(1) An image of the socio-economic aims for Japan

A. Necessary structural reform of Japanese society and the economy Major Turning Point Half Century After the Second World War

1. More than half a century has passed since the end of the Second World War and Japanese society and the economy have reached a major turning point. Up until now, industrialization, namely the mass consumption of goods and energy has taken priority, and the nation has consequently achieved material prosperity. However, the kind of affluence that the general public is seeking has changed. Because of diversifying needs, it has become very difficult for Japan to overcome the issues it faces without changing the conventional socio-economic structures.

   Necessary reforms

2. If Japan maintains its current socio-economic structures, the economy may slip into a downward spiral, as new industries and businesses are not developing to their fullest potential and industry is hollowing out, owing to the globalization of corporate activities. In these circumstances Japan will be unable to continue to play a role in contributing to the world economy.
   Furthermore, it may be difficult to form a new and creative society that will allow its members to give play to their own individual creativity and aim at self-realization.
   Consequently, to overcome the problems that Japan faces today and to create a new economy and society, it is necessary to promote reform across the overall socio-economic structure.

   Reforms that challenge vested interests

3. The remarkable success of Japan in the postwar years has led to a feeling that the present status quo should be maintained at all cost. The sprit of creative experiment and the meeting of challenges seems to be dampened and society as a whole tends to follow vested interests.
   It is a matter of urgency for Japan to put in place reforms that will break up the old order and enable the country to move ahead.

B. The economy and society Japan should aim for

1. The following issues must be addressed if we are to be able to create an economy and society that fulfills the needs of the people:
   1. Improving industrial competitiveness to overcome the hollowing out of industries
   2. Creating employment
   3. Realizing a low-cost structure society
   4. Realizing an open society
   5. Correcting the overconcentration of industries in Tokyo and achieving greater decentralization of government
   6. Making improvements in research and development capability and in software development
   7. Coping with the aging society
   8. Making cultural improvements
   9. Surmounting environmental problems

2. By achieving these goals, Japan can attain:
   1. A low-cost structure and dynamic economy and society, by creating new business frontiers.
   2. A creative economy and society that aims at self-realization, by allowing each individual member of the general public to exercise their own creativity.
   3. An economy and society that can contribute internationally, by stimulating the domestic economy.

(2) Socio-economic reforms and info-communications reforms

1. The relationship between the socio-economic reforms called for in Japan and info-communications may be considered from the following two perspectives.
   First, because of great expectations that the info-communications industry will be a leading industry in the twenty-first century, it is now considered that the way this industry grows will have a significant influence on a nation's socio-economic reforms, for example by affecting economic growth, job creation and the quality of life of the general public.
   Second, since info-communications has a leading role to play in the reforms as the key infrastructure of the economy and society, its role must not in any way be confined to simply maintaining the status quo.

2. The first info-communications revolution occurred internationally with the privatization of national corporations and the introduction of the principle of competition around 1985. Now, some ten years later, the nations of the world are beginning to come to terms with a second info-communications revolution, which is described later.

3. Underling trends in the second info-communications revolution are factors such as: (a) rapid technological innovation, (b) greater use of multimedia, (c) globalization, and (d) increasing sophistication of the needs of users.

4. As already noted, Japan must carry out socio-economic reforms and head towards the creation of a new economy and society. However, it is impossible to bring about such socio-economic reforms without also instituting info-communications reforms. Only by positioning info- communications reforms in relation to overall socio-economic reforms will the significance of info-communications reforms be understood.

What Japan needs to do now is to change the existing socio-economic structures as we approach the 21st century.
The info-communications industry is expected to be a leader in the 21st century, and the second info-communications revolution, following on from the first, which began with the privatization of NTT in 1985, is an indispensable part of this transformation.
The undermentioned two points can be regarded as the basic focus of the second info-communications revolution:

(1) Increasing the benefits of info-communications for the nation and users

The second info-communications revolution must make its major aim the promotion of the interests of nation and users by realizing the reduction of rates and the diversification of services.

(2) Activation of info-communications industry

The second info-communications revolution must bring about cost reductions and diversification of services as a result of a dynamic stimulation of the info-communications industry which supplies services.

(1) Promotion of competition and the interests of the nation and users

1. Generally, a competitive environment promotes the interests of the nation and users by quickly returning the benefits of technological innovation to the consumer, while also reducing prices and bringing about a diversification of services as a result of the competition between companies and the new inventions they are thereby stimulated to create.

2. In the info-communications field as well, although there was a monopoly system in the past, the existing market has recently expanded owing to remarkable technological innovation and the increased sophistication of user needs. Also, as the potential for creating new businesses by integrating different types of businesses increases, such as the convergence of communications and broadcasting, it will become even more obvious that competition is indispensable in the development of this field.

3. Therefore, to create a more sophisticated and lower-cost industry and to improve the lives of the general public through the development of info-communications, competition should be promoted in the future.

4. Furthermore, as described later in 4. (5) World Policy Trends, the promotion of competition in the info-communications field is the current international trend.

(2) The creation of dynamism by multiple competitive entities

1. To gain the full benefits of competition, as described above, it is important to create a dynamic info-communications industry overall by fostering competition among many competitors

2. The potential for creating such dynamism will greatly expand in an environment in which different types of businesses within the info- communications field are integrated.

3. It is therefore necessary for the government to create an environment which will allow corporations to expand their business flexibly and to encourage movement into new areas of business, while also ensuring the establishment of conditions for fair and effective competition.

(3) The forms of competition promoting policies

1. In the past, monopolistic companies have dominated the info- communications field worldwide.
   Policies that promote competition in the info-communications field can be broadly divided into "structural measures" and "non-structural measures," depending on the way in which these monopoly holders are dealt with.

2. "Structural measures" attempt to directly change the structure of the market, namely the management structure of the monopolistic company. The restructuring of AT&T in the US in 1984 falls into this category.
   The term "non-structural measures" refers to measures other than those described above. Namely, the promotion of new entries into the market by new businesses by deregulation and the itemization and disclosure of the accounts of monopolistic companies. These measures also include the issuing of orders or arbitrations related to allowing interconnections with competitors, as well as the regulation to the monopolistic companies such as the establishment of basic rules related to interconnection conditions.

3. Taking into consideration "non-structural measures" (regulating actions) alone, apart from "structural measures" (restructuring), will, as shown in the evaluation of "Measures to be taken in accordance with Article 2 of the Supplementary Provisions of the Nippon Telegraph and Telephone Corporation Law" (so-called "Government Measures") adopted to date (see Chapter Two), restrict the promotion of competition.
   Regulating the actions of monopolistic companies may require a great deal of time and money because it is difficult for the regulator to quickly understand the network costs of monopolistic companies and the way in which internal transactions are conducted (so-called existence of a dissymmetry of information).

4. For example, if we look at the relationship between NTT and the new common carriers (NCCs):
   1. Because the monopolistic local communications division (here "local communications" means general intra-prefectural communications) of NTT is integrated with its competitive long- distance communications division (here "long-distance communications" means general inter-prefectural communications), NTT has no incentive to carry out interconnections with competitive long-distance NCCs under fair conditions. Indeed, some interconnection discussions have run into trouble and are taking a great deal of time to resolve.

      *Note:

      NTT local division and NTT long-distance division networks are connected at the 54 ZCs (Zone Centers) spread throughout Japan. Communications within ZCs are referred to as "general intra-prefectural communication" in this paper in the interests of simplicity and convenience, because one ZC is established per prefecture (although 4 prefectures have more than one ZC.)

   2. Under the current structure, the possibility always exists for cross-subsidization between the long-distance and local communications division or for information abuse. NCCs have also pointed out the problem of NTT's integrated running of its long- distance and local communications businesses.

5. It would be difficult to solve these problems of cross-subsidization and information abuse by administrative regulations of company actions only.

6. On the other hand, if NTT's monopolistic division is separated from its competitive division through structural measures:
   1. It is expected that interconnection conditions would become fair, because there would be no reason for the monopolistic division to discriminate between carriers which connect to its network.
   2. The problems of cross-subsidization and the abuse of information would as a natural consequence be solved.

7. If NTT's monopolistic division is divided by region:
   1. Monopolistic carriers' network costs (other carriers' costs of interconnection) would become comparable among the companies created through the restructuring, thus creating incentives for a reduction of costs through indirect competition.
   2. Given that the companies created through the restructuring would enter into the same markets, each carrier would have more incentive to reduce costs through direct competition.
   3. Furthermore, the companies created through the restructuring would compete with each other in the areas such as construction of infrastructure, introduction of new services, and customer services. As a result, each carrier would have incentives to compete dynamically by comparing its performance with others.

8. As above mentioned, non-structural measures have been implemented to the date with regard to NTT in Japan. But the limits of such measures have become evident in regard to such issues as interconnection. In order to realize competition in a true sense, it is necessary to study the implementation of structural measures in conjunction with non-structural measures.

(4) The implementation of competition policies in broader areas

1. Info-communications could be the key to changing the Japanese economy and society in a profound way. Consequently, competitive policies in this field should also be conducive to solving the important issues which Japan is currently facing. These issues include dealing with the globalization of the economy and society, reducing the overconcentration of population, government and industry in Tokyo, creating new businesses, and creating a lower cost structure economy in Japan.

2. Therefore, it is important to promote the development of policies that encourage competition in a broad range of fields, such as those shown below, rather than simply promoting domestic competition among telecommunications carriers and broadcasters.
   1. Competition in overseas and global markets
   2. Competition in the development (computerization) among regions within Japan
   3. Competition in devices and content
   4. Competition in research and development
   5. Competition in the procurement of communications equipment used by businesses

(5) Harmony between the promotion of competition and the security of public interests

1. As described above, the promotion of competition would play a part in furthering the interests of the nation as a whole, by quickly returning the benefits of technological innovation to the users, by reducing rates in general, and by diversifying services.

2. On the other hand, info-communications is a lifeline for all nations and an indispensable part of modern life.

3. Consequently, the following items, which are in the public interest, need to be given careful consideration to secure public interests including cooperation among carriers and intervention by administrative authorities in the development of competition policies.
   1. Securing universal services including welfare services
   2. Securing communications in emergencies such as disasters

The info-communications sector is surrounded by environmental changes such as technological innovation, greater use of multimedia and globalization. These changes should be taken into account when we promote a second info-communications revolution, which will in turn create dynamism in the info-communications industry.

(1) Progress of technological innovation

1. The progress and dissemination of innovative info-communications technology, based on the key areas, "digitization," "expansion of capacity," and "interactivity," is one of the major factors in making the info-communications revolution possible.

2. For example, a digitization technology progress will make it easy to combine different types of information, such as text, audio and images. This progress will include the integration and multifunction expansion of information reception and transmission devices.

3. With the development of large capacity systems, such as fiber-optic networks, the relative importance of images namely moving picture information within communications will significantly increase.

4. The interactivity will make new types of many-to-many communications possible. These differ from the major conventional communication methods of one-to-one telephone or one-to-many broadcasting. For example, personal computer communications makes many-to-many communications possible, in which anyone can freely transmit their impressions, opinions, or questions in response to information sent from a number of people.

(2) Convergence of services

1. Convergence of telecommunications and broadcasting
   As networks have become digitized and increased-capacity, the shared use of telecommunications and broadcasting transmission lines and new services located in the middle ground between telecommunications and broadcasting has emerged. Examples are: communications using cable television (CATV), satellite broadcasting using communications satellites and electronic notice boards using personal computer communications.

2. Links between infrastructure and contents
   With the installation of such infrastructure as fiber optics that easily distribute content, the development of new businesses becomes possible as links rapidly develop between the conventionally independent content industries and the info-communications industry that maintains infrastructure.

(3) Globalization

1. As social and economic activities become increasingly globalized, so too does the info-communications market.
   For example attention is now being focused on the high growth economies, found in Asia as potential markets.

2. Telecommunications carriers in a number of nations are attempting to build global alliances, transcending national borders, to respond to the increasing global needs, of multinational corporations wishing to provide services.

3. The development of such mobile telecommunications technology as low earth orbit satellite (LEO) communications technology has made possible the realization of fee structures that are not related to distance and services in which the user is not aware of locations or national borders.

(4) Economies of speed

1. As the pace of technological innovation speeds up towards the advanced info-communications society, it will become increasingly important for multiple competitors to have the ability to respond flexibly and swiftly to the market, based on economies of speed, which will become the source of companies' competitiveness.

2. For example, the fact that US venture companies are actively engaged in the multimedia industry is an indication of the importance of the economies of speed.
   Also, the decision to break up AT&T again can be seen as being based on the management strategy of improving one's own competitiveness by creating more functional and efficient management entities focused on each market. This decision was taken in response to the Telecommunications Act of 1996 aimed at promoting further competition.

3. In this age of reform, as the pace of change in the environment surrounding business becomes more rapid, dynamic and flexible management, based on prompt and flawlessly accurate decision making, and economies of speed are becoming increasingly important in the exercise of international competitiveness and to accurately reflect user needs.

(5) World policy trends

1. In the United States, the aim has been to promote competition with the break up of AT&T in 1984. However, with the realization of the Telecommunications Act of 1996, it became possible for telephone and CATV, and long-distance communications and local communications, which were previously independent spheres of business, to enter each others' area of business. Also, as the US enters the multimedia age, new policies are being formulated to further promote competition.

2. In the UK, the conventional duopolistic policy was abolished except for international telecommunications in 1991 and policies, such as the introduction of CATV telephones, were formulated to promote competition. A general prohibition of anti-competitive behavior by British Telecom (BT) is now being considered.

3. In continental Europe also, the conventional communications infrastructure operates under a monopoly system, and will change to a competitive system by January 1998. The aim is to develop the info- communications industry.

4. At the G7 Ministerial Conference on the information society in Brussels in February 1995, a decision was reached to "promote dynamic competition." This decision was based on discussions which concluded that it was necessary to avoid protectionism and anti- competitive actions and to avoid limiting competition by misusing dominant status.

5. In Asia and Latin America, as well as in some other areas, progress is being made and discussions are being held regarding privatization of carriers and the introduction of competitive principles.

6. In this way, policy trends to promote info-communications reforms, via the introduction or enhancement of competition, are becoming global.