[ Index | (Summary) | (Purpose of study) | Chap.I | Chap.II | Chap.III | (Conclusion) | (Reference) ]

Proposals for realization of a free, fair and transparent information and telecommunications market
--Aiming for structural reform and economic rejuvenation--

II. Aiming for a Free, Fair and Transparent Information and telecommunications Market

  1. Basic view
  2. The pace of technological innovation is fast, and in the field of information communication, where forecasts about market trends are extremely difficult to make, it is desirable to promote competition among businesses and for businesses to develop freely creative methods based on the principle of self-responsibility of the individual in order to expand the market and increase convenience to users. In the future, policies to promote competition that will become models for foreign countries are anticipated, and at the government level, it will be necessary to promote deregulation, implement thorough explanation responsibilities to prevent and correct anti-competitive actions that use market domination, and to strengthen the establishment of rules and judgement functions. Support for efforts by Japanese communication businesses at overseas development would also be welcomed as an aid in global development of users.

    1. General remarks
    2. A general view of the market 13 years after the liberalization of communications and the introduction of competition in 1985 reveals that competition in the long-distance, international and portable communications markets is progressing steadily, and in these fields fees have dropped greatly. For example, a telephone call (daytime, three minutes long) between Tokyo and Osaka using NTT has dropped to 90 yen from 400 yen at the time the market was liberalized, and a telephone call (daytime, three minutes long) between Japan and the U.S. using KDD has dropped to 450 yen from 1530 yen. During this time, the amount of capital investment undertaken by Type-I telecommunications businesses has expanded from 1.6473 trillion yen in fiscal 1985 to 4.1122 trillion yen in fiscal 1996, accounting for nearly 10% of the capital investment undertaken in all industries. On the other hand, even in regional communication markets, competition is being introduced thanks to the implementation of openness of the NTT network, the determination of basic rules for interconnection, and the development of new technologies such as portable communications.
      However, in Japan, good circulation, as defined by a drop in fees stimulating demand that causes the market to expand which promotes capital investment and further drops in fees, cannot necessarily be said to be sufficient in all markets. For example, the frequency of suburban telephone calls increased 50% between fiscal 1989 and fiscal 1996, but during this time the revenue from suburban telephone calls decreased from 1.68 trillion yen to 1.42 trillion yen. In addition, in urban communication markets, there is the possibility that in the future portable telephones and the like could compete with fixed telephones accompanying the rapid spread of portable telephone technology, but in fiscal 1996, the percentage of telephone calls between portable telephones was under 4% of total telephone calls. In the future, it will be necessary to further promote competition in urban communication markets and to expand and increase activity in the market by accomplishing not only price competition but also marketing competition in the communications market as a whole, and by providing services that meet user needs and services that give rise to new communication needs.
      In the government, efforts are actively being conducted to compile detailed rules using the basic rules of connection and reevaluation of individual regulations, and these efforts can be highly appraised. However, the pace of technology innovation is rapid, and in the field of information communication, where predictions of future market trends are difficult to make, fluid utilization of the results of technological innovations must not be suppressed in stopping at item-by-item deregulation measures using conventional law as a foundation. Demonstrating to the utmost the market principle so that business development is possible which meets user needs without being caught up in conventional concepts is desirable not only for businesses but also for users. Hence, a change is needed to government based on rules and ex post facto regulations centered around monitoring of the state of competition and preparations for competition rules along with arbitration of disputes from the vantage point of policies promoting greater competition and overhauling government based on conventional discretion-based and in-advance regulations.
      It is anticipated that information communication will play a leading role in moving toward a vigorous economy and rich lifestyles for the populace in the 21st century, and it would be best if future information communication administration always aimed to be an exemplary model for other fields.

    3. User Needs
    4. In business, competitiveness should be strengthened and information development driven forward through joint ownership of information, speeding up of decision making and business processes, cost cutting, and precise responses to customers. In order for companies' efforts to survive into the 21st century to bear fruit, it is vital for businesses to provide precise services that respond to user needs. Through this, a high degree of information communication utilization will be promoted, and an increase in information communication demand and rejuvenation of the market can be anticipated.
      In this connection, according to the "Communication Service Users Questionnaire Survey" conducted by Keidanren in February 1998, corporate users anticipate from Type-I communication businesses (1) lower fees for various services, (2) expansion of discount menus, (3) precise services in answer to needs on the user side, (4) some shrinking of delivery times for dedicated lines, and (5) service improvements for circuit installation.

    5. Issues for the Realizing Free and Fair Competition
    6. In order for free competition to be accomplished among all businesses, it is necessary to keep regulations to a minimum so that a large number of businesses can enter the market and so that business development is possible which responds swiftly to user needs and utilizes originality and creativity.
      On the other hand, in cases where market-dominating forces exist, it is necessary to implement measures to prevent and correct the bad effects of anti-competitive actions that utilize this market domination. For example, for services such as subscriber circuits where capital investment outlays are large and it is difficult to recover this investment in a short period of time, it is vital to competition that businesses with ownership of the facilities and all other businesses be able to utilize these facilities equally and for a rational fee, and that connection at technologically feasible arbitrary points be recognized. In addition, for communication services for end users, in fields where competition has not sufficiently developed, standard regulations with time limits should be implemented in order to prevent anti-competitive actions that make use of market domination, and if competition develops, these regulations should be swiftly reevaluated so that business can be conducted under the same framework as other businesses.

    7. Securing Transparency Regarding Policies and Thorough Explanation Responsibility
    8. The Japanese regulatory system has laws, government edicts, ministry edicts and regulations, in addition to numerous "hidden regulations" such as "notifications", "interpretations", "directions", and "requirements" which have very low transparency. In addition, it is difficult to say that the various government decision making procedures and council meeting contents are transparent, starting with the council that studies the institutional framework of the market desired in Japan in the future. In the future, it is necessary to make government decision-making procedures transparent along with making it possible for citizens to readily see and easily understand the details of regulations. When the government decides on a system or policy in Europe and the U.S., generally a draft of this decision is publicly announced in advance and a wide range of opinions is gathered. Even in Japan, this same type of procedure has been used and was highly regarded when requests were made for basic rules regarding connections, the formulation of policies on basic plans regarding the reorganization of NTT, and applications for connection agreements for specified telecommunication businesses. In the future, it would be best to make this procedure standard and to sufficiently explain the propriety of policies that are decided on, in addition to openly conducting councils relating to opinions from citizens.
      Furthermore, in order to increase the probability of forecasts, it is necessary to decide in advance the time schedule for easing regulations and formulating rules to promote competition. In addition, the state of competition in the market should be monitored, and when conflicts among businesses arise, a function should be in place to arbitrate with strict neutrality on the basis of transparent rules. The current government is centered around regulations before the fact even in personnel assignments, but this needs to be changed to a system emphasizing rule formulation and monitoring and arbitration. Even with regard to bottleneck facilities, appropriate information disclosure is necessary.

    9. Responding to Globalization and Major Global Competition
    10. Japanese companies are informatizing and networking in order to survive in the midst of fierce competition in this global era. Even in information communication businesses, global business development that responds precisely to user needs is being sought. In this sense, making the information communication market open and global is a major trend across the globe.
      With the WTO basic telecommunications service liberalization agreement taking effect in February 1998, the global communication market is entering a new phase. Of the 130 nations participating in WTO, there are 69 countries that account for 90% of the world's telecommunications revenues, and it is predicted that major businesses will move into foreign markets because the conditions and timetable for future opening of telecommunication markets have been clearly stated. In order for Japanese users to not be disadvantaged in the midst of this, it is necessary for businesses to increase their own competitiveness on a global scale through free competition under the principle of self-responsibility of the individual, and it is also necessary for the government to push policies that coincide with globalization.

      1. Creating a system that leads the world
        In the information and telecommunications market, borderless competition among businesses is becoming more intense with the aim of providing better services at lower cost. In order for this competition to bring large benefit to users, some coordination of competition policies should be undertaken by advanced countries, and not only that, the government should always strive for systems and policies that are ahead of those of foreign countries.
        In the Japanese government, the easing of restrictions is being promoted, including creating a report system in principle for fees, easing entry restrictions and reevaluating duties and restrictions, and in addition, and in the case of formulating basic rules relating to connections, trends such as the utilization of the so-called green paper method can be seen with a draft having been publicly disclosed in advance and opinions gathered from citizens, and this has been highly regarded. In the future, it would be nice to aim for realization of systems and policies that set an example for other nations. From this vantage point, it is necessary to change from a government based on in-advance restrictions and litigation to a government with ex post facto regulations and rules, and to promote preparation of an environment needed for more free and more equitable competition, besides creating a system that responds in a swift and transparent manner to the opinions of users.
        Today, as we approach an era of massive international competition, all systems and policies should be reevaluated, stopping not at the information communication system but also including tax policies such as corporate tax rates and income tax policies, as well as real estate and housing policies, and it is necessary to promote individualistic and creative development of companies and revision of Japan's high cost structure.

      2. Preparing an environment for overseas development of Japanese businesses
        Japan's businesses are working to develop in foreign countries and to enter the international communication businesses on a global scale. Even in foreign countries, liberalization of markets is progressing, and opportunities for Japanese businesses to freely enter these markets are being guaranteed, and it would be desirable if business could be developed under equal conditions with local businesses. At the government level, work should be done with other countries to see that entry restrictions and business restrictions in the various countries are removed, and when Japanese businesses receive unfair treatment, redress of this should be strongly sought.

  3. Policies to rejuvenate the market
  4. In order to further promote competition in local telecommunications markets, it is necessary to make it possible for all businesses to utilize simultaneously indispensable facilities for rational fees at arbitrary points where technologically feasible, and to study how to make basic rules of connection more concrete and to reevaluate these in an open manner and from a standpoint of promoting competition. Furthermore, it is necessary to undertake reevaluation of agreement restrictions and to ease restrictions on Type-I and Type-II businesses in order to enable a variety of services to be provided.

    1. Policies to promote competition in local telecommunications markets
    2. Furthering increasing the level of competition in local telecommunications markets, which account for around 50% of the telecommunications market as a whole, is integral in realizing effective competition in the telecommunications market as a whole. Recently, new businesses have been entering local telecommunications markets accompanying progress in technological innovations and the establishment of basic rules for interconnection, but the market share accounted for by these new entrants is insignificant. Local telecommunication service is important to users in the sense of providing access to the public telecommunications network, but at present, there are limited options for users to choose among. Introducing full-fledged competition into this sector is not easy even in foreign countries, and an effective method to accomplish this is being sought. In the future, it is necessary to further promote preparation of an environment to drive equitable competition in the local telecommunications markets in terms of both services and facilities. When this is done, it will be critical to link concretely the currently established basic rules of interconnection with promotion of competition, along with providing incentives for efficient management to businesses that own facilities without nipping competition in future facilities in the bud.

      1. Equitable use of indispensable facilities
        In local telecommunications markets, there are indispensable facilities such as subscriber lines without the use of which other businesses cannot provide telecommunication services. Conditions are being arranged for fair use of such indispensable facilities through the recent establishment of the basic rules of interconnection and the opening of NTT's network. From the standpoint of further promoting competition in local telecommunications markets, arrangements are being made to allow connection at arbitrary, technologically feasible points under rational conditions for anyone, and when connection is denied, it is appropriate for the owner of the facilities to bear the responsibility of explaining such actions. In the future, it is also desired that new entrants into the field possess facilities and provide services in order to eliminate bottlenecks.

      2. Reevaluating interconnection rules
        1. Concerning connection fees related to indispensable facilities, the ABC (Activity-Based Costing) method employed in fiscal '98 has greater transparency from the cause-and-effect relationship between various activities and the generation of costs, but this amounts to nothing more than more precisely apportioning expenses, and there is also the indication that the inefficiencies themselves will not necessarily be erased. In the future, a study should be undertaken to promote the lowering of connection charges through utilization of a more transparent cost calculation method, for example a long-term incremental cost method.
          New interconnection rules are gradually starting to be employed, and action related to details necessary in making these more concrete will be necessary in the future. For example, in the Telecommunications Council Report of March 20, 1998, a discussion was conducted from the standpoint of promoting competition in the form of opening to the public the discussions held at the council, publicly announcing detailed council content and utilizing the so-called green paper format, for measures that should be devised by the Ministry of Posts and Telecommunications (establishment of the level of profit as a ratio of self-owned capital, MDF connections, cost of software development relating to network reorganization, fees for different time zones and discount fees).

        2. At present, connection agreements take the form of general licensing for the purpose of preventing inappropriate discriminatory treatment such as giving priority only to group companies. However, businesses must spend time and effort in licensing procedures for the connection agreements prior to the start of service, and additionally, there is an obligation to attach the basis for calculation of the connection fees, so that the burden on businesses relating to connection agreement licensing is heavy. The connection agreements should have a report format in general.

        3. With regard to inspection of connection stipulations, opportunities should be established for a wide range of opinions to be submitted, and the Council should be opened to the public and a detailed record of the transacted business published.

        4. With the increase in the number of businesses in the industry, it is forecast that the number of cases of connection not just between two industry members but between a large number of businesses will increase. Currently, when connections are made among a plurality of businesses, connection agreements must be concluded individually between all businesses related to the interconnection in order to clearly elucidate the responsibilities and obligations among the businesses in question, and this procedure is extremely burdensome. It is necessary to reevaluate the existing state of connection agreements among a plurality of businesses.

      3. Responding to phone number problems
        In order to promote competition in regional communication markets, it is necessary to keep to a minimum the burden on users accompanying change in the communications business used. For example, it is a burden for users if the telephone number and the number of digits change when the business used changes. From the standpoint of promoting competition, it is desirable to select communication businesses so that users do not feel this kind of burden. Hence, in order to reduce the expenses the user encounters accompanying a change in the business used, it is necessary to consider introducing number portability (allowing the user to continue using the same number even if the user changes the telecommunications business to which he subscribes) and priority connections (an arrangement that enables calls to be made by omitting the business identification number of the connection business if the subscriber has selected and registered with the business in question in advance).
        In this connection, number portability has been implemented in the U.S. with 800 number service, for instance, and the applicable scope of this is being successively expanded. The EU Committee is also considering making providing of this service mandatory by 2000. In addition, priority connections have already been implemented in the U.S., and the EU Committee is also starting to consider introducing this by 2000.

      4. Establishing an environment for circuit line facilities
        In the government, in order to support new entrants into the field constructing their own circuit facilities in advance, the preparation of public cable accommodation space and the easing of exclusive restrictions such as for roadways should be pushed, and demands should be made for cooperation of owners in opening conduit lines (power poles, concrete sewer works, sewer lines, expressways, railroads, electric power conduit lines, etc) as a premise for orderly use. In addition, it is necessary to implement measures needed in developing new frequency bands, effectively utilizing underused frequency bands and fairly appropriating frequencies.

    3. Easing regulations on Type-I and Type-II businesses
    4. In Article 6 of the Telecommunication Business Act, the types of telecommunication businesses are differentiated into businesses that establish telecommunication circuit facilities on their own and provide telecommunication services (Type-I telecommunication businesses) and telecommunication businesses other than Type-I telecommunication businesses (Type-II telecommunication businesses). Type-I telecommunication businesses basically must install circuit facilities, while on the other hand Type-II telecommunication businesses cannot install major circuit facilities. However, in order to promote further competition, it would be best if each business could select the most efficient network composition based on their own management decisions and assuming responsibility for such. In fact, there is a movement to establish the possibility of providing services through resale. In order to promote greater activity in the market and to further diversify the state of market participation on the basis of the management decisions of each business, consideration should be given to competition on the basis of the facilities of Type-I telecommunication businesses, and discussions should also be conducted on providing services using methods other than the circuit facility ownership and interconnection method.
      In addition, for circuit facilities by Type-II telecommunication businesses, it is necessary to enable substantial ownership such as holding long-term authority to use circuit facilities, for example, even in locations with heavy traffic such as the Tokyo-Nagoya-Osaka corridor in addition to access circuits.
      What is desired is that the boundaries between Type-I and Type-II be blurred so that the services provided by Type-I and Type-II businesses become substantially the same, by lifting the ban on government-exclusive connections; that whether or not to own facilities be a decision based on the basic strategy of the business and be left to the management decisions of the business itself; and that in the future, the distinction between Type-I and Type-II business be reevaluated while considering the state of granting public welfare business charters (the qualifications that businesses engages in public welfare businesses such as electricity, gas, water, railways, telecommunications, etc. can take legal action in special cases under the Railroad Act and the Sewer Act, etc.).

    5. Reevaluation of agreement regulations
    6. In Article 31-2 of the Telecommunication Business Act, the stipulation is made that Type-I telecommunication businesses must conclude a contractual agreement and receive the approval of the Minister of Posts and Telecommunications as conditions to provide telecommunications services. The objective of this regulation is to protect the rights and interests of users who receive services provided on the basis of contracts, but in service sectors where competition is thriving, it is possible for users to change with ease to another business from a business that is establishing unfair conditions for providing the service, thereby making this approval system unnecessary.
      On the other hand, because the contracts are subject to approval, the businesses cannot quickly provide new services, and there is also a problem in that the cost of obtaining approval is onerous in terms of time and manpower.
      It is necessary to ease regulations such as those that prevent the expansion of the scope of reports and to limit services that are subject to approval to those that are basic provisions (necessary provisions relating to the rights and obligations of users) in services where competition has not yet developed.

    7. Considerations relating to universal service
    8. At present, guaranteeing universal service is the obligation of Nippon Telephone and Telegraph Corp. Presently, service is provided under a fee schedule that covers the entire country uniformly due to NTT management improvement efforts and fee rebalancing, but on the other hand, because user fees and interconnection fees are calculated on the basis of total costs, there is also an indication that "universal service" costs are included.
      In the future, it will likely be difficult to place the cost burden of universal service on NTT if the plan is to develop more competition and reevaluate interconnection rules. Presently, consideration is being given to universal service in the research committee of the Ministry of Posts and Telecommunications, but the debate relating to the scope of universal service and the expenses and burden necessary in guaranteeing this service must be conducted on a national level with appropriate information disclosure relating to NTT's regional network. In determining a concrete policy for guaranteeing universal service, a policy should be selected which does not distort competition among businesses.

  5. Reevaluation of the framework of Telecommunications Business Laws
  6. It is necessary to reevaluate current telecommunications business laws and to convert to a framework based on rules and ex post facto regulations the objective of which is to improve convenience by promoting competition. When this occurs, it would be best to prepare a structure that responds through swift and transparent procedures to the opinions of users.

    1. Fundamental approach
    2. In order to promote the approached described above, it will be indispensable in the future to reevaluate the framework of the current Telecommunication Business Act. Under the existing Telecommunication Business Act, the government aims for improvement in user convenience and smooth providing of telecommunication services by making the operation of businesses reasonable and rational, but it is necessary to change from a business law based on in-advance regulations to a rule and ex post facto regulation format and to convert to a framework that aims to secure user benefit not through the government but through the promotion of free and fair competition in the marketplace, similar to communications laws in the U.S. and Europe.
      In this connection, Article 1 of the U.S. Communications Act presents the purpose of the law as "making it possible for all citizens of the United States of America to use communication services efficiently and swiftly to the extent possible with sufficient facilities and for reasonable fees", and in Article 10, it is stipulated that "when it is decided to promote competition among providers of telecommunication services by moderating regulations, the decisions of the Federal Communications Commission shall be based on claims by the Commission that implementation of such measures will bring about public good" and furthermore, in Article 11 a biennial reevaluation of regulations is stipulated, and when this occurs the Commission must "decide if as a result of effective economic competition, said regulations are no longer necessary for the public good".
      On the other hand, in the Telecommunications Act of the UK, in Article 3 "promoting the benefit of users (particularly including pensioners and people with disabilities) and consumers of telecommunications facilities and telecommunications services within the United Kingdom with regard to the price, quality and types of telecommunications facilities supplied and telecommunications services provided" and "promoting the continuation of effective competition among entities that engage in commercial activities relating to telecommunications in the United Kingdom" are cited as obligations of the Telecommunications Office Chairman.
      In addition, in the German Communications Act, the purposes of the act are listed as securing the good of the user, promoting effective competition and protecting universal service.

    3. New framework
    4. In the future, it is desired that in the government, a switch will be made to a system based on rules and ex post facto regulations, that free and fair competition among businesses will be promoted, that the marketplace will be monitored from the standpoint of the user, and that when intervention is necessary accompanying the appearance of problems, this can be accomplished using transparent procedures. In addition, it is vital that procedures and provisions be established to facilitate users of communication services reporting opinions and reporting problem resolution to the government, and that a system be prepared which responds fairly and in a transparent manner. From this viewpoint, the following kind of framework should certainly be set up. Because this enables businesses to undertake independent business development on the basis of their own management decisions, and in addition allows users to freely select businesses, further awareness of the principle of self-responsibility of the individual is needed among both businesses and users.

      1. Working to secure the good of the user through promotion of free and equitable competition should be cited as the objective of the law.
      2. When circuit facilities are owned and public telecommunication services are provided, fees, contracts and services will be based on a report system in principle in competitive fields, and for other services, incentive regulations should be enacted on a temporary basis, and a switch made to a report system in principle swiftly in accordance with progress in competition. In all cases, it will be possible for the government to enact improvement measures after the fact.
      3. When businesses recognized under transparent criteria and procedures as having technological capabilities and the like own circuit facilities and provide public telecommunication services, it will be possible to obtain public utility privileges within the scope of the ownership of circuit facilities, and obligations for recognizing technological criteria compatibility for facilities, obligations to provide services, connection obligations and withdrawal regulations will be enacted.
      4. The government will prepare a structure to respond with swift and transparent procedures to opinions from users in addition to monitoring the status of compliance with fair competition rules and resolving problems using swift and transparent procedures.
      5. With regard to government decisions such as orders and notices, and planning decisions in councils, a draft will be made public in advance, and a wide range of opinions from citizens will sought over a sufficient period of time. In addition, detailed minutes of meetings held by all committees including councils, sections and subcommittees will be made available to the public. Operation plans for the system will also be publicly announced in a form that can be understood by the citizens.
      6. Efforts will be made to guarantee universal service.
      7. Laws and statues will be periodically reevaluated from the standpoint of maximum utilization of the market principle and promotion of competition.

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