How to Handle Telecommunications Disputes in Japan

Hajime YAMADA (Professor of Economics, Toyo University)

This is an excerpt from the English translation of the author's Japanese article that appeared in the October 1, 2002 issue of "Economist", published by Mainichi Newspaper Co. For its full text in English, see GLOCOM Colloquium on the Special Topics page: http://www.glocom.org/special_topics/

Rejection of Wireless Internet Access Based on Misunderstandings

Technology innovation is progressing at a high speed in the telecommunications industry. To handle disputes arising in the industry, the existing committees with part-time members are not enough any more. Establishing a permanent regulatory organization is needed.

The Telecommunications Business Dispute Settlement Commission, which belongs to the Ministry of Public Management, Home Affairs, Posts and Telecommunications (MPHPT), submitted a report rejecting an application by a wireless Internet service provider for authorization of installing antennas in premises of railway stations of East JR Company, according to the report published in late July, 2002.

Upon hearing the news I read the submitted report on the Commission's website, and was surprised to learn that the Commission must have been mistaken. Wireless Internet access is a service that enables access to a worldwide network through wireless connections between personal computers and antennas. It is a type of public telecommunications business. However, according to the report, the Commission considered it a means of private communications only among users on premises of railway stations. Wireless Internet connections are sometimes called wireless LANs, or wireless local area networks. The LAN means a network on a premise, which might cause the misunderstanding.

Why did such a simple misunderstanding happen? One of the reasons may be that all the members of the Dispute Settlement Commission serve only part-time. Moreover, a majority of the members are either jurists or economists, who are not necessarily experts on telecommunication technologies.

Wireless LANs are spreading at a remarkable speed, and are now a worthy opponent for the 3G mobile phone services. In present times when mobile phones are used so extensively, what would happen if users could not use their mobile phones in JR stations? For wireless LANs this will in fact likely happen because of the dismissal of the application mentioned above. It is utterly beyond users' comprehension.

Argument Without a Guidepost Over Competition

On August 7th, 2002, the Information and Communications Deliberative Council, an advisory body to the MPHPT, submitted "The Final Report on Ideal Competition Policies on the Telecommunications Business in Order to Promote the IT Revolution." This report partly responded to long-standing criticisms against the Ministry's administration. For example, it aims at easing restrictions on entering in and withdrawing from the business through abolishing the existing regulatory system that categorizes the telecommunications business as classes one and two. The report also attracts attention by coming out with the enrichment of consumer-oriented administration to accompany the competition policies.

On the other hand, some Internet providers express their precautions claiming that the report can be interpreted as intending to expand the scope of regulations to the contents of communications. The Japan Fair Trade Commission is also reported that they are rather willing to demand discontinuance of the Telecommunication Business Law because the report includes descriptions that would inhibit competition.

Prior to the submission of the final report, public comments were invited in June. Some point out interesting observations. For example, Cable & Wireless IDC (C&W), a major British telecommunications business body, criticizes the report to have repeatedly stated that the competition was developing well enough without defining the word ‘enough.' NTT comments on the unfairness of the MPHPT to have fortified the regulations against NTT after they acquired market shares through competition on a level playing field.

The market share is the simplest guidepost to determine whether the market is in a competitive state or not. However, at the same time, verification is required to make sure that no unjustified business connections are utilized in the process of forming the share. Both companies seek definite means of evaluating competition. They insist that the decision on whether companies are in competitive states should not be left to the discretion of the MPHPT.

Meanwhile, the MPHPT had always replied that the matter requires examinations at separate investigative occasions. Such postponement itself could result in a big problem.

Time to Conclude Discussions on Access Charges

The Information and Communications Deliberative Council recently created a draft report stating that the MPHMT should promote reduction of telephone services access charges. It was released on August 1st to solicit public comments. The proposal for reduction was examined at the Council as a part of the prescribed procedure prior to approval, because the access provisions for both NTT East and NTT West are subject to approval by the MPHMT.

Access charge problems arise when a call involves two or more business entities, such as new entrants, NTT East and NTT West, regarding how fees from users should be divided. Therefore, these issues should be discussed among the enterprises concerned, and the Dispute Settlement Commission should only be consulted if any discord arises. Article 88 of the Telecommunication Business Law clearly states as follows: The Dispute Settlement Commission shall mediate between the businesses concerned when they cannot agree.

However, these issues actually are discussed by the Information and Communications Deliberative Council, an advisory body to the Minister. In spite of the prescription in the Telecommunications Business Law, the Dispute Settlement Commission is left totally in the dark about access charge issues under the present circumstances.

Meanwhile, the access charge issues have been on the agenda for Japan-U.S. Telecommunications Negotiations since the mid-1990s. The Negotiations are planned to resume this fall. Invitation of public comments prior to the Negotiations was intended to sound out the United States beforehand, and as was expected the U.S. government commented that the access charge in Japan is too high compared with other countries.

In the first place, it sounds unnatural and peculiar that an access charge issue among Japanese private sectors would become a subject of diplomatic negotiation between the governments of Japan and the United States. Having long been wondering about this, I recently had a chance to get in touch with competent sources of the United States Trade Representative (USTR) and the Federal Communications Commission (FCC), including others, in the United States to collect primary source information from an academic point of view. As I expected, their responses amounted to a demand for establishment of an independent regulatory organization.

With regulation and promotion of industry coexisting in the MPHPT, national benefits cannot be realized because of the conflict of interests, similar to an individual serving as an umpire and a manager at the same time. In the United States, a definite division of roles has been established so that the FCC functions as a regulator, while the Department of Commerce and other offices take charge of promotion of industry. The persons I met with in the US are asking that Japan establish such an independent organization for regulation.

Toward Establishment of an Independent Regulatory Organization

Establishing an independent regulatory organization seems to be the ultimate solution for a series of telecommunications issues. The Dispute Settlement Commission should be drastically fortified to become an independent regulatory organization. In particular, careful selection must be made in order to appoint full-time (not part-time) Commissioners who thoroughly know telecommunications. A wide range of specialists, including technology experts, should support them.

The mission of this organization is to draw up and implement a minimum of necessary regulations to promote competition in the market. It should become an organization that makes a routine study of where competition exists in the market, and take prompt actions against any events that would impede competition. In this way, discretionary administrative factors can be reduced. Also, by appointing both jurists and technologists, the organization will have the right insights into the essentials to resolve even the latest technological issues such as wireless Internet access.

If we can reinforce functions of the Dispute Settlement Commission and acquire its independence, not because of foreign pressure but because of our own decision, Japan will make a further stride toward the information society. As a result, we can bring this overly long negotiation to an end at last. If we consider an appropriate organization by ourselves, the U.S. will not force an FCC-style regulatory organization upon Japan. Moreover, administrative transparency will increase by publicized discussions.

Both the business and technology of telecommunications have become much more complicated because of the shift from the era of telephone to the Internet. It is the very reason that the government needs to establish a firm organization with a certain scale in order to make good decisions.