CASH, TRADERS DOWN THE DRAIN IF CHARGE IS ABOLISHED

Like NTT phone fee, line brokers face extinction

by Tomoko Otake

Kanji in the window of a three-story building near JR Okachimachi Station in central Tokyo advertise “denwa tokubai” (discounted telephone lines).

But telephone line broker Miyama Denwa’s sign goes largely unnoticed by the hordes of passersby, who if anything are more likely to notice the famous mermaid logo of a Starbucks coffee shop next door.

Morinobu Hasegawa, the 46-year-old second-generation owner of the firm, knows that just like the sign, his family business — and that of nearly 300 private-sector traders in land lines — is on the wane.

As the telecommunications ministry mulls eliminating the 72,800 yen nonreturnable upfront payment charged to each new home phone subscriber by NTT Corp., companies big and small that have profited from trading in the lines are about to find themselves in the lurch.

Abolishment of the charge could also trigger outrage from the 60 million individual and corporate users who have paid a combined 4.6 trillion yen to buy land-based phone lines over the years and have rights to resell their lines to these brokers.

When the telecommunications ministry’s Information and Communications Council convenes a meeting of its subcommittee Tuesday, it will probably adopt a report recommending that NTT phase out the charge.

At first glance, doing away with the decades-old practice couldn’t be more right — and long overdue. After all, the 72,800 yen per-line fee is exorbitant when compared with the fees charged to new subscribers in other industrialized countries. Such fees range from around 3,300 yen in Geneva to 12,000 yen in London, with those in New York, Paris and Dusseldorf falling in between, according to the Public Management, Home Affairs and Posts and Telecommunications Ministry.

Ministry officials say the fee has hindered growth in the number of home phone line subscribers, which peaked at 62.85 million at the end of fiscal 1997 and has been on a steady decline, hitting 60.22 million in the year that ended in March.

Consumers are increasingly resorting to the land line’s less-expensive alternatives — mobiles and IP phones. The number of people using cellular and personal handy-phone system phones stood at 86.65 million in March.

“The practice (of charging new subscribers) probably lost its meaning when the order backlog disappeared in the late 1970s,” said ministry official Shigeki Suzuki, who is in charge of telephone fees and services.

He is quick to add, however, that the practice did have meaning once.

As Japan in the early postwar years moved to restore its civil infrastructure, NTT, then the state-owned Nippon Telegraph and Telephone Public Corp., faced the urgent need to build a nationwide network of phone lines.

Because the corporation had no money to do that itself, it solicited funds from subscribers. Until as recently as 1983, new subscribers had to buy a bond, which was then invested in network construction.

Along the way, people like Hasegawa’s father started dealing in phone lines as demand for new numbers surged.

“You can’t start a decent business without a line,” Hasegawa said. “We used to have merchants swarming to our stores looking for phone access.”

In the immediate postwar years, land-line connections were so sought after that they began to have a financial value. Hasegawa said his family used to have four offices selling phone lines, each of which used to be “worth more than a house.” Pawn shops also accepted phone lines.

“They used to say, ‘If you sell one telephone line, you can have a big party with geisha in (the expensive entertainment district of) Mukojima,’ ” Hasegawa said.

But such times are long gone. Since 1978, as demand eased, phone-line brokers have been forced to reduce prices. Now people selling lines to brokers can only get about 10,000 yen. The brokers then resell them for around 20,000 yen.

That is still cheaper than going directly to NTT for a new line, but profit margins are narrowing. Brokers are now barely managing to survive, supplementing their revenue with commissions from NTT for selling optional services, such as call-waiting and number display features, and asymmetric digital subscriber line subscriptions, industry officials said.

The brokers took another beating when NTT introduced a new home telephone service in February 2002 called Light. Instead of paying the huge subscription fee up front, consumers now have a choice of paying it in 640 yen installments added to their monthly phone bills.

Japan Telephone Association, a 300-member group of businesses that have exclusively dealt in phone lines, opposes the telecom ministry’s move to end the fee system.

Mitsugi Takeda, secretary general of the association, said the ministry’s move, which he claims is being made without public consensus, would be a slap in the face for consumers who paid a combined 4.6 trillion yen over the years to reclaim however little money they can from the phone line market.

“The 60 million people who forked out their own money to help build the telephone line network will see their assets suddenly become worthless,” Takeda said.

There is no need to change the system now that consumers have the option of the Light plan instead of paying all 72,800 yen at once, he said.

But it could also be argued that brokers have made a living out of a fee that has long lost its meaning.

Takeda said there are “lots of contradictions” surrounding the use of the phone line fees, not helped by NTT’s “murky accounting” of the funds.

A NTT East spokesman said that while the money is used as part of costs to build a connection between subscribers’ homes and their closest NTT stations, NTT has no income-and-expenditure details regarding the 4.6 trillion yen collected over the years and has no money at hand to reimburse consumers.

“The money has been spent (on building new lines),” he claimed.

Yutaka Shimbo, a consultant at The Japan Research Institute, Ltd., said the biggest question will be how to ensure fairness for the 60 million users and the people with business interests in the subscriber lines. One remedy may be to redefine the money people paid to get land lines as the fee for future broadband communications networks, including fiber-optic and wireless local area networks.

Such networks are out of reach for many, especially in the countryside, while private-sector providers of these services are struggling to survive amid huge investment costs, he said.