Final Report on Desirable Pro-Competitive Policies in the Telecommunications Business Field for Promoting the IT Revolution

On August 7, 2002, MPHPT received the Final Report on "Desirable Pro-Competitive Policies in the Telecommunications Business Field for Promoting the IT Revolution (Inquiry No. 29 of 2000)" from the Telecommunications Council.

Outline of the Final Report on Desirable Pro-Competitive Policies in the Telecommunications Business Field for Promoting the IT Revolution

Chapter 1. Basic Concept Concerning Desirable Pro-Competitive Policies in the Future

1. Current Market Trends in the Telecommunications Business Field

(1) Taking into account remarkable technological innovations in the info-communications field in recent years, the stream of broadband has been accelerating as exemplified by the shift from conventional networks tailored for each service toward high-speed, large-capacity access networks (always available) commonly based on Internet Protocols.
(2) In specific terms, a sharp rise in the number of subscribers to DSL services (34-fold increase over one year); new entries into the fiber-optic access services by new carriers, including power utility companies (themselves); and many new entries of IP telephony providers.
(3) In addition, with respect to the mobile communications field, the launch of the third-generation (3G) mobile telecommunications system; PHS service which provides flat-rate data communications service, new services through wireless LANs and so on.
(4) Along with the development of IP and broadband, the vertical-integration business model, etc. covering multiple business fields has emerged. Moreover, in business domains on the fringe of the telecommunications services, new business such as CDN (Content Delivery Network) and iDC (internet Data Center) are already about to be diffused.
(5) It is necessary to investigate, from the point of view of maximizing user benefit, the desirable pro-competitive environment, flexibly matching such environmental changes as the development of IP, broadband and so on.

2. Trends in New Pro-competitive Policies in Major Countries

(1) In the U.S., as to the pro-competitive policies in the broadband age the Federal Communications Commission (FCC) has been considering whether to maintain pro-competitive policies through the market mechanism or to switch to a policy that places priority on encouraging industry. FCC recognizes that the broadband service market needs to be defined and an assessment made as to whether or not incumbent local exchange carriers (ILECs) have the significant market power in that market. Careful monitoring of these deliberations is required.
(2) In April, 2002, the EU adopted the New Directive (2002/21/EC) on a Common Regulatory Framework for electronic communications networks and services within the EU territories (by July 24, 2003, all Member States of the EU must adopt national legislation implementing those new Directives). Under the Directive, in order to minimize the regulatory levels, definition of markets, including the broadband market, are given priority, so as to clarify applicable regulatory frameworks.

3. Basic Concept Concerning Desirable Pro-competitive Policies in the Future

(1) Firstly, it is important to further promote new entries into the market and to ensure that a fair and competitive environment is in place. Specifically, it is necessary to open the bottleneck facilities further and to stimulate both facilities competition and service competition through promotion of aggressive new entries.
(2) Secondly, it is essential to bolster consumer protection through administration procedures. In other words, it is vital not only to maximize user benefits by promoting competition, but also to promptly formulate specific measures to create an environment wherein users can independently make a reasonable choice from diversified and complicated services.
(3) Thirdly, it is necessary to examine measures that need to be taken to introduce new pro-competitive frameworks to suit the IP age. It is essential to conduct fundamental reviews on the competitive framework itself including the business categorization, considering the fact that the network and market structures have been changing along with the development of IP and broadband, and that the present business categorization does not necessarily mesh with the reality of competition among carriers.

Chapter 2. Active Implementation of Pro-Competitive Policies

1. Promotion of New Entries

(1) It is vital to stimulate competition in both facilities and services through further promotion of new entries and emergence of the diversified "competitive axis."
(2) In order to stimulate the facilities-based competition by promoting new entries, it is necessary to prepare an environment tailored to further diversification of local loops and trunk networks regardless of wired/wireless or fixed/mobile networks. In addition, it is vital to promote service competition by opening functions of access networks, etc.

2. Promotion of Pro-competitive Policies to Open up Networks

2-1. Resale for PSTN
(1) To identify and organize such items as: subject resale services; matters pertaining to contracts; necessary activities for a resale carrier; opening of the operation support system (OSS) enabling necessary activities for the resale carrier; and major prerequisites for the system development.
(2) Based on the abovementioned organization, the result of NTT East/NTT West's pro forma calculation of the costs pertaining to the system development is about 84 billion yen. However, the estimates of the development cost in various cases, e.g., under certain conditions excluding the MYLINE (dialing parity) function, the NTT East/NTT West's estimates are about 40 billion yen. The time period necessary to develop the system is 2 to 3 years.
(3) The discount rate ranges from 17.6% to 27.0% according to the estimate wherein the sales cost that is not included in the resale cost is excluded from the total cost. In practice, however, the costs pertaining to the system development/operation are to be added the estimate.
(4) Thus, carriers who wish to start the resale business shall request NTT East and NTT West for the resale based on their own business judgment by taking into account the abovementioned factors, and shall negotiate with the parties concerned. When NTT East or NTT West declines to participate in the negotiation, the carriers may request the administration to issue an order to start such negotiations. In this case, the administration shall make a decision by taking into account the merits of the resale for PSTN and the rapid changes in the environment surrounding telephone services.

2-2. Relationship between Interconnection Charges and User Charges
(1) In order to make the interconnection charges more reasonable, it is appropriate to examine the relationship between the interconnection charges and user charges upon authorization for the interconnection charges. The same examination shall be conducted in cases where a competitor, etc. submits complaints or opinions or where the relationship between interconnection charges and user charges is deemed to be unreasonable after notification of user charges is received.
(2) Internet-related services, in particular, DSL services, etc. shall be appropriate as a subject for the examination.
(3) When the relationship between the interconnection charges and the user charges is inappropriate, it shall be deemed adequate to reduce the interconnection charges in principle. In addition, upon examination, the current status of the price competition in the market and trends in the market shares of NTT East and NTT West shall be taken into account.

2-3. Access to OSS
(1) With respect to access to the OSS (Operation Support System), the issues to be discussed in depth are i) an automatic notification system of the conformity confirmation result, ii) automatic notification of names of services not to be shared with DSL services, iii) automatic notification of telephone subscribers' information [i), ii) and iii) above are for DSL services], iv) disclosure of detailed information on the schedule of interoffice transmission optical line facilities construction, v) disclosure of information on the number of interoffice transmission optical line facilities unable to be interconnected, vi) disclosure of information on a specific plan such as floor expansion of buildings [iv), v) and vi) above are for interoffice transmission optical line facilities], vii) disclosure of information on the approximate period required for interconnection, viii) disclosure of information on the different route, and ix) disclosure of information on the arrangements and progress of the construction work of local optical line facilities [vii), viii) and ix) above are for the local optical line facilities].
(2) The methods of cost sharing among carriers including NTT East and NTT West shall be in accordance with the benefit principle as a general rule.
(3) With respect to the disclosure of telephone subscribers' information and personal information protection, NTT East and NTT West shall stipulate in the tariffs that they may disclose telephone subscribers' information to carriers interconnected, and make said tariffs public. However, in cases where a telephone subscriber clearly stipulates that he or she does not want proprietary information to be disclosed NTT East and NTT West shall ensure that measures are taken to prevent the disclosure of such information.

3. Measures to Deal with Structural Issues

(1) It is important to flexibly deal with changes in the market, monitoring i) the implementation situations of fair competition promotion measures including the preparation of the asymmetrical regulation, etc., ii) the implementation situation and the results of the coming competition rules, iii) whether firewall measures are observed by NTT East and NTT West since reorganization; at the same time, watching the progress in competition in the local telecommunications markets from various aspects.
(2) In addition, with regard to structural-separation pro-competitive policies (structural separation of wholesale/retail units held by NTT East and NTT West), careful deliberations thereon shall be continued, taking into account of the merits/demerits and trends in foreign countries.

Chapter 3. Improvement of Consumer Protection Administration

1. Significance of Consumer Support Measures and Current Status Thereof
(1) In order to maximize consumer benefits through the very significant expansion of service availability for users derived from development of competition in the telecommunications market, consumers are encouraged to make a rational choice by eliminating information asymmetry against telecommunications carriers, at the same time, an appropriate safety net should be prepared that immediately remedies troubles involving consumers.
(2) At present, along with the widespread deployment of advanced and diversified telecommunications services among Japanese people, troubles involving consumers concerning Internet-related services, etc. are increasing. The number of consultations and complaints filed with MPHPT, the National Consumers Affairs Center of Japan and other related organizations is also increasing.
(3) To this end, comprehensive consumer support measures in the telecommunications field shall be strengthened. MPHPT shall i) formulate comprehensive policies for consumer support, ii) introduce and apply necessary institutional frameworks, and iii) make collaborative efforts with the relevant ministries and organizations. Telecommunications carriers shall promote appropriate approaches in establishing a consumer support system and adopt strengthened measures.

2. Specific Measures to Strengthen Consumer Support

(1) One priority that needs to be addressed is the development of capable persons able to help consumers make a rational choice concerning a variety of rapidly changing telecommunications services, and give consumers advice that contributes to solving troubles concerning telecommunications. To this end, MPHPT, telecommunications carriers, etc. shall cooperate with the National Consumers Affairs Center of Japan or local governments to foster expertise for them on telecommunications consultants, etc. who provide counselling for consumers. In addition, in order to promote widespread use of IT by Japanese people, introduction of a system to certify "communications service planners" by the private sector will be useful; thus, a conference consisting of interested parties to deliberate upon the practical system shall be established.
(2) In order to promote the diffusion of information that helps consumers in choosing telecom activities, telecommunications carriers and telecommunications carriers associations shall develop industrial self-regulation guidelines containing items to be informed to consumers of new services that are deemed to have a social impact, in particular best-effort type services. As for MPHPT, there is a need to improve the provision of information to consumers via its website, etc., such as a portal site function to provide a variety of IT information. Furthermore, upon conclusion of a contract pertaining to telecommunications services, appropriate frameworks that ensure explanation of important items, etc. to consumers shall be studied further.
(3) In order to activate consumer counselling procedures, with regard to the submission system of complaints/opinions and dispute-settlement systems as provided for under the Telecommunications Business Law, there is a need to promote effective use of those systems and ensure transparency thereof, such as publication of dispute resolution manuals by MPHPT. It is essential to strengthen collaboration among relevant organizations through establishment of a liaison committee on a regular and on-going basis consisting of MPHPT, the National Consumers Affairs Center of Japan, telecommunications carriers, consumer groups, etc. In addition, there is a need to conduct a study by the government and telecommunications carrier associations on the establishment of a counselling unit to accept complaints and consultations on telecommunications; in this case, step ahead measures such as ADR (alternative dispute resolution: i.e., mediation, arbitration, etc.) functions shall be put in perspective.
(4) Where flexible regulatory frameworks are introduced, with respect to consumer support measures in the telecommunications field, industrial voluntary efforts to support consumers shall be strengthened based on the concept of compliance practice. To this end, industrial self-regulation guidelines shall be developed by telecommunications carriers, in collaboration with telecommunications carriers associations and the administration.

Chapter 4. Direction of New Competition Frameworks

1. Changes in Market Environment and Necessity of Reviewing Competition Frameworks

(1) The present categorization of Type I and Type II telecommunications businesses has been a basic structure of competition frameworks in the telecommunications business field. This categorization based on a clear standard has effectively promoted competition to date.
(2) However, corresponding to the recent changes in market structures and network structures brought about by the development of IP and broadband and the emergence of new business models, the time is ripe to comprehensively review the present competition frameworks.

2. Basic Viewpoints Related to Review of Competition Frameworks

Upon examination of new competition frameworks in the telecommunications business field, the following three points shall be recognized as basic viewpoints:
(1) Lowering the overall level of regulation in order to encourage competition through the emergence of diversified business models, freely combining a variety of networks and services;
(2) Creating systems for supplementing market mechanisms from the viewpoint of ensuring fair competition and protecting consumers (business model neutrality and technological neutrality are necessary); and
(3) Ensuring due process and transparency.

3. Desirable New Competition Frameworks

(1) With regard to desirable new competition frameworks, it is necessary to examine the fundamental regulatory frameworks, such as entry/exit regulations and public utility privilege (namely, rights-of-way; "ROW" hereinafter) directly linked with the entry regulations; at the same time, other existing systems (regulations on services for end users, interconnection rules, ensuring universal service, telecommunications number, technical standards, essential communications, etc.) shall be comprehensively and systematically examined.
(2) Regarding the entry regulations, the present Type I and Type II business categories shall be abolished, and the entry regulations shall be drastically relaxed (abolition of permission system pertaining to Type I business). Further studies including legislation are necessary to fix the entry regulation systems (enabling business entry by registration or notification), considering that measures to ensure fair competition and protection of consumers shall be taken prior to the new entry when necessary.
(3) However, the General Type II business may be started only by notification under the present system. Even under new regulatory frameworks, special treatment shall be given to carriers with a negligible social impact, for example, enabling such carriers to enter only by notification.
(4) As for ROW, in order to facilitate smooth deployment of network infrastructure by telecommunications carriers, it is necessary to remain the system of granting the right. In specific, further studies shall be made on the introduction of a new scheme to grant ROW based on application from carriers after examination of business plans by amending the present systems where ROW is directly linked with the entry regulations, taking into consideration consistency with other laws and regulations.
(5) With respect to market exit regulations, permission for changes of business, and transfer/takeover, merger/break-up, inheritance of business operations, it is appropriate to shift from the present permission/authorization systems to notification systems. However, along with the shift of the market exit regulations to prior notification systems, obligation of prior announcement to users on market exit shall be studied.
(6) With regard to not-for-profit telecommunications business (e.g., run by local public entities, etc.), there is a need to study on imposing minimal regulations such as ensuring of secrecy of communications and conformity with technical standards.

4. Matters to Be Studied in Line with Shift to New Frameworks

(1) In line with abolition of Type I and Type II businesses categories, the entire structure of the Telecommunications Business Law shall be reviewed. In particular, as for services for end users, regulatory frameworks shall in principle be considered separately from networks, so that each carrier can flexibly offer services.
(2) Specifically, it is appropriate that in principle obligation to establish charges/tariffs for providing services shall be lifted and contracts are to be concluded through negotiations between parties concerned. However, from the viewpoint of consumer protection, mechanisms for ensuring sufficient provision of information to users on contract, and issuing orders to improve business activities or to change charges shall be required.
(3) In addition, with regard to dominant carriers with market power, obligations shall be imposed, to establish charges/tariffs of the services where said carriers are assumed to have market power, and to provide said services based on said charges/tariffs. However, contracts pertaining to said services based on negotiations are also to be allowed. Furthermore, in order to open up platform functions such as authentication and charging inseparable from said services, necessary measures shall be studied.
(4) It is necessary to define each appropriate sub-market, taking into consideration features and substitutability of each service in end user service markets, and to evaluate market powers in said sub-market. As for desirable scheme of regular effective competition review (market analysis), a specialist panel shall be established for detailed study. In addition, the regulatory authority shall be empowered with strengthened and improved market monitoring functions.
(5) With respect to interconnection rules, rules focusing on bottleneck facilities indispensable for other carriers to interconnect are still essential. However, the coverage and regulatory measures on designated facilities shall, if necessary, be reviewed based on the progress of competition in the market.
(6) With regard to ensuring of the universal service, assignment of telecommunications numbers, conformity with technical standards, ensuring of essential communications, etc., desirable regulatory frameworks for maintaining and ensuring those schemes shall be studied further. The technical standards shall be reviewed comprehensively, fully taking into account the diffusion of best-effort type services.

Chapter 5. Toward Development of New Pro-Competitive Policies

(1) It is desirable to construct new regulatory frameworks where the present Type I and Type II businesses categories are abolished so that carriers can freely deploy their business and problems in light of fair competition and consumer protection can be immediately eliminated.
(2) To this end, the government shall start i) drafting a necessary bill to amend relevant laws concerning new competition frameworks right away, and ii) studying more concrete measures of effective competition review, new methods for assigning telecommunications numbers, comprehensive review of the technical standards, etc.
(3) It is necessary to improve consumer protection administration as combined policies with pro-competitive policies. Thus, the establishment of a conference concerning a qualification system for supporting consumers, the development of industrial self-regulation guidelines by telecommunications carriers associations, etc. shall be studied without delay.
(4) The highest strategic priority shall be given to the development of the telecommunications market in order to promote Japan's structural reform and improve its international competitiveness. In addition to the radical transformation of the abovementioned pro-competitive policies, there is a need to develop new comprehensive IP policies from multifaceted perspectives including i) promotion of R&D including realization of a ubiquitous environment, ii) promotion of widespread deployment of broadband platforms without uneven distribution, and iii) tie-up and collaboration for enhancing international competitiveness among the government, academia and industry, etc.