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The world is gripped with IT fever. Despite linguistic differences, IT, shorthand for information technology, is a buzzword even here. It is believed to hold the key to the future development of the Japanese economy. That is why Prime Minister Yoshiro Mori is leading the drive for an IT revolution.

There is a sense of crisis over Japan’s lag in the global IT race. Unless the gap is closed, the nation will fall further behind not only the United States and Europe, but also fast-paced nations in Asia, such as South Korea and Singapore. Japan cannot afford to lose this race if the nation is to keep its status as an economic powerhouse.

So the inevitable question is: What should be done to make this country an Internet society? The question cannot be addressed without considering the NTT group, which holds an overwhelming position in the domestic-communications market. NTT, a veritable Goliath, stands in the way of free competition. The results of Japan’s IT experiment depend largely on how the communications giant behaves in the years ahead.

Currently, the NTT group — owned by the NTT holding company, in which the government has a major interest — consists of four major units: two regional phone companies (NTT East Japan and NTT West Japan) that control more than 90 percent of the local network; NTT DoCoMo, which has about 60 percent of the cell-phone market; NTT Communications, which markets long-distance and international services; and NTT Data Communications. It is estimated that group sales will top 10 trillion yen in fiscal 2000, more than three times the figure for KDDI, the nation’s second-largest communications company. DoCoMo, whose i-mode cell phones dominate the world market, boasts over 4 trillion yen in annual sales, eclipsing Deutsche Telekom and France Telecom.

In addition to the near monopoly it enjoys in the local market, the NTT group is still heavily regulated even though it is a privatized entity. For example, the government owns more than one-third of the holding company. Foreign ownership is limited to not more than one-fifth of total equity. Business projects must be approved by the Ministry of Posts and Telecommunications. This heavy government involvement is premised on the belief that Japan’s “security and sovereignty” in communications services requires that the nation have a representative communications group that can compete favorably with powerful foreign rivals from the U.S. and Europe.

The fact remains, however, that the cost of communication here is considerably higher than in either the U.S. or Europe. Although Japanese fees have dropped as a result of the entry of new carriers and foreign competitors into this market, they are still nearly twice the level in America. The biggest reason for this is that NTT’s two regional companies nearly monopolize the local network, effectively excluding competition.

For these reasons, KDDI, Japan Telecom and other new carriers are calling for the opening and liberalization of the local network. In fact, the high connection fees charged by NTT are proving a major drag on the spread of Internet use here. The Telecommunications Council is currently considering the future makeup of NTT, but, reportedly, strong opinion exists that a further shakeup of the NTT group just a year after its initial breakup is premature. The steps under study include reunification of the profit-making eastern company and the deficit-running western company. However, leaving the group in its present form would be like feeding a whale in a pond. The whale would take most of the nutrients in the pond, killing off other creatures in the water and drive itself into extinction. The analogy may be exaggerated, but the moral — that healthy competition is essential to sound market growth — cannot be ignored.

What needs to be done? First and foremost, develop strong domestic companies that can compete with NTT on equal terms — in other words, promote competition by stripping NTT of its monopolistic and privileged status. In plain language, what is needed most is the creation of conditions that allow everyone to enter the market and compete freely. After all, that is what free enterprise is all about.

More specifically, the local network should be opened to competitors. The IT Strategy Council, an advisory panel to the prime minister, agrees: In the draft presented to Mr. Mori on Monday, the panel called for more competition in the telecommunications market.

Government regulations governing NTT’s business projects should be abolished to allow the group to make decisions quickly. The group should be given freedom of action through complete privatization. For that, the rule of public ownership should be abolished. Government involvement should be limited to the area of communications security. The bottom line is that low-cost, high-quality services can be provided only through unrestricted competition at home and abroad.

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