Nearly a year after the splitup of Nippon Telegraph and Telephone Corp., the big experiment is coming under scrutiny as questions are raised over whether its new profile has actually made a difference.
On July 1, 1999, the former state-run telecommunications giant was reorganized into two local carriers and a long-distance and international carrier under the wing of a holding company.
The revamp was being counted on to bring about cheap and efficient information and telecom services through fair competition and considered key to transforming the nation’s economic structure.
Many industry observers, however, said the experiment has so far failed to create competition.
Indeed, with its two regional carriers, NTT East Corp. and NTT West Corp., controlling 96 percent of the access available to Japan’s local networks, the NTT group remains by far the dominant player in the telecom market here.
At the same time, however, many acknowledge that some NTT subsidiaries, including NTT Communications Corp. and NTT DoCoMo Inc., are emerging as powerful players capable of competing in the global market.
NTT Communications, an international and long-distance carrier, has succeeded with Internet-related services, while mobile phone operator NTT DoCoMo has provided Internet access via mobile phones with its popular i-mode services.
Has the reorganization of NTT, then, been a success or is the triumph still to come?
It has only been a partial success, said Shigehiko Naoe, professor of information and communication policy at Chuo University.
The reorganization, he said, had two missions: to strengthen NTT’s competitiveness against powerful foreign carriers and to promote competition in the domestic telecom market.
“Concerning the first purpose,” he said, “the reorganization has fulfilled its mission to a certain extent.”
Reorganizing under a holding company — instead of completely splitting into separate firms — was an inevitable move that allowed Japan’s top telecom firm to compete against foreign rivals, Naoe said.
However, this resulted in the failure to realize the second goal of encouraging local competition, he added.
Deregulation of the Japanese telecom market began in 1985 with the privatization of NTT and a series of newcomers entering the market.
Then came a series of realignments, including tieups with foreign telecom firms, in the late 1990s. This was prompted by the split of NTT, which also marked the telecom giant’s entry into international services.
Today, some of the new players have captured sizable market shares in the long-distance and data transmission markets by drastically lowering charges.
However, NTT West and NTT East still control nearly all the domestic infrastructure, particularly the “last one mile” connecting local lines to each home and office.
NTT’s domestic network — built up through years of monopoly — is so dominant that it is nearly impossible for newcomers to compete by setting up their own local networks.
To promote fair competition, Naoe said, it is essential to provide newcomers with better access to NTT’s networks.
Senshu University professor Toshimasa Tsuruta, head of a panel of experts under the Fair Trade Commission, agrees.
Competitors are often kept waiting before they can rent NTT facilities, and they sometimes find their requests turned down for unclear reasons, Tsuruta noted.
“For example, NTT often does not allow cable TV companies to use its underground pipes that are connected to apartments,” he said. “Connection rules should be clarified in cooperation with the FTC and related government organizations.”
In its report released earlier this month, Tsuruta’s panel urged the FTC to set clear rules for allowing newcomers to use NTT’s local networks.
Touching on a more sensitive issue, the report also argues that NTT DoCoMo, 67 percent of which is owned by NTT Corp., should be separated from the holding company.
“Mobile communication can be a powerful competitor against fixed-line telephones,” the report says. “But if NTT DoCoMo and NTT local-call companies remain under the same holding company, they can take countercompetitive action.”
Such a situation could pose a “big problem in activating competition in the local communications market,” it says.
Indeed, there were 56.85 million subscriptions for mobile phones as of March, exceeding those of fixed-phone services provided by NTT East and NTT West for the first time since mobile phone services were launched in 1979.
So far, the FTC has taken a wait-and-see attitude on the panel’s recommendations.
But there may be a further twist now that Hiromu Nonaka, secretary general of the Liberal Democratic Party, has joined the chorus for NTT DoCoMo to spin off from its parent.
On June 12, the day the FTC panel’s controversial report was released, the LDP’s No. 2 man said NTT’s ownership in NTT DoCoMo should be lowered to around 51 percent. Then, by utilizing the revenue from share sales, NTT’s two local carriers should reduce interconnection charges.
Reducing interconnection fees has long been a thorny issue in Japan-U.S. deregulation talks, with Washington demanding a 22.5 percent cut in the first two years, and then further reductions toward a total of 40 percent.
The NTT group hasn’t budged an inch, however, rejecting Nonaka’s suggestions to release more DoCoMo shares and U.S. demands to lower the group’s interconnection charges.
If the interconnection charges are to be cut as the U.S. demands, NTT President Junichiro Miyazu repeatedly argued, the operation of NTT’s regional arms should also be deregulated.
At present, the NTT Law strictly regulates the activities of NTT East and West in order to secure competitive conditions for newcomers.
NTT group firms are also obliged to offer universal services across the country, while NTT East and NTT West are confined to local voice calls, and are therefore excluded from Internet services.
A senior official of the Posts and Telecommunications Ministry, however, is firmly opposed to Miyazu’s idea.
“Deregulation of the local market would only strengthen NTT’s monopoly. I think NTT wants to maintain its advantageous position, but that’s unacceptable,” the official said on condition of anonymity.
“It’s outrageous if they are trying to win total privatization in exchange for (compromises) in the connection charges issue,” the official said, stressing that the ministry has no intention of linking the two issues in the upcoming negotiations with the U.S.
But some NTT executives pointed out that the government, sooner or later, will have to take up the issue of further privatizing or deregulating NTT.
If the government continues to sell NTT stocks at the current pace, the state’s ownership will be less than 30 percent in three years, the lowest limit allowed under the NTT Law.
As the government’s ownership nears the lower limit, public debate will boil up again over whether to revise the NTT Law.