Kyodo News The government plans to cut interconnection fees charged by Nippon Telegraph and Telephone Corp. by 41.1 percent by the end of 2002, a move Tokyo hopes will resolve a bitter trade row with the United States before this month’s Group of Eight summit in Okinawa.

Government sources said Thursday that in exchange for accepting the large reduction in the interconnection fee, the government will allow NTT to enter new services by easing a law limiting the scope of NTT’s business operations.

The new proposal calls for NTT to cut the fees the telecom giant levies to other carriers for the use of its local networks by 22.5 percent by the end of 2001 and by 41.1 percent within 2002.

The proposed reduction is far larger than the 22.5 percent cut over four years originally proposed by Japan and dismissed by the U.S. as insufficient.

The concession matches Washington’s demand that the interconnections fees be reduced by 22.5 percent in the first two years and further cut to 41.1 percent in the following one or two years.

Japan will offer the new proposal to the U.S. during expert-level talks to be held in Tokyo from Monday and at a July 15 sub-Cabinet-level meeting, also in Tokyo, the sources said.

In Washington, an official of the Office of the U.S. Trade Representative said the U.S. government has yet to see the Japanese proposal and the USTR would not comment on the issue.

The U.S. will strive to resolve the issue at its meetings in Tokyo, the official said.

Japan has so far refused to budge from an initial proposal to reduce the charge by 22.5 percent over four years, citing possible negative effects on NTT’s financial standing.

That position was undermined when NTT’s two regional phone operators reported strong earnings for fiscal 1999, which ended March 31.

Last week, Eita Yashiro, then Posts and Telecommunications Minister, said Japan was ready to accept a reduction of 22.5 percent over one to three years instead of an identical cut over four years.

Citing NTT’s better-than-
expected earnings results, the minister effectively acknowledged that Tokyo’s reasoning for rejecting the U.S. demand doesn’t hold water.

The proposed revision to the NTT law and other telecom-related laws would allow NTT’s two regional subsidiaries to enter new telecom fields, such as Internet and cellular phone services, the sources said.

The revision would also end NTT’s obligation to offer so-
called universal services, in which telephone services are provided at equal charges across Japan regardless of cost differences arising from geographical factors, the sources said.

The proposal to diversify NTT’s business, however, has drawn fire from the U.S., which said it would allow NTT to increase its dominance in Japan’s telecom sector.

The revision will be included in a law being considered by Prime Minister Yoshiro Mori to strengthen Japan’s telecom infrastructure, the sources said.

The U.S. has threatened to file a petition over the NTT issue with the World Trade Organization unless a settlement is reached by July 28.

If the issue is resolved in the Tokyo meetings, the Posts and Telecommunications Ministry will probably present the proposal — possibly in August — to the Telecommunications Council, an advisory body to the telecom minister, for endorsement.

The move would pave the way for enactment of the necessary NTT legislation in 2002 in order to have the rate cut enforced within the year, the sources said.

Tokyo apparently yielded to Washington’s demand because it does not want the NTT issue to overshadow the Okinawa summit, which has the promotion of information technology at the top of its agenda.

In a recent interview with Kyodo News, Deputy U.S. Trade Representative Richard Fisher said Japan, as chair of the July 21-23 G8 summit, would be in an “awkward” position if the issue is not settled in time for the event.

The reduction in NTT’s hookup rates is part of comprehensive deregulatory talks between Japan and the U.S.

The dispute over the issue prevented the two countries from compiling a second joint report on a comprehensive deregulation package by the end of last March.

In May 1998, then Prime Minister Ryutaro Hashimoto pledged to introduce a new phone access charge system within 2000 to reflect market-based costs when he met with U.S. President Bill Clinton in Birmingham, England.