1. Copyright © 2007 Jiro Tamura. All rights reserved. 1 Japanese Telecommunication Industry - Competition Policy and Enforcement - Jiro Tamura Keio University Tokyo Japan

2. Copyright © 2007 Jiro Tamura. All rights reserved. 2 Promotion of Deregulation The existence of a Market Dominant Firm ※ Bottleneck facilities: A facility that other firms must be dependant on due to the essentialness and the lack of alternative facilities A situation where dependence on another firm is inevitable Rapid technological innovation and change in market Current State of the Telecommunications Business Field Regulation by Cooperation of FTC and MIC [Fair Trade Commission] Elimination of anticompetitive conduct described in Antimonopoly Law [Ministry of Internal Affairs and Communications] Regulate to achieve public welfare /user protection, as described in the Telecommunication Business Law. Direction of Policy 1.Guidelines for Promotion of Competition in the Telecommunications Business Field (November, 2001) Simultaneous enforcement

3. Copyright © 2007 Jiro Tamura. All rights reserved. 3 Market definition is important in MIC policy decisions. (Competition Policy) Introduction of a measurable market definition method ※ Prior to the FTC “Merger Guidelines” (May, 2004) Review and amendment is conducted annually. 2.Competition Assessment (November, 2001) Considerations Market Definition of the Telecommunications Business Field 2006 (April, 2007) FieldMarket DefinitionReason Internet connectionchangeConspicuous market change such as broadband based infrastructure, enhancement of migration(ADSL to FTTH) can be observed Network service for corporations changeConspicuous market change such as new WAN service and penetration of Internet VPN can be observed Fixed telephoneNo changeNo conspicuous market change observed Mobile telecommunications No changeNo conspicuous market change observed

4. Copyright © 2007 Jiro Tamura. All rights reserved. 4 3.Report: The Study Group on a Framework for Competition Rules to Address the Transition to IP based Networks (September 2006 ) The competition rule within the Japanese telecommunications market shifted from ex ante regulation to ex post regulation starting from the enforcement of Amended Telecommunications Business Law of 2004, limiting ex ante regulation to dominant carrier regulation to prevent abuse of market power etc.. Ex ante regulation to ex post regulation Basic views regarding future competition policy Competition environment is changing due to enhancement of IP based infrastructure. ■From intramodel competition to intermodel competition. ■Further enhancement of vertical and horizontal market integration etc. １ ２ ３ Securing appropriate balance between facility based competition and service based competition Protection of user interest and prevention of market power abuse regarding pricing policy Securing the neutrality of the network

5. Copyright © 2007 Jiro Tamura. All rights reserved. 5 Basic views regarding future competition policy １ Securing appropriate balance between facility based competition and service based competition It is necessary to aim for an appropriate balance between facility based competition and service based competition by taking measures such as lifting dominant carrier regulation in situations where abuse of market power due to bottleneck is no longer a concern, and enhance both facility based competition and service based competition. Characteristics of Facility based competition Individual firms establish their own network when entering competition. Characteristics of Service based competition It is necessary to enhance competition by opening the network of bottleneck facility owner dominant firms to rival competitors. *In Japan, NTT East/West still dominates 94% of all subscriber lines, regarding physical layer. 3.Report: The Study Group on a Framework for Competition Rules to Address the Transition to IP based Networks (September 2006 )

6. Copyright © 2007 Jiro Tamura. All rights reserved. 6 2 Protection of user interest and prevention of market power abuse regarding pricing policy Re-examination of Price Cap Regulation (such as ideal basic price index) Guideline regarding improper problems with respect to setting the price etc. 3 Securing the neutrality of the network Opening of the dominant entrepreneur's platform function Examination on the validity of additional price collection regarding distribution of rich contents, etc. 3.Report: The Study Group on a Framework for Competition Rules to Address the Transition to IP based Networks (September 2006 ) Basic views regarding future competition policy

7. Copyright © 2007 Jiro Tamura. All rights reserved. 7 Did not use divergence method and instead was providing service by method of connecting wick line directly. The defendant was providing the service with user price of 4,500 yen/month since April 1, 2003, but the price was lower than the connection price (17,145 yen) that other telecommunication entrepreneur needed for providing FTTH service by connecting the wick line directly to optical fiver. 4.Case: NTT East Japan (March 2007) Permission for facility used and connection price upon providing a new service called `New Family Type` of FTTH service for households and using divergence method. But Case Summary Device in Household （ 32 users at most using one line ） （ One user using one line ） Device in Bureau NTT Device in Household User household Directly connecting the wick line Device in Bureau NTT Divergence method User Household

8. Copyright © 2007 Jiro Tamura. All rights reserved. 8 4.Case: NTT East Japan （ March 2007 ） Action of the defendant is exclusion of business of other entrepreneur who are trying to provide FTTH service to households by connecting to defendant’s optical fiber facility, thus substantially limiting the competition in dealing field of FTTH service for household in the East Japan District. Corresponds to monopoly regulated in Antimonopoly law Article 2.5 and violates Antimonopoly law Article 3. However, no special measures will be ordered to the defendant because the action has already been terminated. Summary of Judgment Was NTT East Japan really trying to exclude other FTTH entrepreneur? Was it not an action based upon the judgment that it is not reasonable cost-wise to use divergence method by setting up the divergence device when there were only few new users at the beginning of the service? Consideration