The 80th Interconnection Committee Meeting Summary of Minutes
[Summary of Agenda Items] Approval of the amendment to the Articles of Agreement Concerning Interconnection (amendments to FY 2005 interconnection charges, etc. based on actual cost methods)
Mr. Sato, committee member: As for I-6-(1) "Revision of shared installation costs for dry copper and other facilities" in the Application Outline, we agree with MIC's viewpoint on the proposed amendment to the Articles of Agreement Concerning Interconnection (i.e., many users have now already paid their share of facility installation costs, so the cost should not be included in the cost of interconnection charges) because it is in line with the direction of the initial discussions. As for I-6-(2) "Revision of calculation methods accompanying the transfer of NTS cost (cost dependent on the number of lines)," am I right in understanding that the total cost is 300 billion yen, and because the cost is to be transferred in 5 years, the transfer would be 60 billion yen for this fiscal year with subsequent transfers of 60 billion yen per year? MIC: That is correct. Mr. Sato, committee member: Is this cost mainly for the feeder RT part? MIC: In addition to the cost you have just mentioned, there are also costs for the subscriber ports for the local switches. Mr. Sato, committee member: Am I right in understanding that these costs would be transferred as-is and allocated to subscriber lines according to the current distribution method? MIC: That is correct. Mr. Sato, committee member: As for the unit labor cost in II-2-(1)-○1 of the Application Outline, it is becoming lower, which is a favorable trend, but I would like to confirm my understanding of the validity of the unit labor cost, so could you show me separately how it is calculated? MIC: Consented. Mr. Sato, committee member: As for stack test, my perception is that this is a concept that is not fully developed, and something we must work on through trial-and-error to make it useful. I would like to ask the Secretary to organize the ideas on this point. I believe this is also a discussion theme for the "Study Group on a Framework for Competition Rules to Address Progress in the Move to IP," so efforts should be made to develop rules concerning stack test. MIC: Consented. Mr. Sato, committee member: For time-lag settlements such as those for colocation costs, when we ask NTT for a scheme, they will answer how much it would cost for system development. I believe it necessary to place accountability on someone regarding these estimates, for example, having the Secretary closely check them, or requesting the opinion of an external party. Mr. Toukai, Committee Chair: Mr. Sato has just pointed out issues on unit labor cost, stack test, and colocation cost, and I agree on all of these points. Mr. Sakai, Deputy Chair: As for the dry copper interconnection charges, am I right in understanding that allocating the advanced depreciation back to cost ultimately means that the ratio of people paying for shared facility installation costs and those not paying is reflected in the cost? MIC: The amount recorded as advanced depreciation is added to the cost of connection to exclude any influence of shared facility installation costs concerning dry copper. It does not necessarily reflect the ratio of the payment for shared facility installation costs. Mr. Sakai, Deputy Chair: Am I right in understanding that the ratio of people who have not paid fell to about 40 percent this fiscal year, and this is why the provisional measure was terminated? MIC: That is correct. Mr. Sakai, Deputy Chair: For the time lag settlements, it was explained that the actual rates for the previous year were more accurate than the forecast for the various rates used in calculating colocation cost. Does this mean that the forecast was not accurate? MIC: If there is a clear trend, forecasted values which take into account the trend for the past few years should be closer to this year's actual figures than the previous year's figures. However, we did not have a clear trend for the various rates, so it was not possible to produce an appropriate forecast using the linear regression method. Mr. Sakai, Deputy Chair: In other words, because the forecasted values based on the trend were not appropriate for use, the actual rates for the previous year were to be used as this year's forecasted values for the time lag settlement, but it turned out that the settlement process incurred more cost than expected, so it was decided that there would be no such settlement. MIC: That is correct. Mr. Sakai, Deputy Chair: Does this mean that if the system development cost of 200 to 400 million yen become lower, there will be time lag settlement? MIC: If the system development cost was not so high, and it could be done within the existing framework, it would have been deemed necessary to have time-lag settlement if there was a difference in interconnection charges, even if the amount of the settlement was only about 200 million yen. Mr. Toukai, Committee Chair: On the issue of time lag settlement, there have been strong opinions that the relationship between the information communications-related costs and charges should be calculated as closely as possible to the applicable year's actual status. More recently, however, there is a movement towards thinking that it would be best not to base calculations on the concept of settlement. This is not only for interconnection charges but also for other public utility charges. The scheme to base calculations on past data to have the payer fully agree on the amount to pay for the next year is becoming more mainstream. The users, including ourselves, are expressing understanding on this matter. Considering this, if it is possible to avoid subsequent settlement, that would be more desirable. I believe it was reasonable that it was decided not to have later settlement, not only from the viewpoint of cost-effectiveness, but also from the viewpoint of how time lag settlement should be considered in the future. Mr. Fujiwara, committee member: Does the 200 million yen mentioned in the explanation of the time lag settlement for fiscal 2004 colocation costs refer to the total cost? MIC: 200 million yen is the time lag settlement amount. The total cost of colocation itself is over 10 billion yen. Mr. Fujiwara, committee member: Are the additionally incurred system costs to be divided proportionately among the carriers? MIC: That is correct. Mr. Fujiwara, committee member: Doesn't the settlement amount of 200 million indicate that there is that much surplus? MIC: That only indicates the difference between the amounts calculated based on the previous year's figures and the actual amount for this fiscal year. It may not always be a surplus, but at times it may be a deficit. Mr. Fujiwara, committee member: If no settlement is made, does that mean that NTT East and West will bear the risk? MIC: Rather than "risk," it is more about results with different revenues, depending on where the calculation for charges is based, and how to consider this point. Mr. Sato, committee member: In this case, I believe it is appropriate not to have time lag settlement. Although there is an amount that can be subject to settlement, if the cost for distributing this amount to the carriers is more than the amount itself, the settlement should not be made. In any case, the settlement issue needs to be reviewed. Mr. Sato, committee member: It was explained that the unit labor cost reflects the improvement in efficiency in both NTT East and West. Does this mean that there were actual improvements in efficiency, and not just the target figures for the "efficiency improvement factor" of NTT East and West? MIC: That is correct. The figure is calculated by multiplying the actual outsourcing rate by the amount of unit cost reduced by outsourcing. Mr. Sato, committee member: Am I right in understanding that there is no positive effect from giving an incentive for efficiency improvement from the outside, such as a target efficiency improvement factor? MIC: That is correct. Mr. Sato, committee member: As for colocation, various issues have been pointed out. Does the MIC still consider colocation an issue? MIC: As you just pointed out, we do. In the opinions submitted for this invitation for public comment, "Viewpoint No. 12" mentions providing information on optical distribution areas, but Softbank/Japan Telecom, which submitted this opinion, sees this as problematic from the viewpoint of having an equal footing among the carriers, NTT East, and NTT West. We believe this is related to the issue of colocation and should be studied in reviewing the interconnection rules. Mr. Sato, committee member: Including what we've just heard, there is an overall movement toward establishing competition rules. Basically, I see no problem with the MIC proposal, but because we should start discussions on the framework of new interconnection rules, we request that the remaining issues at this point and the new issues expected as the move to IP progresses be summarized. Mr. Toukai, Committee Chair: Is this a request for the Interconnection Committee? Mr. Sato, committee member: Yes. Mr. Toukai, Committee Chair: There is currently a discussion underway on a larger perspective including interconnection. How about having this larger framework discussed by the MIC, and the interconnection-specific issues be discussed at the Interconnection Committee? Mr. Sato, committee member: I will leave the specific manner of handling this matter up to you. MIC: As for the review of interconnection rules, we would like you to discuss the matter at the right timing. On that occasion, we will submit an inquiry to the Telecommunications Council with a summary of the issues. Mr. Sakai, Deputy Chair: In Opinion No. 10, I do not understand what it means by "There are so many different types of work involved that in grouping each work into different grades according to the tasks, additional system development costs would be incurred, in which we may expect some difficulty." I would like to request the Secretary to explain this point, maybe later. I also feel that Additional Opinion No. 10, which says, "We deploy a combination of personnel with different experience levels and skills, and do not employ a system where certain personnel with certain experience levels and skills are allotted to certain tasks," may be taken as though the tasks do not need skilled workers, and that workers are paid the same regardless of whether they are highly skilled or not, which may imply that their operations are carried out in an inefficient manner. I feel that something is not right about these two points. Mr. Toukai, Committee Chair: I feel the same way about Additional Opinion No.10. Whether basing unit labor cost on NTT's current situation is appropriate or whether it is appropriate to set a standard unit labor cost remains as an issue. Mr. Sato, committee member: I also feel the same about this point. In a previous survey on unit labor costs, I remember that the costs were calculated through a complicated process, using a standard payment, excluding those of the executive management, which means that the costs were calculated without taking into consideration the actual type of workers involved in the task. I believe it would be necessary to understand the actual situation or unit labor cost before going further. Mr. Toukai, Committee Chair: I agree. I request that the MIC recognize this point as an issue. MIC: Consented. Mr. Toukai, Committee Chair: In this amendment, the biggest decision concerns the dry copper interconnection charges; to terminate the special measure of adjusting the charges and to calculate charges according to the Rules for Interconnection Charges. This is based on the fact that, as indicated in the Application Outline, the percentage of users who have paid the shared facility installation costs is now 58 percent. NTT East and NTT West, however, assert that this is a figure that still requires adjustment. The survey is basically based on NTT's usage trend survey. I would like to ask the Secretary to explain what their judgment is on this figure of 58 percent. MIC: As Mr. Toukai pointed out, this survey was conducted by NTT East and NTT West themselves, so concerning the validity of the figures, because the survey was conducted by one of the parties concerned themselves, we can presume that other parties concerned may come up with higher figures. To put it the other way around, it would not be too far-fetched for NTT East and NTT West to have incentives to estimate figures that are as low as possible, but, despite this, the figure is high, at 58 percent. As for this issue, in last year's report on the recalculation on interconnection charges, it was requested that whether or not to make adjustments should be decided on the basis of whether the shift to dry copper was apparent or not. Considering this point, we have judged that the shift to dry copper was sufficiently apparent. Mr. Toukai, Committee Chair: In the draft report, the issue of public payphones in (1) of the requested items is included in Viewpoint No. 7. The Interconnection Committee made a decision two years ago that NTS cost should be excluded from the cost of interconnection charges. However, I do not remember establishing a viewpoint of adding NTS cost for public payphones to the cost of interconnection charges for public payphones. Could you explain this point? MIC: As was just pointed out, the handling of public payphones and NTS costs have not been clarified in the past. In making decisions on the approval of Article 3, we thought it appropriate to approve it from the viewpoint of maintaining consistency with excluding NTS cost in the Application Outline. Because this was expected to occur every year, we have included it as a fixed item. Mr. Toukai, Committee Chair: The Telecommunications Business Division has just decided the framework for the Universal Service Fund, and as for public payphones, an agreement was reached on bearing the losses. In this respect, I believe the self-sustainability of public payphones will become a major future issue. To have the draft report say with certainty that it would be "continuously added to the costs for interconnection charges" is not appropriate, even from the standpoint of the entire Telecommunications Business Division. I agree that it should be included as a request, but the expression should be revised. MIC: For example, how about changing the expression to "As for public payphone interconnection charges, because how NTS cost is handled concerns future matters, it would be appropriate for the MIC to organize related concepts regarding this point." Mr. Toukai, Committee Chair: I believe that is sufficient. How about the other committee members? (No comments in particular) Then, I would like to ask for a revision as just indicated. MIC: We will make the revision. Mr. Toukai, Committee Chair: As for the actual cost method, cost of capital and tax cost is added. What is the basis of this data? MIC: We calculate the cost of equity based on the Rules for Interconnection Charges, taking into account such data as market data. Mr. Toukai, Committee Chair: Since around 2000, for the past several years, the accounting standards are experiencing significant change. The understanding of Shareholders' Equity is still undergoing change. For example, gains from stock sales are not simply included in the calculation of profit and loss, but may be counted as increase or decrease in equity capital, or are included in the accounting for impaired assets. I believe there has been no review for the past several years on whether the methods to gather data, or whether the way in which data is perceived is appropriate, or as the accounting standards themselves become more stringent and the tax system revised, whether this method of collecting data and simply applying the data to the calculation of cost of equity, cost of debt, and tax cost is appropriate. It is not necessary to reach a decision on this point today, but I would like to keep this on our agenda as a future issue. Mr. Fujiwara, committee member: I would like to ask Professor Toukai about the handling of bad debt as mentioned in Opinion No.8. Are there no problems, in terms of accounting, to include such bad-debt expenses in the cost of interconnection charges? Mr. Toukai, Committee Chair: This is a very difficult problem. Normally, bad-debt expenses should not be included in the cost of manufacturing, but in reality, the past few years were very difficult in that there was a real threat of carriers failing. I assume you are asking this question because there are real losses from bad debt increasing in recent years. However, in terms of accounting, it has become very difficult to set up bad debt allowances. For cases where bad debt seems possible or imminent, the bad debt allowance is included in the profit and loss statement. This results in changes in the profit. It would therefore be appropriate to consider what kind of judgment should be made regarding the calculations for the cost of equity, tax cost, or operational costs. Mr. Fujiwara, committee member: Is this bad debt expense a real figure or a forecasted figure? MIC: At this point, for the incoming lines of optical fiber networks, loss from bad debt is expected, based on the report of two years ago. The calculation is done by determining the ratio of bad debt that occurred in the past three years, and multiplying the cost by this figure. Mr. Toukai, Committee Chair: Was it approved as a very special case? MIC: Yes. Mr. Toukai, Committee Chair: For this meeting, I will report to the Telecommunications Business Division that, in the draft report, it would be appropriate to approve the two conditions for approval as they are, and the two requests, after revising (1). |