Keidanren has been calling for an environment in which a variety of entities can apply their ideas and creativity to compete under fair conditions so that users may enjoy a wide range of low-cost telecommunications services. As we emphasized in "Preliminary Recommendations on the Restructuring of the Legal System Governing Info-communications to Propel the IT Revolution," published in March 2000, there is an urgent need for a shift from the Telecommunications Business Law, which can be characterized as a "business regulations law," to a system based on a "competition promotion law" designed to foster free and fair competition. The fact that Japan has lagged behind other countries in the IT revolution is attributable in part to the delay in establishing such a competition policy.
The recently amended Telecommunications Business Law includes some measures to encourage competition, such as regulations on dominant operators. However, it continues to have features that are incompatible with the promotion of competition, such as regulations based on the distinction between Type I and Type II businesses, and the law is still too restrictive to be called a "competition promotion law." Moreover, the regulations relating to dominant operators have just been introduced, so it is necessary to monitor their implementation and make adjustments in response to market trends.
There is increasing vertical and horizontal integration between the telecommunications market and other related markets, leading to what might be called an "IT market." Therefore, the development of competition policy across the IT sector is required, and it is important to restructure IT-related laws as part of this process.
This paper reviews the current state of the telecommunications and IT markets and issues affecting these markets and examines the direction of reform. Based on this examination, we propose the basic framework for a "new communications law" (as a competition promotion law) designed not to modify the existing regulatory system but to build from scratch a new system geared toward the promotion of competition.
More than 16 years have passed since the privatization of Nippon Telegraph and Telephone Public Corporation and the introduction of competition. There have been a number of new developments during that time. Numerous operators have entered the market, and there is now increased competition in the long-distance, international, and mobile communications markets. Residential users have benefited from lower prices and an increased range of services. Even in local telecommunications markets, which have been regarded as inaccessible to competition, there have been new developments, including the proliferation of operators that provide services using either their own facilities or the facilities of incumbent operators. These changes reflect growth in the demand for Internet access.
The increasing utilization of networks has led to the growing sophistication of user needs in both the residential and business markets. It is important to facilitate the provision of services to meet these needs.
Although the telecommunications business is experiencing a transition from monopoly to competition, it remains subject to regulations with regard to market entry, withdrawal, prices, and other factors just like such sectors as power and gas utilities, which are important to national living requirements and industrial activities. However, the diversification and increasing sophistication of individual and corporate needs means that all telecommunications services can no longer be regarded as essential to the lives of the people. The need to regulate all services uniformly is rapidly diminishing.
In industries in which competition is introduced and increased, it is generally important to rely on the Antimonopoly Law, which provides general rules for the achievement of fair competition, and to foster a competitive environment that does not require sector-specific laws. However, there appears to be room for sector-specific laws to encourage competition in the telecommunications market because of the potential for persistent anticompetitive behavior reflecting the special characteristics of that market. Those characteristics include the existence of dominant operators that own essential facilities for the provision of services and still enjoy large market shares by virtue of their monopoly status, and the tendency of users to select operators that enjoy the largest market share.
Since the privatization of NTT and introduction of competition in 1985, the integration of telecommunications and computers has led to the provision of a variety of value-added telecommunications services. More recently this trend has formed a value-chain, what might be called the IT market, in which not only computers but also terminal equipment and content are being integrated with network infrastructure. This process will be further accelerated by the development of broadband network infrastructure.
These trends are affecting both the services offered and the networks used to transmit content. As far as services are concerned, information in various formats, including voice, data, and image, is now being conveyed as a package. The factors that make this possible include improved terminal equipment functions, enhanced network infrastructure, the explosive spread of the Internet, and the expansion of transmission based on Internet protocols. In terms of network infrastructure, it is now technically feasible to transmit information irrespective of types of infrastructure, such as telecommunications, broadcasting, or cable television facilities. Already there has been a partial shift toward the common use and integration of transmission facilities.
This convergence of services and common use and integration of transmission facilities must be reflected in a new regulatory framework established by sector-specific legislation as a new communications law.
The existing regulatory framework for the telecommunications sector regulates operators on the premise that telecommunications services are public goods in nature. The aim is to protect users through regulations that ensure appropriate and reasonable business operations. However, appropriate and reasonable business operations should really be guaranteed by competition in the market, so the best way to ensure user interests is to encourage competition.
To maximize users' interests, it is first necessary to establish a market that is unrestricted in principle by relaxing or abolishing regulations on, for example, entry to or withdrawal from markets and the setting of prices, which hinder rather than encourage competition, so that operators are free to exercise their ideas and creativity. This is the first step in the transformation toward a new communications law as a competition promotion law.
Despite the vertical and horizontal integration of the IT market, there remain many regulatory systems for individual technologies, such as telecommunications and broadcasting or wired and wireless. This might cause some problems. For example, new businesses cannot be introduced even though the technology is available, and undertakings are forced to compete under different rules in the same market.
To overcome these problems, it is necessary first of all to place transmission facilities, which are increasingly being shared and integrated, under the same regulatory system irrespective of the technology used or the type of information conveyed. This would allow a more flexible response to the emergence of new technologies.
In creating a common regulatory framework for transmission facilities, it is necessary to redefine the meaning of telecommunications services so that it does not depend on the transmission facilities used.
Also, with the integration of communications services, including voice, data, and image services, it is necessary to limit the scope of services that are subject to regulations in order to accelerate the expansion of the IT market through unrestricted business development.
As outlined above, the telecommunications market exhibits certain special characteristics. Therefore, to ensure free and effective competition between dominant operators and others, it is necessary to establish the minimal rules required to encourage competition, rather than relying totally on ex-post regulations under the Antimonopoly Law.
Network infrastructure is becoming more open in part because of the application of interconnection rules. However, broadband technology and other changes will lead to continuing expansion in the range of services provided over networks, which means that both content and terminal equipment can be expected to become increasingly network-reliant. This allows the market power that dominant operators enjoy in the telecommunications market to be leveraged into the adjacent or closely related markets, thereby distorting fair competition in those markets and reinforcing their dominance in the telecommunications market. This is another reason why it is necessary to formulate competition rules for dominant operators.
Such rules should be reviewed in step with the growth of competition.
To ensure free and fair competition in the IT sector, it is necessary to formulate and enforce competition rules based on a new communications law and to enhance systems for the expeditious settlement of disputes. The stringent enforcement of ex-post regulations under the Antimonopoly Law is also essential to ensure the effectiveness of these rules. To prevent any undertaking from leveraging its dominant position in the telecommunications market to distort fair competition in adjacent or closely related markets, fair competition will need to be guaranteed not only by ex-ante competition rules but also by ex-post regulations under the Antimonopoly Law.
The regulatory body responsible for the formulation and enforcement of competition rules must be endowed with expertise on the telecommunications sector. In order to dedicate itself to the interests of users and to make impartial decisions, it must be independent from all interested parties, including operators, in fulfilling its duties. To remain faithful to its medium- to long-term goal of ensuring free and fair competition, it must also be free from improper political intervention aimed at adjusting short-term interests. To ensure that these requirements are consistently met, the regulatory body must also be totally separate from any functions relating to industry promotion policies that involve budgetary allocation.
As the market becomes more competitive, some undertakings could be placed at a disadvantage because of the fact that they are obliged to meet the cost of providing essential services at a reasonable price. To ensure fair competition, therefore, it is necessary to share the cost of providing universal services in a competitive-neutral way.
The recent revision of the Telecommunications Business Law resulted in the introduction of a funding mechanism to ensure universal services. Before this mechanism goes into effect, it must be verified whether the net cost of providing universal services forces an undertaking to bear a competitively undue burden. This work is crucial to the achievement of general support and understanding not only by operators but also by the public as the users of services.
As stated in our March 2000 recommendations, to materialize these reforms, it is necessary to integrate the various laws relating to info-communications into a new legal system designed to ensure free and fair competition in order to maximize users' benefits. The laws concerned include laws relating to transmission means (Radio Law, Wired Telecommunications Law, etc.), business-related laws (Telecommunications Business Law, Broadcast Law, Cable Television Broadcast Law, etc.), and laws governing specific enterprises (NTT Law).
With the growing integration of the IT market, it is especially important to ensure free and fair competition in the area of telecommunications services, which provide the transmission capacity needed for the distribution of content. An urgent priority is to establish an institutional framework that emphasizes the promotion of competition in the telecommunications market.
Since technology, services, and the market environment in the IT sector are changing rapidly, a framework needs to be simple to allow flexible adaptation. Because it is impossible to draft laws that take account of every possible future change, part of the following framework should be reflected in competition rules that are formulated and enforced according to transparent procedures by an independent regulatory body, as described below, with authority granted under the law.
The purpose of the law shall be to maximize the benefits for users by promoting free and fair competition as a way of ensuring that anyone can enjoy prompt access to a diverse range of telecommunications services at reasonable prices, anywhere, any time.
The purpose of the existing Telecommunications Business Law is "to ensure both the sound development of telecommunications and the convenience of people, and to promote the public welfare by ensuring the proper and reasonable operation of telecommunications business as well as promoting fair competition thereof."
The role of a new communications law as a competition promotion law should be clarified by stipulating that the purpose of the law is to maximize the benefits for users and to promote fair competition as a way of achieving this.
Telecommunications services shall be defined as the provision of capacity to transmit information of the user's choosing, between or among points specified by the user, without change in the form or content of the information as sent and received, regardless of the facilities used.
Undertakings that agree to market entry conditions, including obligations to ensure the secrecy of communications and provide interconnections and penalties to be applied for infringements of these conditions, shall notify their intention to enter the business to the independent regulatory body.
Undertakings that provide telecommunications services to the public shall be allowed to exercise the right of way required for the adjustment of neighboring rights in relation to the deployment of network infrastructure.
The Fair Trade Commission should functionally reinforce itself by positioning itself under the direct jurisdiction of the Prime Minister. Its human resources should also be expanded.
This is not a matter that should be stipulated in a new communications law. In order to ensure the effective enforcement of competition rules by the independent regulatory body, however, there must be a common and widespread perception that ex-post regulations under the Antimonopoly Law will be stringently enforced if deemed necessary.
The law and competition rules formulated based on the law shall be subject to periodic reviews.
Because of the rapid pace of change in the telecommunications market, it is impossible to enact a law that takes account of all possible future changes in the sector. The content of the new law must necessarily be limited to provide the basic policy directions. In enforcing the new law, therefore, it must be supplemented by competition rules set out by the independent regulatory body. These rules should be periodically reviewed to adapt to changes in the market environment.
Regulations that involve direct intervention in the management of NTT should be abolished immediately, as should any obligations relating to research and development. In addition, the NTT Law should be abolished, and any essential provisions, such as those relating to fair competition and universal services, should be integrated and absorbed into a new law.