Regulatory Developments The past years have seen great change in the Japanese telecommunications market with rapid technological and market development, including the explosion of broadband services and IP-based telephony, and successive regulatory reforms. The EBC had high hopes that liberalisation would lead to greater transparency and fairer competition. In 2001, the Diet passed legislation reforming the Telecommunications Business Law (TBL). This introduced the dominant carrier concept and addressed anti-competitive conduct, structural and accounting separation, and the establishment of a dispute resolution commission. In 2002, further revisions were announced, including the elimination of licensing categories based on the ownership of facilities and the elimination of the requirement for carriers to file tariffs. However, while welcoming the reduction in the regulatory burden, the EBC raised concerns that the new laws and their implementing ordinances would not sufficiently regulate the market power enjoyed by the NTT Group companies and could actually facilitate NTT leveraging its dominant position into new business areas. The EBC therefore found it necessary to press for the strengthening of competitive safeguards against the abuse of dominance. Despite these changes in the Japanese market over the past five years, interconnection fees have remained stubbornly high compared to other OECD countries and were the subject of an unprecedented court case brought against the regulator by a group of Japanese and foreign carriers when further fee increases were announced. Benefits of the decision to exclude Non Traffic Sensitive (NTS) costs from the fixed interconnection charge were undermined by the very long phase-out period (five years) granted to NTT and the creation of a Universal Service Fund, which will simply allow NTT to recover NTS costs by another route. Meanwhile, the Government's spectrum allocation policy for the 1.7 GHz and 2.0 GHz spectra bears the potential for further concentration of the 3G spectrum in the hands of the dominant mobile operator, although limited spectrum was allocated to new entry carriers in 2006. The use of current subscriber numbers as the main factor by which growth needs are determined risks causing considerable damage to the competitive environment in Japan. The allocation policy has been a major factor in the EBC's continuing call for fundamental reform of the institutional structure of Japan's telecommunications regulatory environment, including full privatisation of NTT and the establishment of a regulator independent of the Government and commercial interests. Prospects for EU-Japan Economic Integration The global economy is increasingly dependent on access to well functioning networks. The fee structure for connectivity is a crucial element for the success of many businesses. Whilst Japan developed one of the most sophisticated information infrastructures in the world, it remains one of the most regulated telecommunications markets. In most markets, operators in Japan can do very little without first consulting and obtaining the formal or informal approval of the regulator. Regulatory supervision and control extends to almost every aspect of business. This restrictive business environment has been a major factor in the decisions of European carriers to withdraw from Japan. In order to recreate confidence in the market, the EBC urges the Government of Japan to implement measures that guarantee transparent costs, ensure that charges to competitors are cost-based, and monitor anti-competitive behaviour in relation to the price and non-price terms of supply. Priorities
Key Issues and Recommendations ■ Strengthening the competitive safeguard Yearly status report: limited progress. The existing regulatory framework is not sufficiently effective in preventing anti-competitive behaviour by the dominant carrier. In many ways, revisions to the Telecommunication Business Law in 2003 have made the situation even worse. The EBC urges the Ministry of Internal Affairs and Communications (MIC) to strengthen the establishment of effective process and procedure to ensure effective competition. This is particularly important in new market segments. Current developments suggest that voice, data and video applications will merge together into multiple applications within the same IP network in the near future. In such an environment, with both vertical and horizontal service providers on the market, it is crucial that policies are put in place to ensure fair and transparent access to IP networks. Such a policy prescribes that current competitive imbalances will not be carried over to the next generation telecom service market. Recommendation:
■ Interconnection charge and Universal Service Yearly status report: limited progress. A new formula in which all subscribers to telecom services contribute a set monthly amount to establish a Universal Service Fund has been implemented without the dominant carrier being forced to establish costs imposed on them for maintaining the network. The EBC welcomes plans to suspend the universal fund freeing NTT from its universal service obligation by establishing a tax-financed scheme providing IP telephony and other voice services also to rural areas. The interconnection charge will remain a key area, especially for the IP network, known as NGN. Interconnection charges remain unreasonably high. Recommendation:
■ Institutional reform Yearly status report: limited progress. It is inappropriate for the Government to act as both regulator and shareholder. The MIC has wide-ranging statutory powers of intervention and control in the Japanese telecommunications sector. The absence of a clear separation between the Government as both owner and regulator introduces a high degree of uncertainty and unpredictability into the regulatory process. Most other countries have independent regulators who are obliged to promote only the long-term interest of consumers and a competitive market environment. Accountability could also be improved by strengthening the public consultation process. At present, important policy decisions are usually made before the public is given a fair chance to comment. Recommendation:
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