NTT CEO Addresses Reorganization and Interconnection Charges

(September 21, 1999) NTT Corp. President Miyazu addressed NTT reorganization, and deflected criticism about NTT's monopolistic practices, at a lecture in Washington DC on Tuesday, September 21.

Jun-Ichiro Miyazu, the President of Nippon Telephone and Telegraph (NTT) Corporation, spoke at a event hosted by the American Enterprise Institute. He reported that NTT has just reorganized. NTT Corp. is a holding company for NTT East, NTT West, NTT Communications, NTT Data, and NTT DoCoMo.

NTT East and NTT West are the two regional telephone monopolies in Japan. NTT Communications is a competitive long distance provider. NTT DoCoMo is a competitive mobile communications provider.

NTT East, NTT West, and NTT Communications are wholly owned subsidiaries of NTT Corp.  NTT Corp. holds a majority interest in both NTT Data and NTT DoCoMo.

"AT&T of the United States was broken up in January 1984 to eliminate its monopoly control of the country's telecommunications industry and promote competition. A similar movement was born in Japan in the 1980s. It also was aimed at introducing competition to the telecommunications industry and eliminating the monopoly enjoyed by the NTT Public Corporation," said Miyazu.

"NTT Public Corporation was privatized in April of 1985 and, at the same time, Japan's telecommunications market was opened to competitors."

However, various prices and rates of NTT companies have drawn criticism from the U.S. Trade Representative. The USTR is the federal agency responsible for developing and coordinating U.S. international trade, commodity, and direct investment policy, and leading or directing negotiations with other countries on such matters.

For example, the USTR filed comments with Japan's MPT (Ministry of Posts and Telecommunications) on August 26 regarding high interconnection fees in Japan.

	Charlene Barshefsky

"The system Japan is proposing would continue to keep interconnection rates up to eight times higher than those available in competitive markets, like the United States" said U.S. Trade Representative Charlene Barshefsky in a press release on August 27, 1999. "It is simply not credible that costs in Japan are that much higher. This proposal leaves serious doubts that Japan is implementing a truly market-based approach for determining access costs, which it agreed to develop in the May 1998 U.S.-Japan Deregulation Report."

"We urge MPT to revise its access charge system to reflect true market-based costs - the only costs competitors should bear. By failing to do so, MPT would continue to protect NTT by approving excessive interconnection charges. Inflated interconnection rates impose a significant burden on new service providers, stifle new investment and innovative services, and will ensure that Japan lags behind other advanced countries in growth areas such as Internet usage and electronic commerce."

In May 1998 the U.S. and Japan agreed to the Enhanced Initiative on Deregulation and Competition Policy, which is intended to introduce market-based prices for access to telecommunications networks of NTT companies. Japan agreed to develop a system by the Year 2000 to set rates that competitors pay for completing calls onto NTT's network based on market-oriented prices, through a methodology known as Long Run Incremental Cost (LRIC).

The USTR has also recently negotiated with Japan regarding telecommunications equipment procurement by NTT companies.

Jonathan McHale, of the USTR, attended the AEI event, and had this to say during the question and answer session about the state of competition in Japan. "The reason why we use our networks so extensively is because we have got lower costs. The reason we have lower costs is competition. Um, have various concerns that competition is not really progressing very well in Japan."

"If you look outside this building on the street there is probably five companies tearing up the street putting in fiber, putting in about 4 million new lines per year, by these competitors. Two key reasons why we are not seeing this type of competition in Japan. One is NTT really continues its price discrimination, and the other is the high connection fees. Price discrimination, we are welcome, of course, industry reducing price to support users. However, when NTT introduces discount plans that do permit you to call other networks, then, clearly, you are hurting competition, and you are not going to get the kind of growth that we see, that is typical in this country. That is something else that we have concerns about in the WTO context."

McHale continued. "In terms of interconnection rates, NTT recently came out with a proposed model that you referred to that, if you look at it even given the most aggressive rates, it is still about five times the amount that typical competitive local exchange carriers here in the U.S. pays."

After more commentary from McHale, AEI President Christopher DeMuth interrupted him and asked that he ask a question. McHale then asked "whether these two issues, the ability to price discriminate, and create price squeezes in Japan, and the very high interconnection rates are inconceivable from the U.S. perspective as a basis for permitting competition?"

Miyazu responded. "In the area of the Internet the competition, indeed, can be labeled as the lowering of prices and the lowering of the service rates. They have indeed propelled the growth of the Internet. I believe the Internet is one of the areas in which competition, indeed, has privatized significant positive effect. And there is certainly no questioning the basic trend about the fostering of competition."

Miyazu continued. "As I mentioned earlier, while it is a de facto monopoly in terms of local services, it is only in the local facilities, I might add. And that de facto monopoly was inevitable because of the historical backdrop in the historical -- history."

"It is not up to NTT to rectify the disparities," said Miyazu. "Perhaps that de facto monopoly is inevitable because the history of the industry, and because it is a de facto monopoly that the issue was _____. And that similar action -- similar issue -- still remains with the RBOCs in the United States."

"And of course, in any given discussion over the so called monopolies, of course, we are always going to argue over whether or not the extent of the regulation is too strict, or is stringent, or not stringent, and so forth. But the fact on this general question about monopoly, in actuality, we would like to see the growth of the Internet in Japan as well. We want to see the Internet grow in Japan. And if, and if NTT, subject to, if NTT, subject to this, if NTT still with its, actually, NTT is still, we would like to see the growth of the Internet, although some part of the business are still under industrial monopoly. We, on our part, have the motive. We would like to see the Internet to grow as well, for the betterment of my business. And so, and so therefore, this is a separate question, I believe, from the general discussion of theory of the so called monopoly. It is a different question from the pure economic question I feel. We do have the motive on our part to see Internet grow, so therefore, in order to foster the growth of our business, we believe that we will also have to further endeavor to bring down the cost and price."

Miyazu also responded to a question from Richard Shin of the U.S. Department of Justice's Antitrust Division regarding local competition in Japan.

Miyazu also spoke about the Internet during his lecture. He stated that "the Web is partially responsible for the current boom in the U.S. economy."

He added that Internet use in Japan lags behind the U.S. He stated that "the diffusion rate for Internet use is only 13.4 percent in Japan compared to 30 percent in the United States. To promote the Internet even further, we must overcome numerous problems, including legal systems and customs peculiar to Japan." He concluded that the Internet "is considered vital for activating the Japanese economy in the future."

Miyazu delivered his address in English. During the question and answer session all of the questions were posed in English, and translated into Japanese by an interpreter. The answers were in Japanese, and then translated into English by the interpreter.