Managing Structural Managing Structural Changes in Changes in
TelecommunicationsTelecommunications
ITS 15th Biennial Conference
Hidenori FUKE
Kansai University, Japan
Sept. 5, 2004 ITS2004 H FUKEⒸ 2
DiscussionsDiscussions
Structural Changes in Telecommunications– Progress of Competition– Diffusion of the Internet & Cellular ⇒ Decline of
POTS Is Traditional Justification for Regulation
(‘Market Failure’) Still Valid ?– Existence of Undertakings with Market Power– Asymmetric Information Between Consumers &
Undertakings– Network Externality
Restructuring of Regulatory Policy
Sept. 5, 2004 ITS2004 H FUKEⒸ 3
Outline of PresentationOutline of Presentation
Privatisation of NTT and Introduction of Competition in 1985
Competition And Regulatory PolicyDevelopment of Competition and Revision
of TBL and NTT LawStructural Changes in TelecommunicationsRevision of Regulatory FrameworkConclusions
Sept. 5, 2004 ITS2004 H FUKEⒸ 4
PrivatisationPrivatisation of NTT and Introduction of NTT and Introduction of Competition in 1985of Competition in 1985
Total Liberalisation of Telecommunications Market in 1985– Telecommunications Business Law (TBL)– Nippon Telegraph & Telephone
Corporation Law (NTT Law)
Sept. 5, 2004 ITS2004 H FUKEⒸ 5
Competition And Regulatory Policy Competition And Regulatory Policy (1)(1)
Classification of Carriers into Type 1 & Type 2 (Table1)– Unregulated Type 2 Carriers– Excessive Regulation on Type 1 Carriers
• Entry– Demand-Supply Coordination– Subdivided Business Areas
• Tariff Regulation– Approval of the Minister : Every Type 1 Carriers
Regardless of Market Power
Sept. 5, 2004 ITS2004 H FUKEⒸ 6
Table 1 Type 1 & Type 2 CarriersTable 1 Type 1 & Type 2 Carriers
Type Definition Entry Exit Price/
Service
Type 1 Own Telecommunications Circuit Facilities
Permission Permission
Approval
Type2 Special Lease Telecommunications Circuit Facilities
(Big)
Registration
Notification
(Ex Post)
Notification
(Ex Ante)
General
Lease Telecommunications Circuit Facilities
( Small )
Notification Notification
(Ex Post)
No Regulation
Sept. 5, 2004 ITS2004 H FUKEⒸ 7
Competition And Regulatory Policy Competition And Regulatory Policy (2)(2)
Lack of Interconnection Rules– Ambivalence between ‘Conduct
Regulation’ or ‘Structural Separation’– Persistent Discussions on NTT Divestiture
Patchwork-like Revisions of TBL
Sept. 5, 2004 ITS2004 H FUKEⒸ 8
Development of Competition and Development of Competition and Revision of TBL and NTT Law (1)Revision of TBL and NTT Law (1)
Tariff Deregulation (1998)– NTT Local Services
• Price Cap
– Others• From Approval to Notification
Entry Regulation (1997)– Abolishment of Demand-Supply Coordination
Clause– Permission System for Type 1 Carriers Maintained
Interconnection Rules (1997)
Sept. 5, 2004 ITS2004 H FUKEⒸ 9
Development of Competition and Development of Competition and Revision of TBL and NTT Law (2)Revision of TBL and NTT Law (2)
Reorganisation of NTT Under a Holding Company Structure (1999)– Compromise between ‘Fair Competition’
and ‘Rational Operation of NTT’Introduction of Formal Asymmetric
Regulation (2001) (Table 2)– Designated Facilities Based on Simple
Market Share
Sept. 5, 2004 ITS2004 H FUKEⒸ 10
Table 2Table 2 Asymmetric RegulationAsymmetric Regulation ::20012001
Dominant Non-Dominant
Fixed Line Mobile
Service Charges Price Cap Notification Notification
Tariff Approval Notification Notification
Interconnection Approval and Publication of Interconnection Tariff
Notification and Publication of Interconnection Tariff
Notification of
Interconnection
Agreement
Fair Competition Fire-Wall
(Prohibition of Holding Concurrent Board Positions)
Order to Remedy Business Operation
Prohibition of the Use of Information other than Interconnection, Prohibition of Undue discrimination ( Order to Suspend or Remedy )
Sept. 5, 2004 ITS2004 H FUKEⒸ 11
Structural Changes in Structural Changes in TelecommunicationsTelecommunications
Development of Competition (Figure 1) Growth of Cellular Market (Figure 2)
– Internet Access via Cellular (Figure 3-1)– 3 G Services (Figure 4)
Growth of Internet Use (Figure 3-1)– Broadband Internet Shows Spectacular Growth
(Figure 3-2) Decline of POTS (Figure 5, 6) Development of Media Convergence (Figure 7)
– From Vertical Integration to Layered Structure
Sept. 5, 2004 ITS2004 H FUKEⒸ 12
Figure 1 Share in Carrier Figure 1 Share in Carrier Pre-selection Pre-selection (As of March,2004)(As of March,2004)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
UnregisterNCCKDDINTT(Total)
Unregister 20.0 19.4 29.4 36.9
NCC 11.3 14.4 15.5 13.8
KDDI 10.7 13.3 14.4 15.3
NTT(Total) 57.9 52.9 40.6 34.0
LocalIntra-
prefecturelong-distance
Inter prefecurelong-distance International
Source: My-line (Carrier Pre-selection) Carriers Association
Sept. 5, 2004 ITS2004 H FUKEⒸ 13
Figure 2Figure 2 Growth of Cellular MarketGrowth of Cellular Market
Source: MPHPT and InfoCom Research, Inc.
010,000
20,00030,00040,000
50,00060,000
70,00080,000
Fiscal Year
Million $
010,00020,00030,00040,00050,00060,00070,00080,00090,000100,000
Tousand Fixed- line (Revenue)
Cellular (Revenue)Fixed- line (Subscribers)Cellular (Subscribers)
Sept. 5, 2004 ITS2004 H FUKEⒸ 14
Figure 3-1Figure 3-1 Growth of Internet UseGrowth of Internet Use
Source: MPHPT
0.01,000.02,000.03,000.04,000.05,000.06,000.07,000.08,000.0
3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6
2000 2001 2002 2003 2004
Ten Thousands
Dial-upCATVDSLFTTHCellular
Sept. 5, 2004 ITS2004 H FUKEⒸ 15
Figure 3-2Figure 3-2 Growth of BroadbandGrowth of Broadband
0.0
200.0
400.0
600.0
800.0
1,000.0
1,200.0
1,400.0
3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6
2000 2001 2002 2003 2004
Ten Thousands
CATVDSLFTTH
Source: MPHPT
Sept. 5, 2004 ITS2004 H FUKEⒸ 16
Figure 4Figure 4 3G Cellular in Japan3G Cellular in Japan
Source: Telecommunications Carriers Association
0
5,000
10,000
15,000
20,000
Thousand
End of Fiscal Year
DoCoMo(W-CDMA)NTT 90 330 3,045 5,272
au(cdma2000) 0 360 13,509 15,136
vodafone(W-CDMA) 0 30 138 219
2001 2002 2003 J ul- 04
Sept. 5, 2004 ITS2004 H FUKEⒸ 17
Figure 5Figure 5 Revenue from Local CallsRevenue from Local Calls
0
1,000
2,000
3,000
4,000Million $
Fiscal Year
- EastNTT 3,905 2,701 2,108 1,687
-WestNTT 3,884 2,701 2,118 1,747
2000 2001 2002 2003
Sept. 5, 2004 ITS2004 H FUKEⒸ 18
Figure 6Figure 6 Revenue from Long-Revenue from Long-Distance CallsDistance Calls
0
2,000
4,000
6,000
8,000Million $
Fiscal Year
- EastNTT 832 678 581 514
-WestNTT 842 707 602 521
CommunicationsNTT 6,183 4,690 4,015 3,731
2000 2001 2002 2003
Sept. 5, 2004 ITS2004 H FUKEⒸ 19
Figure 7Figure 7 From Vertical Integration From Vertical Integration to a Layered Structureto a Layered Structure
Internet Era
IP Network
CopperCable
OpticalFibre
CATV
Wire-less
DataMovingPicture
POTS Era
Content
NetworkService
PhysicalNetwork
Data Voice
DataNet-work
Cel-lu-lar
Voice
POTS
Telecommuni-cations
CATV
TV
Pro-gramme
Pro-gramme
CATVBroad-casting
Voice
POTS
Sept. 5, 2004 ITS2004 H FUKEⒸ 20
Revision of Regulatory Framework (1)Revision of Regulatory Framework (1) -Relaxation of Entry Regulation- -Relaxation of Entry Regulation-
Categorisation into Type 1 & Type 2 Abolished– Big Carriers: Registration– Small Carriers: Notification
Rights of Way Awarded to Carriers with Authorisation by Ministry
Challenges– Actual Application of the New System– Not Responded to Change in Market Structure
(From Vertical Integration to Layered Structure
Sept. 5, 2004 ITS2004 H FUKEⒸ 21
Revision of Regulatory Framework (2)Revision of Regulatory Framework (2)
-Total Deregulation of Tariff- -Total Deregulation of Tariff- Total Deregulation of Tariff (Table 3)
– Universal Services: Prior Notification and Publication of Tariff, Service Obligation
– NTT Local Services: Price Cap– Others: Totally Deregulated
• Individual Negotiation Permitted• Ex Post Disputes Handling
Challenges– Not Based on Market Definition and Evaluation of
Market Power– Asymmetry in information Ignored
Sept. 5, 2004 ITS2004 H FUKEⒸ 22
Table 3Table 3 Tariff and Other Terms & ConditionsTariff and Other Terms & Conditions :: 20032003
・ Prior notification /publication of tariff
・ Ministerial order to change in following
cases
-Lack of proper and clear basis for charges
-Lack of clear specification of
responsibilities of carriers and users
-Restriction of ways of line usage
-Unfair discrimination
-Lack of special treatment in case of
emergency
-Unfair competition
・ Accounting separation
・ Service obligation
Basic Services (Universal Services)
・ Prior notification /publication of tariff
・ Ministerial order to change (As above)
・ Accounting separation
・ Service obligation
Oth-ers
・ No regulation ・ *Others
・ No regulation ・ *Category Designated ⅡFacilities
Spe-cific Ser-
vices
Desig-
nated
Servi-ces
Cate-goryⅠDesig-
nated Facil-
ities
・ Prior notification /publication of tariff
・ Ministerial order to change (As above)
・ Price cap
・ Accounting separation
・ Service obligation
・ No regulation *
-Obligation to explain conditions of service
-prompt handling of claims
Others
・ Prior notification/publication
・ Ministerial order to
change (Same as
General)
CategoryⅡDesignated Facilities
Others
Spe-cific
Ser-vices
・ Prior notification/publication
・ Ministerial order to
change (Same as
General)
・ Approval by MPHP
・ Price cap (Charges)
Catego-
ryⅠDesig-
nated Facil-
ities
・ Prior notification /publication
・ Ministerial order to
change in following
cases
-Lack of proper and
clear basis for charge
-Unfair discrimination
-Lack of special treatment in
case of emergency
GeneralTypeⅠ
TypeⅡ
・ No regulationGeneral
・ Prior notification/publicationSpecial
Old
*Carriers with rights of way have obligation of service
New
Sept. 5, 2004 ITS2004 H FUKEⒸ 23
Revision of Regulatory Framework (3)Revision of Regulatory Framework (3)-Asymmetric Regulation--Asymmetric Regulation-
Asymmetric Regulation of 2001 maintained
Challenges– Not Reflected the Progress of Competition
and Changes in Industry Structure• POTS (Figure 1)• Cellular (Table 4, Figure 3, Figure 8)• The Internet
Sept. 5, 2004 ITS2004 H FUKEⒸ 24
Table 4Table 4 Cellular Subscribers Cellular Subscribers as of March,2004as of March,2004
Subscribers Share(%)NTTDoComo 45,926,700 56.3KDDI 16,958,800 20.8TUKA 3,631,800 4.5Vodafone 15,002,400 18.4Total 81,519,700
Source: Telecommunications Carriers Association
Sept. 5, 2004 ITS2004 H FUKEⒸ 25
Figure 8 Monthly Net Increase in Cellular Figure 8 Monthly Net Increase in Cellular Subscribers Subscribers
Source: Telecommunications Carriers Association
-100,000
0
100,000
200,000
300,000
400,000
500,000
600,000
700,0004 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7
2002 2003 2004
NTTDoComoKDDIVodafone
Sept. 5, 2004 ITS2004 H FUKEⒸ 26
Revision of Regulatory Framework (4)Revision of Regulatory Framework (4)-Unbundling Obligation-Unbundling Obligation
Unbundling Obligation UnchangedChallenges
– To Reflect Market Evaluation• FTTH (Table 5)
Sept. 5, 2004 ITS2004 H FUKEⒸ 27
Table 5 FTTH Share (March, 2003)Table 5 FTTH Share (March, 2003)
Share(%)NTT-E 36.4NTT-W 28.9U'sCommunications 18.1K-opti.com 10.1Others 6.5Source: MPHPT[2004]
Sept. 5, 2004 ITS2004 H FUKEⒸ 28
Revision of Regulatory Framework (5)Revision of Regulatory Framework (5)-Development of the Internet--Development of the Internet-
Restriction on NTT Local Companies’ Business Area (Intra-Prefecture Services) Maintained
Regulatory Framework Based on Media Maintained
Challenges– To Respond to Market Conditions– To Accommodate the Change to Layered
Structure
Sept. 5, 2004 ITS2004 H FUKEⒸ 29
ConclusionsConclusions
‘Market Failure’ Due to the Existence of Carriers with SMP Become Limited– Market Structure Be Analyzed in the Light of Structural
Changes ‘Market Failure’ Due to Asymmetry in Information
Still Important Proposals
– To Establish Technological Neutrality in Physical Layer Network Competition
– To Accommodate Changes in Network Service Layer from Public Utility to Commodity
– Consistency in Content Layer Regulation– Inter-Layer View Point in Market Evaluation (Figure 9)
Sept. 5, 2004 ITS2004 H FUKEⒸ 30
Figure 9 Layered Market Structure Figure 9 Layered Market Structure in the Broadband Internetin the Broadband Internet
Content
NetworkService
PhysicalNetwork
NTT
Local
ISPs
NTTCom
Softbank
Jupiter(Cable)
NHK(Broad-Casting)
NTTDoCoMo
U’sCom
(FTTH)
ContentProvid-
ers
ContentProvid-
ers