Changes in Japan’s telecommunications industry over the past two years have been far-reaching and important, but much remains to be done to achieve a truly free and transparent market, according to Lisa Suits, outgoing vice president of the public policy division of Cable & Wireless IDC Inc.

One of the major achievements Suits has helped bring about, combining her position as chair of the European Business Council’s Telecommunications Carriers Committee with her C&W IDC role, was convincing the Ministry of Public Management, Home Affairs, Posts and Telecommunications to unbundle NTT’s dark fiber.

This regulatory change allowed other operators to launch Internet access and data communications services at very competitive rates, giving Japanese users the cheapest services in the world.

Yet, obstacles remain to be overcome, Suits believes. After two years in Japan, however, she is passing the baton on to Jonathan Sandbach as she transfers to C&W’s London headquarters.

“Every market has its challenges and I’m not saying these things are insurmountable,” she said.

“We participate in working groups with the ministry, we send our public policy folks to forum hearings, we give testimony and we bring in information from other markets we participate in around the world,” she pointed out. “We provide good ideas and we try to provide information to support the efforts of the ministry and working groups in order to arrive at positive conclusions.

“But sometimes we feel just really frustrated, that what seems to be the obvious answer doesn’t come out the other end at the end of the day.”

There are several main areas of concern for C&W IDC, although arguably the largest “hobby-horse,” as she termed it, is the question of charges for calls from fixed telephones to mobile phones

At present, charges for calls from fixed telephones to mobile phones are higher than those from mobile phones to fixed phones. The difference in charges arose because mobile operators have traditionally set both types of charges in Japan, and while NTT East and NTT West are obliged by the Telecommunications Business Law to provide comprehensive cost breakdowns, mobile operators are not bound by the same rules and do not have any incentive to lower charges for calls from fixed to mobile phones because the caller does not know which mobile company is charging them.

“Essentially, this means that even though NTT DoCoMo is recognized under the legislation to also be a dominant carrier, it is subject to different rules because it is a mobile operator,” Suits said. “This means that the costs of mobile calls are potentially too high and requires a change in the law.”

According to Sandbach, an expert on telecommunications in Europe, while the link from a fixed line or a mobile phone through a provider, such as C&W IDC, to a mobile phone is seen as two distinct markets in Europe — the origination part and the termination part — in Japan it is regarded as a single market.

“And it’s that which makes the termination part a bottleneck and more expensive for the consumer,” he said. Regulatory authorities say there are four carriers in Japan and, hence, already plenty of competition and no need for a change in the law.

Sandbach’s solution would be to let the originating network set the rate for a fixed call to a mobile, which would ensure transparency. To achieve this, however, mobile companies would be obliged to detail their costs for termination of mobile calls and would be allowed to collect a cost-based interconnection fee from the originating network.

The apparent breaks that the two divisions of NTT are granted by the government are another subject that Suits believes needs attention.

On Dec. 3, a joint committee of the Upper and Lower Houses unanimously passed a resolution requiring NTT East and West to charge the same for interconnection. NTT East is expected to provide assistance of about 40 billion yen annually to NTT West to maintain the same charges for interconnection as NTT East.

“It is obvious that NTT East has a different set of economics from NTT West, which has the islands, a population that is a lot more spread out and smaller city centers,” Suits pointed out. “It has a higher cost area than NTT East — which has Tokyo — but it is likely we will be paying the same rate on both sides of the divide, which is odd.

“True economic forces are being inhibited from running the market,” she said. “Instead, it is being done by political administration and it’s being done to keep NTT West’s balance sheet in the black.

“NTT West has a high-cost area and consumers there should be paying more. NTT East has room to reduce costs, which would benefit consumers and interconnecting carriers,” she said. “By taking an average rate between them, it doesn’t solve either one’s problems because NTT West will still not have its total costs covered and NTT East’s customers will be over-paying.”

The Dec. 3 resolution ignored the recommendation of the ministry’s own advisory council in September that NTT East should charge less than NTT West because it has a lower cost base, she said. The government, however, counters that the present situation is in the interests of universal services, an argument that Suits says does not hold water.

“There is a universal services fund available for any NTT West shortfalls, but quite strangely, both NTT East and West have announced that they will not apply for those funds,” she said.

“I can’t figure it out. Why would they prefer to top up their balances, if you will, through interconnection charges when there is a fund available to do that?

“Equalizing the universal services fund issue through interconnection charges is bad practice anyway,” she emphasized. “It’s bad economics and in other countries it is explicitly forbidden.”

The bottom line, she said, is that the decision does not provide any incentive to NTT East and West to improve their cost structures.

But despite the thorny issues, Japan is an important market for C&W.

“It’s a healthy business, it’s a key market for us and we have a lot of heavyweight multinational customers here,” she said. “We have to be here and we’re going to stay here.

“If you look at telecommunications in the West, the telecom sector is worse off than the rest of the economy as a whole — stock prices, overcapacity, layoffs — but I think that in Asia, the telecom sector is doing better than the economy as a whole.

“Telecoms and IT may actually grow in 2003,” she added. “We’re looking forward to that and we want to be there when it does.”

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