[ Keidanren ] [ Policy ]

Toward an Early Establishment of a Competition Promotion Law
in the Field of Telecommunications

(tentative version)

September 14, 2000

Japan Federation of Economic Organizations


In March this year, Keidanren released a position paper entitled "Preliminary Recommendations on the Restructuring of the Legal System Governing Telecommunications to Propel the IT Revolution." Characteristics of this recommendation lie in the fact that they represent a consensus of telecommunications carriers (NTT and NCC, etc.) and telecommunications equipment makers, hammered out by opinions from the standpoint of telecommunications users. More specifically, Keidanren reviewed the existing legal system relating to information and telecommunications that is primarily designed to regulate telecommunications carriers, and proposed to establish a legal system aimed at realizing these two objectives; enhancing the interest of users and promoting competition among providers of telecommunications services. Keidanren also urged the government to rebuild at an early date an information and telecommunications legal system through public debate conducted with the participation of the general population.
In response to such demand of the industry, the Fair Trade Commission issued a report "Government regulation and competition policy," and the Information and Economics Study Group of the Industrial Structural Council (an advisory body to the Minister of International Trade and Industry) made public its first series of proposals. More recently, the Telecommunications Council of the Ministry of Posts and Telecommunications opened a debate on "How the competition policy should be executed in the telecommunications business in order to accelerate an IT revolution?" We appreciate the efforts these agencies have made.
In reviewing the competition policy in the field of telecommunications, we would like to invite the attention of the government agencies concerned to the following points:

1. An Early Formulation of an Effective Competition Policy

Information technology (IT) is the key to prosperity in the 21st century and an engine that will power the revival of the Japanese economy. Other countries have defined the harnessing of IT as their top priority and are strategically promoting its development and use. In Japan, also, demands for IT is about to approach critical mass. It is necessary to create a virtuous supply-and-demand circle in the telecommunication market; expanding of the telecommunications market by actualizing such demands and accelerating keener competition among the telecommunications service providers and their capital investment. Especially, it is an urgent necessity to make users enjoy the fruits of the IT revolution by providing good-quality and high-speed telecommunications services with constant access at a cheap cost.
In the field of IT, the market is changing at "a dog-year's pace," and technological innovation is taking place rapidly. If the government spends as long as two years just to formulate its telecommunications policy, this country may largely lag behind other countries in the utilization of IT. Therefore, it is necessary to create at an earliest possible date an environment where low-cost and multifaceted telecommunications services are provided in response to users' needs not by a government initiative. Such services are the very foundation to accelerate the effective utilization of IT and can be actualized through free and fair competition among telecommunication services providers.
In order to deal with the Internet era and convergence of telecommunications and broadcasting, the government should create a new comprehensive legal system for information and telecommunications. Therefore, the government should expedite, as the first step, the enactment of a law designed to promote competition in the telecommunications field that demands the top priority. In dealing with this task, the government should form a conclusion as soon as possible not about individual issues but about whole issues through transparent and open debate, and take necessary legislative action during the next session of the Diet (parliament) at the latest. It is also necessary to institute in such law provisions mandating a regular revision of the law so that the industry can flexibly deal with new technological innovations emerging in the market in coming years.

2. The Enactment of a Competition Promotion Law

(1) A Change in the Legislative Stance from One Aimed at Regulating the Industry to One Encouraging Competition

What is most urgently needed for the interest of nation people now is to lower cost of telecommunications service and improve its attractiveness, which is the very requirements for the utilization of IT. For instance, the fees charged on broad-band telecommunications service through the Internet should be urgently lowered to the same level as those charged in the United States. To accomplish this, it is necessary to create a framework designed to encourage various entities to enter the market and freely provide creative services under fair competitive conditions and on their own responsibility so that users can have wide-ranging choices in all fields of telecommunications market including local telecommunications markets.
The strengthening of international competitiveness of telecommunications industry has taken on a growing importance for ensuring the development of the whole industries of Japan in coming years. Global competition among telecommunication carriers has intensified, and cross-border mergers and alliances among them have become increasingly active. In order to strengthen the international competitiveness of the telecommunications industry of this country under such circumstances, the ability of telecommunications carriers to meet the changes occurring in the needs of their customers and in the market environment surrounding them has to be enhanced further not through regulatory protection but by thorough competition. The ability for research and development of technology, which is one of the key determinants of international competitiveness, can be further strengthened by exposing business activity to the competition.
In weighing policy options for competition policy of the telecommunications industry, priority should be given to enacting a law designed to spur free and fair competition. We believe that it is urgent to change the policy stance of the government from one (the business regulating laws) that dictates what the regulators believe it proper management to telecommunications service providers - such as the Telecommunications Law and the NTT Law - to one (a competition promoting law) that is designed to encourage free and fair competition among them and protect the interest of users.

(2) Regulation Geared to Discouraging Domination of the Market

The existing Telecommunications Law divides its regulatory focus on the basis of the facilities owned by different telecommunications service providers by dividing carriers into Type I, which is the providers that own facilities, and Type II which is the providers that borrow other carrier's facilities. A new law should divide its regulatory focus on the basis of market dominant power - telecommunications service providers which have, and those which do not have, a large market share and facility bottleneck - in order to ensure free and fair competition. When the regulators feel that competition is impeded on account of the domination of the market by a dominant carrier or carriers, necessary regulation - such as the imposition of an upper limit on fees charged by service providers, the application of a proper connection rule, the imposition of a duty to disclose a certain level of information, and the regulation of providing mutual assistance among members of a business group. The regulators should give to a dominant carrier an incentive that they should ease the regulation of a dominant carrier when they find that competition is operating.
On the other hand, when competition grows, the regulators basically should allow free entry into the market or expand the capacity of existing carriers and regulate the market only when free competition causes any problem.
Such regulatory stance of the government would enable carriers to freely combine the installation of additional circuits, the resale of other carrier's facilities and services, and the unbundling of local bottleneck circuits according to their own choice.
In addition, to promote competition in the area of infrastructure, it is necessary to create an environment that telecommunications carriers can easily build facilities and can reduce their costs. Efforts should be made to build more common conduits for cables and information box and further ease the regulation restricting the occupation of roads for the purpose of building such conduits, and at the same time, operators of public utilities should be encouraged to disclose on their own information concerning their idling conduit lines, tunnels, and utility poles, and to offer them such infrastructure as fairly and speedily as possible.

3. Surveillance of Competition from a Neutral Position

In order to ensure free and fair competition in the telecommunications market, it is necessary, in parallel with the enactment of a competition promotion law, to create a watchdog that will carry out the duties of ensuring the protection of the interest of users and free and fair competition among carriers, formulate rules of competition and watch the state of competition in the telecommunications market from the standpoint neutral toward carriers and politics, and speedily process disputes between carriers fairly and transparently. To do this, it is necessary to institute a petition system that enables users, business enterprises, and telecommunications carriers to directly file complaints with the competent government agencies or ask them to review the legislations, rules or those operation, and that obligates the government to take action on such requests within a certain period (say, three months from the date on which they received such complaints or grievances), or create an alternative dispute resolution (ADR) system that disposes of these problems quicker than the court. The government should establish in the near future an independent watchdog to ensure free and fair competition, as in most of the Western and Asian countries, in such a way as not to create a big government.

4. A Revision of the NTT Law

As regards Nippon Telegraph and Telephone Corp. (NTT), we believe it is most desirable to privatize the carrier and let it run its affairs on its own responsibility according to the rule of fair competition. More specifically, the government should at once abolish the regulations which directly intervene the management of NTT (approval of the appointment of directors, business plans, amendments to its articles of incorporation, and the issuance of new shares, etc.) and enact a competition promotion law that incorporates, among other things, matters necessary to ensure fair competition and universal services. Such a law will supersede the existing NTT law. And the government should release its entire holdings of NTT shares on the market. Through such moves, the government will become neutral toward telecommunications carriers and can pursue policies from the standpoint of users. As mergers and acquisitions (M&As) through equity swap have become an important vehicle for expanding business to overseas markets, it is necessary to institute provisions enabling carriers to take advantage of such vehicle.
In parallel with the enactment of a competition promotion law that will take over the NTT law, it is also necessary to examine social and national-interest issues, such as a definition of the term "universal service" and steps to be taken to ensure such service, what the government should do about the research of telecommunications technology, and steps the government should take to secure the priority of important communication in case of a national or social emergency.
To secure the universal service, it is necessary to examine the advisability of adopting the formula of universal service fund or the wisdom of giving government subsidy as the cost of its social policy on the basis of pertinent information disclosed such as the cost needed for providing universal service. In either case, however, actions taken by the government should not compromise its neutrality in competition. In considering steps to be taken for the promotion of research and development of telecommunication technology, it is necessary to weigh the wisdom of obligating a privatized NTT by law to conduct research and development and consider the role the government should play in this field.

5. Transparency of Debate

In considering systems and policies relating to telecommunications, the basic infrastructure of the day-to-day life of the people and the nation's industrial activities, it is important to involve a broad section of the people in the debate. The debate conducted at all councils and committees, not to speak of the Telecommunications Council, should be open to public, and their detailed proceedings should be published as soon as possible, the pertinent authority should invite the general public to comment on the reports submitted by these councils in accordance with the public comment formula, and announce the position of such authority before the government makes a final decision on a given issue.

Concluding Remarks

Our proposal focuses its attention on an early enactment of a competition promotion law that demands a government action of great urgency. We hope that the government will come up with a system and competition rules that could serve as a model for all other countries. We believe it is necessary to address the problems outlined in the foregoing in light of the changes that had occurred in the market after the reorganization of NTT and the status of progress made in the execution of the plan for the reorganization of NTT. On our part, we of Keidanren plan to make, from the standpoint of furtherance of the IT revolution, further study of how the competition promotion law should be crafted and what should be done about the system for convergence of telecommunications and broadcasting, and make additional proposals in coming months.

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