The world's second largest telecommunications market is undergoing a rapid and radical transformation as deregulation, the Internet and mobile phones alter the way that Japanese people work and communicate.

A series of tieups, mergers and acquisitions over the last few years, some involving foreign capital, has forced Japan's top telecom executives to review their corporate strategies.

In July, Nippon Telegraph and Telephone Corp., the former state monopoly that still dominates the sector, was split into two regional carriers and a long-distance/international carrier under the umbrella of a holding company.

NTT's reorganization marked a long-awaited turning point in Japanese telecommunications from the unassailable rule of the state-owned machine to the open type of competition that prevails in western markets.

The domestic challengers, led by DDI Corp. and Japan Telecom Co., have wasted no time. In October, DDI Corp., KDD Corp. and IDO Corp. will merge into the NTT group's most formidable opponent to date, KDDI.

In October, Japan Telecom, the third-largest group, formed an alliance with major international carriers British Telecommunications PLC and AT&T Corp. of the United States, by accepting equity participation of 15 percent from each. Government limits on foreign ownership of Japanese telecom carriers no longer exist, except for NTT.

And in June, Britain's Cable and Wireless PLC won a high-profile bidding war with NTT for international carrier IDC.

Telecom deregulation started in 1985, when the government privatized NTT and opened the field to competition. The first new entrants, the so-called new common carriers, entered the domestic long-distance market in 1987.

NCCs started long-distance services by connecting their individual backbone networks to NTT's local network, which was built over the decades of its monopoly era and in principle covers every household in Japan.

As the government continued its deregulation drive, competition rose, prompting telecom firms to form alliances so they could offer comprehensive services ranging from local and international calling services to fixed-line and mobile phone services.

That competition is now encroaching on NTT's stronghold -- local services. NCCs and other new telecom players are stepping up efforts to find alternative ways into people's homes so they can reduce their dependence on the NTT network.

The emergence of true competition is a sign of opening markets, but NTT itself is under increasing pressure from the United States to halve the high access fees it charges competitors to use its networks.

However, now that free-wheeling competition has started a frenzied battle for market share, industry players are constantly re-evaluating their plans because the market itself is changing.

People are increasingly communicating on the go, and their propensity to send data, graphics, and music over the Internet has the industry focusing on data transmission services.

NTT Mobile Communications Network Inc. (NTT DoCoMo) has been the first to cash in on the trend with its popular i-mode service.

i-mode allows consumers to send e-mail, read news, book airline tickets and pay rent over the Internet through the tiny windows of their mobile phones. And there is no need to sign up for an Internet service provider.

i-mode, the world's first Internet access service based on mobile phones, has attracted some 4.5 million users since it was introduced in February 1999, and several other firms are planning to imitate its success.

According to the Mobile Computing Promotion Consortium, an industry association, the number of mobile phone subscribers is expected to reach some 80 million in 2003.

In contrast, the number of fixed-line users has been declining since it peaked at 61.46 million in fiscal 1996. As the trend continues, mobile phone contracts are expected to exceed fixed-line contracts for the first time as early as this month.