AIDE MEMOIRE
European Commission's comments on NTT interconnection offer.
The Delegation of the European Commission in Japan wishes to bring to the attention of
the Ministry of Posts and Telecommunications the concerns of the Commission Services
on the proposed interconnection charges submitted by NTT on 30 January to the Ministry
of Posts and Telecommunications.
We welcome the fact that the new charges are designed to reflect the costs of the
underlying facilities rather than being based on profit calculations as in the past.
Nevertheless, we are surprised about the relative level of these charges when compared to
the equivalent cost oriented charges in the European Union.
The Commission has published a set of 'best practice" prices for call termination
(Commission Recommendation on Interconnection Pricing C(98) 50, 8 January 1998, to
be published in the OJ), based on actual call termination charges in EU Member States.
The NTT charges for fixed-fixed network interconnection appear to be several times
higher than the EC 'best practice' prices. While it is clear that there are some differences
in the cost of constructing networks and providing telecommunications services in
different world regions, the extent of the difference between the EU prices and the NTT
prices appears difficult to explain. Part of the difficulty arises because of lack of
transparency of the NTT prices (see below).
The NTT prices do not explain the cost basis for the figures given (historic costs or
forward looking costs), nor do they indicate whether the interconnection charges include
any element related to tariff imbalances within the NTT network as a result of previous or
on-going universal service obligations.
We consider that the most appropriate basis for calculating interconnection charges is a
forward looking long-run average incremental cost approach. In a newly liberalised
market, the interconnection services of an incumbent operator are not services which can
be easily duplicated, and call termination in particular is not subject to significant
competition. The forward looking long-run incremental cost approach provides an
analytical framework which can be used to obtain an estimate of the cost that would be
found in a fully competitive market, where firms are compelled to look forward to survive,
rather than backward to the cost of their original investment.
We are aware that MPT is considering to implement an long-run average incremental
costing approach within the next two years. However, the fact that such an approach is
not yet possible does not, in our opinion, justify the use of fully allocated historic costs to
calculate interconnection prices.
On the issue of tariff imbalances, we note that the WTO agreement on basic
telecommunications services calls for the administration of universal service schemes to be
transparent and competitively neutral. Hidden cost component arising from deficits in the
local access network of NTT should therefore not be included in interconnection charges.
In addition, the NTT proposal sets different charges for termination of mobile (PHS) calls
compared to termination of calls from other fixed networks. The cost to NTT of
terminating a call from a mobile network is basically the same as the cost of terminating an
equivalent call from a fixed network. NTT's interconnection charges for call termination
should be independent of the origin of the call, except to the extent that there are
genuinely objective cost differences for NTT.
We have concerns about the extent to which these proposals fulfil the GATS principles
and the obligations of Japan under the WTO agreement on basic telecommunications
services.
The Delegation of the European Commission in Japan wishes to thank the Ministry of
Posts and Telecommunications for the opportunity to comment on the proposed
interconnection charges by NTT and would very much appreciate that these comments be
put on the record to be made open to free and public perusal in accordance with the
invitation from the Ministry of Posts and Telecommunications to comment.
