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TELECOM BUSINESS: Liberalization Paves the Way for New Entrants April 6, 1998  British Telecommunications CEO Sir Peter Bonfield announces his company's plans to move into the Japanese market. (Photo: Kyodo) Following the entry into effect on February 5, 1998, of the World Trade Organization's protocol on liberalization in the field of basic telecommunications, foreign-capital restrictions on telecom companies have been lifted in Japan, with the exception of Nippon Telegraph and Telephone Corp. (NTT) and Kokusai Denshin Denwa (KDD), which are special public corporations. Now 100% foreign-owned companies can freely enter the Japanese telecom market. As a result, two telecom giants, one American and the other British, have already announced their full entry into the Japanese market through related firms. In response, Japanese telecom companies are showing signs of advancing overseas to win new customers. So the telecom business can be said to have entered an age of competition that extends beyond national borders. From now on, reorganization of the industry is going to proceed in Japan too, with foreign companies playing a bigger part. Green Light for U.S. and U.K. Giants Before the WTO agreement came in to effect, the foreign capital ratio of communications companies owning their own telecom infrastructure--known as type I carriers--was restricted to less than one-third. The WTO protocol has now lifted this restriction. So far, restrictions on foreign ownership of NTT and KDD have been maintained to limit the ratio to less than 20%. In the case of KDD, however, even this regulation will be scrapped when the KDD Law--which prescribes foreign capital restrictions and requires Ministry of Posts and Telecommunications approval for mergers and for executive appointments--is abolished, probably later this year. The two foreign pioneers, the Japanese subsidiary of WorldCom Inc. of the United States and British Telecommunications PLC (BT), have announced plans to enter the Japanese telecom business after liberalization. As a first step, WorldCom plans to build its own fiber-optic network centered on the demand-intensive Tokyo metropolitan area and to begin a high-speed, high-volume data-transmission service for large companies and international telephone services as soon as possible before the end of this year. BT has not released details of its plans but is expected
to draw on its experience with multinational companies,
using its own fiber-optic network to cater to large
companies with a high volume of overseas communications.
Also, besides the type I carrier services, both companies
have revealed plans to begin low-priced international phone
services by linking both ends of their international
circuits to domestic public lines. The Japanese international telecom market has a scale of about 470 billion yen a year (3.5 billion U.S. dollars at 135 yen to the dollar). Although in the last few years the volume of calls has increased, in financial terms the market has not grown significantly in size. This is because the three international carriers--giant KDD and its two rivals--have been competitively cutting prices since the smaller two first set their rates lower than those of KDD. If a string of new domestic and foreign entrants do join the Japanese telecom market, they would have to stuggle for a share of a limited pie, which inevitably would mean keen competition to bring down rates even further and upgrade services. In response, Japan's existing international carriers are making moves into foreign markets in search of new customers. Japan Telecom Co. and International Digital Communications have obtained licenses to use their own facilities in the United States to operate international services to Japan. KDD also applied for such a license in February. In addition, there are moves toward corporate mergers and alliances to enhance competitiveness. In October 1997 the long-distance carrier Japan Telecom merged with international carrier International Telecom Japan and stepped into the global arena. And the long-distance carrier Daini-Denden Inc. has also decided to form an alliance with Teleglobe Inc. of Canada. The arrival of foreign firms, which are expected to deepen sales and other alliances with Japanese firms, is likely to have a great impact on future realignment in the domestic telecommunications sector.
 Edited by Japan
Echo Inc. based on domestic Japanese news sources. Articles
presented here are offered for reference purposes and do not
necessarily represent the policy or views of the Japanese
Government.
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