Telecommunications

January 2003

The government will raise the interconnection fees paid by new carriers to access the networks of Nippon Telegraph and Telephone Corp. (NTT) by about 5% in fiscal 2003. The hike, which would mark a reversal from the continued cuts since fiscal 1994, makes it all but certain that new entrants in phone services will be forced to raise their communications charges. The Telecommunications Ministry has concluded that per use interconnection fees must be increased to offset the recent declines in conventional fixed-line telephone communications volume amid the growing popularity of cellular phones and ADSL (asymmetric digital subscriber line) service. With the authority to determine the fees, the Ministry will raise them by about 5% in fiscal 2003 and fiscal 2004 and allow additional hikes should communications volume drop sharply. Last September, the government's Telecommunications Council crafted a report calling for NTT to streamline its operations and reduce the access fees by 8-16%. The interconnection fees are determined by dividing the amount of capital outlays, invested in such equipment as telephone lines and switching boards, by communications volume. Communications volume has been falling 9-17% on the year since the second half of 2001 due to the rise in usage of cell phones and ADSL services. This has made it impossible for NTT to cut the access fees as proposed by the government panel's report, which was compiled based on communications volume for the first half of fiscal 2001. The Telecommunications Ministry now plans a roughly 5% hike in the interconnection fees for the next two fiscal years, based on the communications volume for the second half of fiscal 2001 and the first half of fiscal 2002. Such fees, which vary depending on connection method, will be changed from the current range of 4.5- 4.78 yen per three minutes to a range of 4.4- 5.4 yen, with a weighted average increase of about 5%. Expecting a further decline in communications volume, the ministry plans to review interconnection fees once figures for communications volume for fiscal 2003 and fiscal 2004 are obtained. According to calculations by the ministry, communications volume at the two NTT regional units in fiscal 2004 could drop to less than one-third of the fiscal 2001 level. In this case, the interconnection fees will be raised by almost 20% to a range of 5.1- 5.9 yen. The planned hike is seen as sure to hurt the finances of new telecom carriers. It is likely that they will pass the hike on to users and raise their phone charges by up to 1 yen per three minutes. The fee increase will also likely face strong opposition from the U.S., which in bilateral talks last year blamed Japan's high access fees, more than twice those in the U.S., for blocking American telecom firms from entering the Japanese market. But Washington has since softened its stance due to the bursting of the information technology bubble and the diminishing attractiveness of Japan's telecom market. (January 21, the Nihon Keizai Shimbun)

Nippon Telegraph & Telephone Corp. (NTT) plans to employ a wavelength division multiplexing (WDM) technology scheduled for this autumn, as the nation's fastest broadband service, offering up to 500 TV programs. Current coaxial cable will suffice to receive the service, under which a single optical fiber as thin as a human hair will deliver up to 500 TV programs. Sky Perfect Communications Inc. has decided to use the service to air its programming and Japan Broadcasting Corp. (NHK) is expected to follow suit. WDM transmits TV and broadband data at different wavelengths. NTT began development work on the service in 2001 and has been testing it at condominiums in Tokyo since March last year. It can transmit 500 channels of conventional TV programming, or 100 channels in case of high-definition TV, besides delivering broadband service with throughput of 1 megabit per second. NTT intends to charge fees for using its fiber-optic networks. Sky Perfect is due to begin using the service in fiscal 2003. The company currently offers a total of 300 channels using two satellites, but residents of condos with a communal antenna and coaxial cable can now watch only about 30-40 channels due to the cable's limited capacity. Sky Perfect aims to have condominiums run optical fiber through existing cable, hoping that an increase in channels will help attract new subscribers. The company also intends to use NTT's service in areas that are not covered by its satellite broadcasts. Since only one optical fiber will be needed to be inserted into existing coaxial cable, it will cost at most only a few dozen yen a month extra to use the new service. NTT expects revenues from its fixed-line phone service to decline by some 1 trillion yen in fiscal 2007. In order to offset this, the telecom giant is striving to raise income from its broadband business to 700-800 billion yen by that year. NTT estimates that revenues from broadband will exceed 1 trillion yen annually if the new service is adopted by more broadcast firms. (January 1, the Nihon Keizai Shimbun)