operational, and attitudinal reform in the private and government sectors.
    The most crucial policy in relation to the development of IT businesses is the establishment and enhancement of the administrative mechanisms required to create an environment conducive to the building up of an IT infrastructure to serve as a base for an advanced information network society so that service providers can compete freely and fairly. Service providers and government administrators need to develop an approach that will provide appropriate guidance for the Japan of the twenty-first century that will set a good example for other countries. These efforts must not be limited by existing concepts, and they must focus on the interests of users. Opportunities should also be provided for wide-ranging public debate on these recommendations and any other outstanding issues.

  2. These recommendations represent our basic thinking on the reform of IT-related laws as a way of advancing the IT revolution. Many of the specific proposals will require further refinement. We will continue to study ways to stimulate activity in the information and telecommunications market, including measures to achieve international competitiveness in information technology.
    While the IT revolution has the potential to bring extremely important economic and social benefits to Japan, there are also the problems associated with the "digital divide" and criminal activity based on the misuse of IT. These problems will require a cooperative response by government and the private sector. The international scope of these issues and their implications for stable world development are reflected in the decision to place them on the agenda for the Kyushu-Okinawa Summit in July 2000. Keidanren will continue to promote debate from the viewpoint of maximizing the benefits of the IT revolution.

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