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Managing Structural Changes in Telecommunications ITS 15 th Biennial Conference Hidenori FUKE Kansai University, Japan.

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Presentation on theme: "Managing Structural Changes in Telecommunications ITS 15 th Biennial Conference Hidenori FUKE Kansai University, Japan."— Presentation transcript:

1 Managing Structural Changes in Telecommunications ITS 15 th Biennial Conference Hidenori FUKE Kansai University, Japan

2 Sept. 5, 2004 ITS2004 Ⓒ H FUKE 2 Discussions 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

3 Sept. 5, 2004 ITS2004 Ⓒ H FUKE 3 Outline of Presentation Privatisation of NTT and Introduction of Competition in 1985 Competition And Regulatory Policy Development of Competition and Revision of TBL and NTT Law Structural Changes in Telecommunications Revision of Regulatory Framework Conclusions

4 Sept. 5, 2004 ITS2004 Ⓒ H FUKE 4 Privatisation of NTT and Introduction of Competition in 1985 Total Liberalisation of Telecommunications Market in 1985 –Telecommunications Business Law (TBL) –Nippon Telegraph & Telephone Corporation Law (NTT Law)

5 Sept. 5, 2004 ITS2004 Ⓒ H FUKE 5 Competition And Regulatory Policy (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

6 Sept. 5, 2004 ITS2004 Ⓒ H FUKE 6 Table 1 Type 1 & Type 2 Carriers TypeDefinitionEntryExitPrice/ Service Type 1Own Telecommunicatio ns Circuit Facilities Permission Approval Type2SpecialLease Telecommunicatio ns Circuit Facilities (Big) Registratio n Notificatio n (Ex Post) Notificatio n (Ex Ante) Genera l Lease Telecommunicatio ns Circuit Facilities ( Small ) Notificatio n (Ex Post) No Regulation

7 Sept. 5, 2004 ITS2004 Ⓒ H FUKE 7 Competition And Regulatory Policy (2) Lack of Interconnection Rules –Ambivalence between ‘Conduct Regulation’ or ‘Structural Separation’ –Persistent Discussions on NTT Divestiture Patchwork-like Revisions of TBL

8 Sept. 5, 2004 ITS2004 Ⓒ H FUKE 8 Development of Competition and 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)

9 Sept. 5, 2004 ITS2004 Ⓒ H FUKE 9 Development of Competition and 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

10 Sept. 5, 2004 ITS2004 Ⓒ H FUKE 10 Table 2 Asymmetric Regulation : 2001 DominantNon-Dominant Fixed LineMobile ServiceChargesPrice CapNotification TariffApprovalNotification InterconnectionApproval and Publication of Interconnection Tariff Notification and Publication of Interconnection Tariff Notification of Interconnection Agreement Fair CompetitionFire-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 )

11 Sept. 5, 2004 ITS2004 Ⓒ H FUKE 11 Structural Changes in Telecommunications 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

12 Sept. 5, 2004 ITS2004 Ⓒ H FUKE 12 Figure 1 Share in Carrier Pre-selection (As of March,2004) Source: My-line (Carrier Pre-selection) Carriers Association

13 Sept. 5, 2004 ITS2004 Ⓒ H FUKE 13 Figure 2 Growth of Cellular Market Source: MPHPT and InfoCom Research, Inc.

14 Sept. 5, 2004 ITS2004 Ⓒ H FUKE 14 Figure 3-1 Growth of Internet Use Source: MPHPT

15 Sept. 5, 2004 ITS2004 Ⓒ H FUKE 15 Figure 3-2 Growth of Broadband Source: MPHPT

16 Sept. 5, 2004 ITS2004 Ⓒ H FUKE 16 Figure 4 3G Cellular in Japan Source: Telecommunications Carriers Association

17 Sept. 5, 2004 ITS2004 Ⓒ H FUKE 17 Figure 5 Revenue from Local Calls

18 Sept. 5, 2004 ITS2004 Ⓒ H FUKE 18 Figure 6 Revenue from Long- Distance Calls

19 Sept. 5, 2004 ITS2004 Ⓒ H FUKE 19 Figure 7 From Vertical Integration to a Layered Structure Internet Era IP Network Copper Cable Optical Fibre CA TV Wire- less Data Moving Picture POTS Era Content Network Service Physical Network Data Voice Data Net- work Cel- lu- lar Voice POTSPOTS Telecommuni- cations CATVCATV TVTV Pro- gramme Pro- gramme CATV Broad- casting Voice POTSPOTS

20 Sept. 5, 2004 ITS2004 Ⓒ H FUKE 20 Revision of Regulatory Framework (1) -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

21 Sept. 5, 2004 ITS2004 Ⓒ H FUKE 21 Revision of Regulatory Framework (2) -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

22 Sept. 5, 2004 ITS2004 Ⓒ H FUKE 22 Table 3 Tariff and Other Terms & Conditions : 2003 ・ 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 Ⅱ Designated Facilities Spe- cific Ser- vices Desig- nated Servi- ces Cate- gory Ⅰ Desig- 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) Category Ⅱ Designated Facilities Other s Spe- cific Ser- vices ・ Prior notification/publication ・ Ministerial order to change (Same as General) ・ Approval by MPHP ・ Price cap (Charges) Catego- ry Ⅰ Desig- 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 GeneralType Ⅰ Type Ⅱ ・ No regulation General ・ Prior notification/publication Special Old *Carriers with rights of way have obligation of service New

23 Sept. 5, 2004 ITS2004 Ⓒ H FUKE 23 Revision of Regulatory Framework (3) -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

24 Sept. 5, 2004 ITS2004 Ⓒ H FUKE 24 Table 4 Cellular Subscribers as of March,2004 Source: Telecommunications Carriers Association

25 Sept. 5, 2004 ITS2004 Ⓒ H FUKE 25 Figure 8 Monthly Net Increase in Cellular Subscribers Source: Telecommunications Carriers Association

26 Sept. 5, 2004 ITS2004 Ⓒ H FUKE 26 Revision of Regulatory Framework (4) -Unbundling Obligation Unbundling Obligation Unchanged Challenges –To Reflect Market Evaluation FTTH (Table 5)

27 Sept. 5, 2004 ITS2004 Ⓒ H FUKE 27 Table 5 FTTH Share (March, 2003)

28 Sept. 5, 2004 ITS2004 Ⓒ H FUKE 28 Revision of Regulatory Framework (5) -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

29 Sept. 5, 2004 ITS2004 Ⓒ H FUKE 29 Conclusions ‘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)

30 Sept. 5, 2004 ITS2004 Ⓒ H FUKE 30 Figure 9 Layered Market Structure in the Broadband Internet Content Network Service Physical Network NTT Local ISPs NTTCom Softbank Jupiter (Cable) NHK (Broad- Casting) NTT DoCoMo U’s Com (FTTH) Content Provid- ers Content Provid- ers


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