Article: Japanese telecommunications and NTT Corporation: a case in deregulation Journal: International Journal of Management and Decision Making (IJMDM) 2000 Vol.1 No.1 pp.68-102 Abstract: The Japanese telecommunications industry has experienced dramatic changes over the past fifteen years. At the end of 1984, both Houses of Japan|s Diet passed a set of bills aimed at privatising Nippon Telegraph and Telephone (NTT) Public Corporation and at opening up the market to new facility based carriers and large-scale value added providers. Although parallels can be drawn with the divestiture of AT&T in the USA, and the privatisation of British Telecom in the UK, the resulting degree of competition in the wake of the privatisation of NTT reflects the peculiar institutional and regulatory environment in which the different actors operate and interact. This paper provides the case of NTT in order to understand the changing dynamics of Japan|s telecommunication industry and its impact on users, in the context of the global change in the telecommunications industry through deregulation, privatisation and liberalisation. This paper focuses on the major economic grounds for inducing change as well as the accompanying public policy aspects and the assessment of outcomes resting on diverging economic assumptions made by various interested parties in the process. Based on a regulatory economic and institutional analysis framework the paper examines the policy process, which culminated in the enactment of the telecommunication deregulation bills. It analyses the performance of the regulatory bodies such as the Ministry of Posts and Telecommunications (MPT) as well as the behaviour of NTT and non-NTT business interests. In this context, it addresses the following questions: what kind of economic prowess and institutional resources do the latter possess in order to compete effectively with NTT? Does NTT exercise its power over other companies through joint ventures? Has NTT|s productive efficiency improved since privatisation? What is the extent of market power that has been exercised by the ex-monopolist? Overall, has the diversity of telecommunication services increased? How have the major telecoms embraced Internet based services? How and when did they engage in a global strategic alliance drive, and how did they position themselves in the international market? Among the major conclusions we cover: 1. Although MPT has laid the foundations for effective internal competition in various telecommunications markets, additional measures must be taken to promote competition even further and to allow Japanese carriers to catch up with competition in domestic and international fields; 2. MPT|s posture towards the telecommunication industry is reminiscent of that of MITI in its early years, being overly regulatory and protectionistic through interventionist measures and frequent use of administrative guidance notices; 3. NTT|s productive efficiency has substantially improved since the company was privatised and reflects the general improvement of the overall performance of the Japanese telecommunication industry; 4. Since privatisation and authorisation of new entrants, the range of telecommunication services has considerably widened; 5. NTT is still by far the most dominant player and is likely to maintain its market dominance over some long time to come, owing mostly to its extensive R&D investment and facilities. MPT|s policy had put NTT far behind other national carriers like BT and the ||Baby Bells|| in the USA, as the Japanese regulatory environment has been lagging in deregulation. The Appendix contains relevant economic historical details. Inderscience Publishers - linking academia, business and industry through research

Title: Japanese telecommunications and NTT Corporation: a case in deregulation

Authors: Hans W. Gottinger, Makoto Takashima

Addresses: The International Institute for Technology Management and Economics, Schloss Waldsee, D-8839, Bad Waldsee, Germany. The International Institute for Technology Management and Economics, Schloss Waldsee, D-8839, Bad Waldsee, Germany

Abstract: The Japanese telecommunications industry has experienced dramatic changes over the past fifteen years. At the end of 1984, both Houses of Japan|s Diet passed a set of bills aimed at privatising Nippon Telegraph and Telephone (NTT) Public Corporation and at opening up the market to new facility based carriers and large-scale value added providers. Although parallels can be drawn with the divestiture of AT&T in the USA, and the privatisation of British Telecom in the UK, the resulting degree of competition in the wake of the privatisation of NTT reflects the peculiar institutional and regulatory environment in which the different actors operate and interact. This paper provides the case of NTT in order to understand the changing dynamics of Japan|s telecommunication industry and its impact on users, in the context of the global change in the telecommunications industry through deregulation, privatisation and liberalisation. This paper focuses on the major economic grounds for inducing change as well as the accompanying public policy aspects and the assessment of outcomes resting on diverging economic assumptions made by various interested parties in the process. Based on a regulatory economic and institutional analysis framework the paper examines the policy process, which culminated in the enactment of the telecommunication deregulation bills. It analyses the performance of the regulatory bodies such as the Ministry of Posts and Telecommunications (MPT) as well as the behaviour of NTT and non-NTT business interests. In this context, it addresses the following questions: what kind of economic prowess and institutional resources do the latter possess in order to compete effectively with NTT? Does NTT exercise its power over other companies through joint ventures? Has NTT|s productive efficiency improved since privatisation? What is the extent of market power that has been exercised by the ex-monopolist? Overall, has the diversity of telecommunication services increased? How have the major telecoms embraced Internet based services? How and when did they engage in a global strategic alliance drive, and how did they position themselves in the international market? Among the major conclusions we cover: 1. Although MPT has laid the foundations for effective internal competition in various telecommunications markets, additional measures must be taken to promote competition even further and to allow Japanese carriers to catch up with competition in domestic and international fields; 2. MPT|s posture towards the telecommunication industry is reminiscent of that of MITI in its early years, being overly regulatory and protectionistic through interventionist measures and frequent use of administrative guidance notices; 3. NTT|s productive efficiency has substantially improved since the company was privatised and reflects the general improvement of the overall performance of the Japanese telecommunication industry; 4. Since privatisation and authorisation of new entrants, the range of telecommunication services has considerably widened; 5. NTT is still by far the most dominant player and is likely to maintain its market dominance over some long time to come, owing mostly to its extensive R&D investment and facilities. MPT|s policy had put NTT far behind other national carriers like BT and the ||Baby Bells|| in the USA, as the Japanese regulatory environment has been lagging in deregulation. The Appendix contains relevant economic historical details.

Keywords: telecommunications; deregulation; network economy; research and development; internet; Japan; NTT.

DOI: 10.1504/IJMDM.2000.001210

International Journal of Management and Decision Making, 2000 Vol.1 No.1, pp.68-102

Published online: 01 Jul 2003 *

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Title: Japanese telecommunications and NTT Corporation: a case in deregulation

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