Second of two partsStaff writerDeregulation in the telecommunications sector began to be slowly implemented over a decade ago, but it is only now that the industry is entering cutthroat price competition, accelerated by the imminent breakup of NTT.On Jan. 7, Tokyo Telecommunication Network Co. (TTNet) will start charging 9 yen for local calls of three minutes in the Kanto region, 1 yen lower than the existing service provided by the country’s megacarrier Nippon Telegraph and Telephone Corp.The move is the first major attempt to tap into the local-call market dominated by NTT, which has maintained the rate at 10 yen for the past 21 years.Local calls make up about 60 percent of the country’s telephone service market. “We can’t compete against NTT without a dense network. We laid a 40,000-km fiber-optic network in the region, which is equivalent to that of NTT,” said Yosuke Gomi, a spokesman for TTNet. “Although we are seen as a carrier for corporate users, we are now targeting general users.”TTNet is one of 10 carriers affiliated with regional power companies that have built up fiber-optic networks along power lines stretching across the country. The company can charge low rates by expanding its local network and lessening its dependence on NTT’s, thereby lowering the access charges it pays to NTT.The carrier will also begin a long-distance service, charging 72 yen per three minutes for weekday daytime calls over more than 100 km, a rate 28 yen lower than that being charged by other long-distance carriers.Although the customer base of TTNet’s new service is limited to NTT subscribers in the Kanto region, Yamanashi Prefecture and part of Shizuoka Prefecture, the vast size of the Tokyo metropolitan market, which accounted for 19.9 percent of total outgoing calls from Japan in fiscal 1996, enabled TTNet to decrease its rates, Gomi said. In addition, the carrier’s customers don’t have to buy special equipment or disconnect from NTT.”It is a good strategy,” said Akihiro Itoh, an analyst at Daiwa Institute of Research Ltd. “TTNet is trying to attract customers with its low-fare local calls, which are not very profitable to the carrier, and make its profits in the long-distance calls made by these customers.” After the Posts and Telecommunications Ministry decided to open up the telecommunications market in 1985, so-called new common carriers opted to start services by linking their own long-distance lines to NTT’s local network. By paying access charges to NTT, the firms avoid the huge expense of constructing entirely new local networks, leaving them free to set up long-distance lines to link points in major cities nationwide.Because the local-call market has been dominated by NTT, competition has been focused mostly on long-distance services, and rates have dropped markedly. In 1985, the rate for three minutes was 400 yen. Now the average rate is 100 yen.By the end of November, TTNet had attracted applicants equivalent to 270,000 lines, and hopes to reach out to 10 percent of the users in the Kanto region, Gomi said.The low rates TTNet proposed last summer appear to have intensified the price war. Japan Telecom Co. said it would apply for rate cuts, possibly in the second week of January, to compete with NTT and TTNet, said Koichi Sakata, president of the firm.Last month, NTT said it would cut long-distance rates for three-minute calls to 90 yen from the current 110 yen, starting in February. This is expected to have an annual impact of 80 billion yen. DDI Corp., another long-distance carrier, will also attempt to reduce its rates, perhaps later this year.However, despite the carriers’ efforts to narrow the gap with TTNet, observers have pointed out that the resale business in domestic services that was liberalized in summer 1996 has already cut existing rates by between 15 percent and 20 percent.”Long-distance services are becoming less profitable to carriers because of their price competition and the entry of the resale business. But it is difficult to know how many users enjoy the service by the resellers,” said Hironobu Sawake, a senior analyst at Nikko Research Center, Ltd. Following the lead of TTNet, carriers appear to be looking at local-call and other services as the next stage of competition.In another attempt to tap into NTT’s local service network, Japan Telecom is conducting an experiment called “local wireless loop” in which antennas are erected along JR’s Yamanote Line to serve a 2-km-wide area on either side of the tracks with a wireless network. Using such a network, Japan Telecom, which has an agreement to use JR’s railways to expand its fiber-optic network, can cover the central part of Tokyo where large-scale customers, such as companies, are concentrated.Japan Telecom will continue its experiment with the wireless network until next spring to study its capabilities in commercial services. “The wireless network is the field that is ignored in the discussion on the separation of NTT. So there is room for carriers to compete in the field. The issue is (part of) a technological progress to build up local networks at less cost,” said Itoh of Daiwa Institute of Research.Competition is expected to be facilitated by further deregulation this summer as the ministry is expected to abolish the approval system for changing telephone rates to a notification system. “Carriers usually changed fares once a year because of the system required by the ministry. This hinders carriers in setting their rates flexibly,” said Shoichiro Ishihara, a spokesman for Japan Telecom.As the traffic of data transmission grows with the spread of the Internet and other computer-related demands, the system of charging for telecommunications may fundamentally change in the future.”Rates are set based on time and distance right now. As the volume of data transmission keeps growing, the way to decide the rates will change. Rates will not necessarily accord with distance. There is a way to charge users by the volume of data transmitted,” Itoh said.

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