Proposal for a New Communications Law to Promote IT Revolution

Hiroshi TACHIBANA (Managing Director, Keidanren)

Need for a New Communications Law

In March 2000, Keidanren presented "Preliminary Recommendations on the Restructuring of the Legal System Governing Telecommunications to Propel the IT Revolution," in which we proposed that the existing Telecommunications Business Law and other related laws, which might be regarded as regulations on telecommunications operators, should fundamentally be changed to a system of user-oriented laws promoting competition. In response to this proposal, the Telecommunications Business Law was revised and took effect last year. In this new law, arrangements are made to promote fair competition in the telecommunications market such as introduction of dominant regulation.

However, even after this revision, there remain many regulations based on distinction of Type I and II businesses that have no direct relation with promotion of competition. Those regulations can still be regarded as a system of "operator regulation laws" that intend to achieve optimization and rationalization of businesses by imposing ex-ante regulations. The revised law has come only half way for transformation to a system of "competition promotion law" for free and fair competition. Furthermore, the existing law cannot adequately deal with present-day problems regarding competition policy from the overall viewpoint of the IT field as a whole in the midst of formation of a value chain that may be called "the IT market" as a result of the progress of vertical and horizontal integration originating in the telecommunications market.

To promote Japan's structural reform by effectively utilizing IT and to make Japan the most advanced IT nation in the world within five years, it is necessary to make various inexpensive communications services available to users. For that purpose, we must construct an institutional framework in which various operators can act freely and creatively under the condition of fair competition in the communications market.

Therefore, last December Keidanren, from the viewpoint of telecommunications users, prepared and published a framework of the "new communications law" that consists of fundamental elements needed to build a competition-promoting system from scratch, rather than a patch-work approach in which the existing system would be gradually modified.

Framework of the Proposed Law

Our basic stance for reform towards a new communications law includes liberalization of communications business in principle, construction of a common institutional framework for transmission facilities, formulation of a competition rule focusing on market power, reinforcement of a promotion system for competition policy, and etc. Its main points are as follows:

1. Redefinition of Communications Service

Because telecommunications service is currently defined as "intermediating communications of others through the use of telecommunications facilities, or any other acts of providing telecommunications facilities for the use of communications of others," a wide range of services is under regulatory control. As integration of various services is under way these days, regulation can spread to cover an even wider range of services. Therefore, it is necessary to redefine communications service as "provision of transmission capacity" to limit the scope of regulation for the purpose of promoting the provision of new services and creation of new businesses.

2. Rule for Dominant Operators

In view of liberalization of communications business in principle, barriers to market entry should be drastically reduced and minimum normative regulations such as securing secrecy of communications should be imposed on those operators who have no market power, whereas not only such minimum normative regulations but also a necessary rule for promoting market competition ought to be set up for those operators who do have market power.

Furthermore, under the current trend towards broadband communications, information contents are expected to become more and more dependent on networks, and there are possibilities that those operators who have dominant power in the communications market will move into adjacent or closely related markets such as content businesses by leveraging their market power and distort fair competition in such markets. Therefore, we request formulation of a rule to prevent such damage, where the point is that we should somehow eliminate incentives for engaging in anti-competitive behavior by abusing market power. For example, functional separation of a division providing essential facilities from the other providing communications service.

3. Creation of Independent Regulatory Body

To promote free and fair competition in the communications market for maximization of users' benefit, it is necessary to strengthen functions for constant supervision of the competitive market, formulation and execution of competitive rules based on a "new communications law," and expedite settlement of disputes over various issues. We ought to have a body with such functions and allow it to make impartial decision solely from the standpoint of securing users' benefit. More concretely, we should create an independent regulatory body, whose independence can be secured institutionally by positioning it under the jurisdiction of Prime Minister and functionally by ensuring commissioners' positions during their tenure.

For the Keidanren proposal (in Japanese), see the following URL:
http://www.keidanren.or.jp/japanese/policy/2001/061/index.html