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The Telecommunications Council, an advisory panel to the Ministry of Posts and Telecommunications, has produced a preliminary report calling for stepped-up competition within the NTT group. The report, however, falls far short of expectations. The overall impression is that the panel is keen to minimize change to the dominant telecom group, rather than create a new framework of competition through drastic reorganization.

The report is not final, but if it is adopted with only minor modifications Japan’s telecom industry — the NTT group in particular — will win the tough competition in the fast-paced information-technology sector, where rapid changes are taking place. The industry must move much faster if it is to stay abreast of the times, not only in technology but in corporate management as well. Time is of the essence. An effective strategy demands bold judgment and swift action. If reform is delayed until a catch-all blueprint is worked out, it will be too late. Gradualism — the approach recommended by the panel — is out of touch with reality.

The half-measures proposed by the Council stem from a desire to avoid an overhaul of the NTT group, which holds a dominant position in the domestic-communications market. One proposal would reduce the holding company’s stake in the long-distance and international phone company NTT Communications and in the cell-phone company NTT DoCoMo. The idea is to promote competition and boost efficiency among NTT companies by giving them greater freedom of action. That is a step in the right direction, but it is only a small step.

To spur competition within the NTT family, the report calls for the entry of NTT Communications into the local communications market, which is currently almost completely controlled by two regional phone companies, NTT East and NTT West. This proposal looks more like a publicity gimmick designed to counter criticism both here and abroad that the NTT monopoly of local phone networks is responsible for Japan’s high communications fees.

The report leaves open the possibility that the current holding-company system would be scrapped — a move that would lead to the complete privatization of NTT companies. However, this would happen only if “sufficient competition did not exist after a given period of time.” In the meantime, “fair competition will be promoted,” but this sounds like lip service, as the situation will not improve much unless the existing NTT system is overhauled.

The report, however, is right to mention the possibility that the government might eventually withdraw completely from the NTT group. At the moment, though, that is pure pie in the sky because the essential question of how to revamp NTT’s management is left unsettled. All proposals are based on the assumption that the holding company will remain in the saddle. No wonder the report calls only for Band-aid remedies.

The most salient recommendation is that “dominant” communications companies should be reined in to make sure that they do not unfairly restrict competition by abusing their power. Such restrictions, aimed implicitly at the NTT group, would be imposed on companies holding, for example, a market share of more than 50 percent in terms of sales, number of subscribers and communications volume.

More specifically, such companies — NTT companies, that is — would be prohibited from setting “predatory” prices by taking advantage of their dominant market position. Also, they would be required to create “fire walls,” or internal safeguards, that would prevent mutual aid among group companies in terms of staff, money, information and the like.

The report says such restrictions would be confined to the telecom sector. The unspoken message is that only the NTT group — the Goliath in the field — would be subject to “dominant regulations.” In other words, it is not assumed that NTT’s Japanese rivals will become so powerful as to require such regulatory discipline. Plainly, the NTT group will be kept essentially intact, with its dominance restricted, not removed.

That is not the way to promote fair and free competition in this rapidly developing sector, where winners and losers keep trading places. Gradualism may be a way to avoid disruptive changes, but it is a poor prescription for building a dynamic industry. Japan’s economic and industrial competitiveness depends crucially on the growth of a sound and strong information-technology sector. Japan is often described as a nation slow to change, a nation that prefers tradition to innovation. It will be left further behind in the global IT race unless it pursues a full-dress competition policy for this sector through drastic reform of the NTT group.

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