Telecommunications

August 2007

Cellular Service Leaders Meet On Industry Hot Topics
The top executives of five leading mobile communication service providers -- NTT DoCoMo Inc., KDDI Corp., Softbank Mobile Corp., Willcom Inc. and Emobile Ltd. -- met Wednesday to discuss problems and other issues facing the industry as well as review a draft report compiled by the government in late June. In its report, the Communications Ministry suggests that these firms review some of their business models. Specifically, it calls for a review of the common practice among cellular service providers to pay retailers incentives of about 40,000 yen per phone so that retailers can sell them for as little as 1 yen, and pass along all costs, including such incentives, to consumers in the form of access charges. The report is critical of this model, claiming that it is not well understood by subscribers and unfair to people who do not frequently change phones. It instead recommends that the industry test a new business model separating phone prices from access charges in 2008, then officially introduce it in 2010. Regarding the suggested review of business models, Softbank President Masayoshi Son said, "It's something all of us think hard about, but it's not a proper topic for discussion at meetings such as this." DoCoMo President Masao Nakamura and KDDI President Tadashi Onodera echoed Son's view. Although they acknowledged that problems exist with the current model, the executives opposed a ministry-led review of their business practices. "Increased transparency is needed (for the incentive program)," said Onodera, but if the incentives go, "demand could cool off." As an alternative to the incentive program, Softbank has offered an installment plan for phone purchases, with Willcom following suit in July. DoCoMo and KDDI are reportedly considering linking phone prices to contract lengths as well as introducing installment plans. The group also discussed the ministry recommendation that cellular service providers become operators of mobile virtual networks and lease access to industry newcomers. "With the exception of the dominant firms (DoCoMo and KDDI), that decision should be up to each company," Son said. But some participants argued, "Softbank is also a dominant company, isn't it?" Emobile, which began offering data communication services in the spring, raised a new issue, pointing out that high interconnection rates among operators are making Japan's retail communication charges much higher than those abroad. However, Nakamura rebutted this claim, saying: "The cellular networks have been built by each firm from scratch. Current interconnection rates are the result of competition." Emobile President Eric Gan emphasized the need for a system for sharing ground station equipment, towers and the like so that newcomers can compete. Son agreed, mentioning South Korea's tower-sharing system. However, DoCoMo and KDDI expressed reluctance about the idea. Son proposed encouraging competition by allowing mobile subscribers to maintain their e-mail addresses in the same way they can with their phone numbers, regardless of which service provider they employ. The ministry will complete the report by mid-September, touching on the new issues discussed in the meeting. (The Nikkei Business Daily, August 30, 2007)

Japan Communications In Talks To Use KDDI's Mobile Network
Japan Communications Inc. is negotiating to get permission to use KDDI Corp.'s cellular phone network to offer its own wireless service. Specifically, Japan Communications is proposing interconnections, in which the two firms will connect via each other's lines. Japan Communications has already made a similar request to NTT DoCoMo Inc., but their talks came to a deadlock as the two sides could not agree on proposed terms of use. Laast month Japan Communications asked the communications minister to intervene on its behalf, given that the Telecommunications Business Law bars telecom providers from rejecting other firms' requests for interconnections without legitimate reason. KDDI says it will "consider the matter based on the principles of the connection obligations," according to a company official. Japan Communications is a mobile virtual network operator, providing data communications services through lines leased from Willcom Inc. To expand its operations, it is seeking to use the networks of both DoCoMo and KDDI because the two leading firms have different mobile communication formats. (The Nihon Keizai Shimbun, August 29, 2007)

Tokyo's Cell Phone Fees 3rd Highest Among 7 World Cities
Tokyo has the third most expensive mobile phone communication fees among seven major global cities after London and Paris, according to a survey released Tuesday by the Ministry of Communications. The equivalent of one minute of cell phone communication cost 39 yen in Tokyo, less than the 48 yen in London and 41 yen in Paris. The figures, however, were sharply higher than the mere 12 yen in New York and 19 yen in Seoul. The survey used rates as of March 31. The Ministry concluded that the sales promotions under which companies offer handsets for as little as 1 yen but then recoup the losses through call charges are the reason behind the high rates. As a result, it will encourage service providers to take corrective action. (The Nihon Keizai Shimbun, August 28, 2007)

Govt To End Cost-Sharing Regime For NTT Fixed-Line Service
The Communications Ministry plans to abolish in 2009 a cost-sharing framework designed to provide universal fixed-line phone service to rural areas and other parts of the country, The Nikkei learned Friday. The two regional units of Nippon Telegraph and Telephone Corp. are required to offer fixed-line phone service across Japan, including rural areas and remote islands, even if doing so means losing money. To help NTT make up for these associated losses, the government introduced in 2002 a framework under which other telecommunications service providers share the costs. NTT's fixed-line losses have widened as more consumers have switched to mobile phones. As a result, KDDI Corp., Softbank Corp., NTT DoCoMo Inc. and other carriers have started passing on the costs to consumers and now charge 7 yen a month per phone line. Consumer groups have complained that NTT, and not consumers, should bear the costs itself. The ministry will urge carriers to strive to make Internet Protocol telephony and other types of service available in rural areas in place of NTT's fixed-line service. (The Nihon Keizai Shimbun, August 11, 2007)