In order to create dynamism in the info-communications industry and successfully complete the "Second Info-Communications Reform," deregulation should be actively promoted, taking into consideration changes in socioeconomic conditions and radical technological innovations and by implementing the measures mentioned in Chapter 4 and 5.ĦĦIn addition, to facilitate the establishment of info- communications infrastructure it is essential to review various regulations related to such aspects as land use. It is also necessary to aggressively promote reviews of different systems where the enhanced use of info-communications can be anticipated in order to make maximum use of the benefits that can be created by making info- communications more sophisticated in a broad range of social sectors.

(1) Deregulation in the field of info-communications

Regarding regulations in the telecommunications field, it is necessary to aggressively promote deregulation to stimulate strong business motivation and commitment on the part of entrepreneurs, while also giving adequate consideration to ensuring that of regulations are transparent.
Furthermore, in promoting the deregulation initiatives described below, it is necessary to prevent the abuse of market dominating power, and the introduction of asymmetric regulations for dominant carriers should be considered from the point of view of ensuring fair and effective competition, and protecting consumers. Nonetheless, these regulations should be relaxed in line with the development of competition, with the ultimate objective of abolishing them.

1. Market entry regulations
   Under the Telecommunications Business Law, the permission of the Minister of Posts and Telecommunications is required to enter the market as a Type I telecommunications carrier. The conditions for entry are stipulated in Article 10 of the Telecommunications Business Law. Item ii) of Article 10 relates to facilities and states "The introduction of the telecommunications business shall not result in a significant excess of telecommunications circuit facilities to be used for such business." It has been pointed out that this clause may function as a supply-demand adjustment clause, calling for a strict matching of supply and demand.
   Since Type I telecommunications carriers have to establish network facilities, many privileges concerning public utilities, including preferential treatment in using public roads, and the right use land belonging to other owners are currently given to those carriers to enable them to carry out the establishment of such networks smoothly. The maintenance of these privileges concerning public utilities will remain indispensable for the running of Type I telecommunications carriers in the future.
   Consequently, assuming that a new framework is to be formulated to grant privileges concerning public utilities independently of the clause on excess facilities, the abolition of the said clause must be considered.

2. Rate regulations
   1. Basic approach
      Under the current regulations on rates, basic rates that are closely related to the lives and economic affairs of the general public are subject to the authorization system in which the full cost principle is used. The introduction of the prior notification system for the other rates in October 1995 resulted in more than halving the number of rates that are subject to the authorization system.
      The status of rate regulations should be studied to meet market conditions, considering the extent to which conditions for fair and effective competition have been achieved and the development of the market.
      The principles for regulating market rates are as follows:

   2. Local communications market
      After the restructuring of Nippon Telegraph and Telephone Corp., (NTT), it is reasonable to assume that the authorization system based on the existing full cost principle should be maintained for local communications services of Regional NTTs, given that Regional NTTs' monopoly on local communications services would in principle continue in the immediate future. In this case, it would also be appropriate to provide incentives to make management more efficient by introducing incentive regulations such as the yardstick method for authorization.
      In addition, this would also require examination into the possibility of switching from an authorization system to a prior notification system for the other business entities, and of adopting asymmetrical regulations.

   3. Long-distance and international communications markets
      The switch to a prior notification system for the long-distance communications market must be examined when initiatives are undertaken to put in place conditions for fair and effective competition by restructuring NTT.
      In this case, the introduction of an incentive regulation on dominant business carriers should also be examined from the point of view of customer protection, while also promoting the flexible and mobile setting of rates.
      The switch to a prior notification system in the international communications market must be examined when the territory of new common carriers (NCCs) has expanded and NCCs have become firmly established in a business territory on an equal footing with Kokusai Denshin Denwa Co., Ltd., (KDD). If this were to be done, the introduction of incentive regulations for dominant business carriers must be examined.
      In addition, in the process of examining regulations on the rates of dominant business carriers, it would be desirable to examine the introduction of a system in which consumers and other business entities have the opportunity to air their grievances, and for the government to conduct their investigations based on their grievances, from the point of view of protecting consumers and ensuring fair and effective competition.

3. Mobile communications market
   In the mobile communications market (such as mobile and car telephones, portable handy phone systems [PHS], and pagers), it has already been decided to switch from an authorization system to a prior notification system based on the following circumstances. This switch-over is expected to be carried out smoothly.
   1. The conditions for fair and effective competition have already been put in place with the separation of NTT DoCoMo from the NTT local communications network, the bottleneck monopoly, in July 1992 and the division into regions in 1993.
   2. A competitive structure of six or seven carriers in regional areas is beginning to take shape following a series of new entries into the mobile communications market in recent years.

4. Liberalization of leased line usage
   1. Liberalization of leased line usage should be carried out swiftly to promote new businesses employing info-communication networks and to encourage cheaper rates.
      The interconnection of private leased circuits with public switched networks at one end was realized in April 1995, and the effects of this are to be evaluated one year from that time. The interconnection of private leased circuits with public switched networks at both ends is to be completely liberalized as quickly as possible within 1996 (one year earlier than originally planned).
   2. Also, basic voice services provided by Special Type II telecommunications carriers were realized in a way not connected with a public switched network in April 1995, and the effects of this are to be evaluated after two years. However, the original plans (decision on timing of realization and details in fiscal 1997) for connection with a public switched network will be moved forward to promote complete liberalization as soon as possible, aiming at sometime during the fiscal 1997 period.
   3. We hope to see the steady implementation of fully liberalized usage of private leased circuits.

5. Restrictions on foreign ownership, etc.
   1. At the time of the telecommunications system reform in 1985, the new foreign capital investment levels permitted were less than one third for Type I telecommunications carriers other than NTT and KDD, however foreign capital entry was not limited for Type II telecommunications carriers. Foreign capital regulations on satellite communications carriers that conducted only international telecommunications business were abolished in 1994.
      As a result, in January 1996, 34 of the 122 Type I telecommunications carriers and 17 of the 47 Special Type II telecommunications carriers were under foreign ownership.
      The status of foreign capital should be studied for the purpose of further relaxing restrictions towards the promotion of worldwide liberalization, and taking into account the conclusion of negotiations on basic telecommunications at the World Trade Organization (WTO), for which the deadline is set at the end of April 1996.
   2. The existing level of foreign ownership of NTT and KDD is less than one fifth. However, after restructuring NTT, Long-Distance NTT will be treated the same way as other Type I telecommunications carriers.
      In addition, relaxing the level of foreign ownership allowed in the Regional NTTs should also be examined as progress is made in the area of competition in the regional communications market.
      With respect to KDD, the safety of Japan and Japanese people must be taken into account regarding the status of regulations on foreign capital after the abolition of the KDD Law when deliberations are conducted on the proposed abolition.
   3. From the point of view of promoting business development by Japanese telecommunications carriers in overseas markets, Japan should take steps to see that examination standards for market entry are fully understood by foreign countries and relax regulations such as the speeding up of the examination process including the establishment of a standard processing period.

6. Others
   In addition to the different types of deregulation measures mentioned above, regulations should be reviewed whenever necessary paying attention to opinions and requests expressed.

(2) Regulations on the use of land

1. In order to facilitate the construction of networks for Type I telecommunication carriers, consideration must be given to making available various kinds of public spaces suitable for accommodating lines and facilities. Specifically, it is desirable that the laying of optical fibers in drainage conduits and along highways by Type I telecommunications carriers be carried out flexibly.

2. Certain improvements have been made in the area of exclusive road usage, such as the lowering of charges for the exclusive use of underground parts and the simplification of procedures. However, it is anticipated that further improvements will be made, such as further simplification of the procedures for approving applications, the extension of the exclusive use period, and the review of the charges for so-called "secondary exclusive use."

(3) Examination of various systems in fields in which the advanced use of info-communications is anticipated

1. Some of the existing systems were not designed to take into account the rapid sophistication of info-communications that has in fact taken place. To make maximum use of the merits of such advanced info- communications, it is necessary to examine existing systems in a broad range of areas, including education, medical care, government, and commercial transactions. It is anticipated that reviewing these systems will not only invigorate the info-communications industry, but by creating new industries and improving the convenience to general users, will stimulate structural reform across the whole of Japan's economy. The relevant government ministries and agencies should cooperate with each other in a flexible manner to carry out reviews of the relevant info-communications systems.
   The "Advanced Information and Telecommunications Society Promotion Headquarters," headed by the Prime Minister, put forward "Basic Guidelines on the Promotion of an Advanced Information and Telecommunications Society" in February 1995. Based on these policies, in August 1995, the government set up a working group within the headquarters to review Japan's info-communications systems. The group's first studies are upon the storing of documents as electronic data, and on making declaration and application procedures electronic and paperless. We hope that the review of info- communications systems will proceed soundly and swiftly based on the findings of these studies.

2. The progress of the advanced info-communications society will also aid the free distribution and shared use of information. In this case, however, protecting privacy and ensuring data security will be vital concerns. To address these issues and put in place an environment in which networks can be used with peace of mind, we must try to achieve the following:
   1. Ensure the safety and reliability of electronic information by developing and using cryptography and verification technologies, and by granting legal force to the relevant electronic information.
   2. Create rules to govern the handling of electronic information with content which might violate public order or morals.
   3. Ensure consumer protection in electronic commerce.
   At the same time, we must examine protection measures for intellectual property rights and circulation measures related to software, with the aim of creating environments which encourage the development, supply and use of popular software.

(1) Basic principles

1. The existing framework for interconnection involves discussions between the telecommunications carriers on whether, and under what conditions, interconnections are made, with the interconnection being made if agreement is reached between the parties. Approval of the interconnection agreement by the Minister of Posts and Telecommunications is required, to prevent one party from setting unreasonable conditions. If a settlement is not reached in the discussions between the parties, the Minister of Posts and Telecommunications may, in order to protect the public interest, arbitrate or issue an order to connect, after receiving petitions from the parties involved.

2. However, in the case of facilities, such as the NTT local communications network, to which connection is essential for other telecommunications carriers, diverse connections with these facilities must be made swiftly under reasonable and non-discriminatory conditions, in order to lower charges and help diversify the services provided by all telecommunications businesses.

3. Consequently, necessary measures must be taken to secure the efficiency of obligatory rules on interconnection. When revising the current framework in which carriers are left to negotiate among themselves about interconnection, fundamental rules must be devised governing carriers (hereinafter referred to as designated carriers) which have a certain market share and which are equipped with facilities that are essential for interconnection with other carriers, such as the NTT local network.

4. It is anticipated that the drafting of such interconnection rules will reduce the time required for discussions between carriers regarding interconnection. It is also anticipated that such rules will make it easier for carriers to forecast future project plans and will thus promote the smooth introduction of new services.

5. It is also anticipated that it will become possible for other telecommunications carriers to compare the interconnection conditions of each Regional NTT, and that through such competition between Regional NTTs, access charges will be lowered and the discussions related to interconnection further speeded up.

(2) Matters to be covered by the fundamental rules for interconnection

The items related to the designated carriers described below should be examined as soon as possible, and systematization of the interconnection rules should be promoted after their specific details have been decided.
In the process of drafting fundamental rules for interconnection, adequate consideration must be given to matters such as providing interested carriers with the opportunity to voice their opinions, in order to ensure that the procedures are fair and transparent.
In addition, the rules for interconnection must be reviewed periodically, according to their operation in practice.

1. Imposing the obligation to interconnect
   Designated carriers must be obliged to agree to interconnection requests from other carriers, in order to ensure swift interconnection.

2. Tariff systems for interconnection
   The creation of price tariff systems for interconnection should be made obligatory, to ensure transparent and non-discriminatory interconnection conditions and swift interconnection.

3. Accounting systems and standards regarding interconnection
   The government should set accounting standards related to interconnection to prevent cross-subsidization and to allow carriers to decide whether access charges are economically viable. The disclosure of accounts related to interconnection should be made obligatory.
   In addition, accounting systems should be created in which access charges should be subdivided (unbundled) into itemized charges for each of the elements and functions that make up the equipment. This would allow carriers to use only necessary parts or functions of the equipment and thus to bear only the charges related to the relevant parts or functions.

4. Defining the technological requirements for interconnection
   The interface conditions to be prescribed in the tariff systems relating to interconnection should be defined in order to allow carriers to independently use only the necessary parts or functions of the equipment and to bring about signal network connection.

5. The use of facilities such as exchange building, electric poles, and conduits
   If carriers wish to connect to the exchange buildings of designated carriers, the following items should be required:
   1. Installation of the other carrier's transmission equipment in the exchange buildings of the designated carriers (Collocation).
   2. The use of electric poles and conduits leading into the exchange buildings of the designated carriers.
   Consequently, the provision of the exchange buildings, electric poles, and conduits necessary to interconnect with essential equipment should be made obligatory, and the interconnection conditions for this included in the price lists and tariff systems.

6. Number portability
   It is possible that the subscribers of designated carriers might not change to other carriers as they would experience economic disadvantages if doing so caused their telephone number to change. In this case, there would be a danger that designated carriers would continue to maintain their dominance and that fair and effective competition would be hindered.
   Consequently, it should be made obligatory for designated carriers to provide number portability when requested to do so by other carriers desiring interconnection. It is also necessary to examine how the necessary charges should be shared when this occurs.

7. Presubscription
   When NTT is restructured, a presubscription system should be introduced and its implementation method examined. This would provide the conditions for fair and effective competition between Long-Distance NTT and other carriers.

8. Disclosure of a scheme for providing network functions
   To facilitate smooth interconnection between carriers it is not sufficient to merely respond after the event once a request for interconnection has been received from a carrier. It is necessary when building a network to take into advance consideration the need for it to be designed to facilitate interconnection with other carriers.
   This will facilitate smooth interconnection, in particular with Type II telecommunications carriers who wish to use network functions in various interconnection configurations to provide a diverse range of services.
   Consequently, it is necessary for designated carriers to reflect the opinions and wishes of other carriers in relation to network functions from the network design stage.
   Specifically, for network functions related to interconnection provided by designated carriers, it should be made obligatory for a scheme for providing network functions to be publicly announced before development work starts. Ways of systematizing the procedures to reflect the opinions of other carriers in the development should also be examined.

9. Other measures to secure smooth interconnection
   In addition to the items described above, examination must be made of measures to prevent actions that hinder smooth interconnection, such as unjust discriminatory treatment by designated carriers against other carriers desiring interconnection, intentionally prolonging the interconnection negotiations, and demanding documents not required for interconnection.

(3) Formulating fundamental rules for interconnection and perfecting supervision functions

As a result of tasks such as formulating and reviewing the fundamental rules for interconnection and supervising whether interconnection rules are being strictly observed, it is envisaged that the administrative work related to interconnection will increase in future.
In the dramatically changing telecommunications market with its rapid technological innovation, we envisage that the united execution of policy drafting functions related to interconnection, such as the formulation of fundamental rules for interconnection, and administrative functions, such as the supervision of the strict observance of those rules, will be conducive to the swift and accurate execution of administrative duties in a manner that meets the increasing sophistication and diversification of networks.
To respond to these tasks in such a swift and accurate manner, it is necessary to consider how to reinforce functions relating to the administration of interconnection by the Ministry of Posts and Telecommunications, including the establishment of a new department consisting of expert members for the formulation, supervision, and application of fundamental rules for interconnection, as well as a subcommittee on interconnection consisting of specialists in the Council.
In order to respond to the need for administration which ensures fairness and neutrality regarding the formulation, supervision and application of fundamental rules for interconnection, it is necessary to make the greatest effort to guarantee "transparency" by clarifying the procedures and by disclosing relevant materials as much as possible.
It should be noted that in the United States and the United Kingdom, where competition is being introduced as it is in Japan, the tasks of formulation, supervision, and application of fundamental rules for interconnection are being executed by a single administrative organization in conjunction with other relevant regulatory administrative bodies.

NTT should be restructured promptly after the digitization project is completed at the end of FY 1997, as previously mentioned on page Ħ?E 3-5 "Time of implementation of restructuring."
Accordingly, the Government should prepare necessary legislative measures and immediately start undertaking studies, including the preparation of a reorganization plan, in order to restructure NTT within FY 1998.

Apart from promoting deregulation and interconnection policy and restructuring NTT, as described above, it is essential to adopt the following policies and measures to create dynamism in the info- communications industry and make info-communications beneficial for general users.

(1) Dissemination of the findings of R&D

To spread the results of NTT's research and development (and that of Regional NTTs following restructuring), the results of R&D should be released.

(2) Promotion of rationalization

NTT must promote further rationalization by preparing, announcing and steadily carrying out a plan for rationalization, including reductions in personnel up to its restructuring, which takes advantage of the cost savings produced by the personnel cuts and calls for specific measures and timeframes for their implementation.

(3) Ensuring universal service

New systems, such as for establishing the funds for universal services, must be examined, based on the development of regional competition.

(4) Encouragement of R&D

Enhancing R&D in telecommunications requires measures to create stronger links among industry, academia and the government, such as by promoting joint ventures, responding to de facto standards, improving R&D resources, as well as improving the research institutions and providing the funding for basic and advanced R&D.

(5) Enhancement of safety and reliability

To guarantee secure telecommunications, including minimizing congestion and interruptions and ensuring priority access to official bodies during emergencies and disasters, measures such as the establishment of a Security and Reliability Center should be adopted.

(6) Assistance for constructing infrastructure

The goal of constructing an optical fiber network to every home in Japan is expected to be attained by 2010, as well as that of realizing more advanced applications. These goals will be supported by promoting a special financing system for laying optical fiber cables, by designating and assisting model businesses and pilot projects in cities, and by backing up industrialization of application services.

(7) Promotion of a "Consumer First" administration

A study must be conducted into the enhancement of a "Consumer First" administration in the telecommunications field, and the setting up of a legal system by which consumers can lodge complaints with the administration about their telecommunication services.

(8) New administrative perspectives

When promoting the measures stated above, the telecommunications administration should lay stress on:

1. presenting a vision of the development of info-communications,
2. establishing infrastructures,
3. establishing a supportive business environment for carriers (e.g., devising "number" schemes, improving safety and reliability, and dealing with hackers),
4. coordination among carriers (e.g., interconnection),
5. creating a "Consumer First" administration,
6. creating a supportive international environment (e.g., international standardization, cross-authorization frameworks, assistance for overseas promotion, development of international relations in the area of info-communications),
7. the development of frequency resources,
8. enhancement of basic and spearhead R&D, and
9. promoting content businesses.