Japan Telecom's trials emphasize NTT monopoly May affect MTP's decision on possible NTT restructuring

In the end, the fall drama between Japan Telecom and Nippon Telegraph and Telephone (NTT) unfolded as expected, and Japan Telecom prevailed -- in a manner of speaking. After two years of talks aimed at connecting Japan Telecom's high-speed telecommunic ations network with the NTT intracity grid, NTT finally backed down and agreed to provide Japan Telecom with the needed access in November. Japan Telecom received the connection, while NTT had been able to delay two years and become more competitive. The incident, more than any other, highlighted the need for a deregulated domestic telecommunications market and may very well herald the break-up of one of the largest companies in the world.

The beginning of the end came on October 18, when Japan Telecom, in an unprecedented move, asked the Ministry of Posts and Telecommunications (MPT) to order NTT to provide access to intracity lines for Japan Telecom's frame relay service. Negotiations had been stalled since July, preventing Japan Telecom from starting their commercial services even though they had obtained a license from the MPT. NTT's refusal on the grounds that there was no precedent for joining different types of telecommunications lines denied Japan Telecom any possibility of breaking into the Japanese domestic telephone market. The ministry would probably have rendered a decision in the case by the end of the year, and was expected to agree that NTT's refusal to provide service w as contrary to Section 39 of the Telecommunications Business Law.

As it turned out, no judgment was necessary. Sensing their weak position, NTT about-faced two days later and offered access to its frame relay network. NTT president Masashi Kojima incongruously remarked, "NTT's basic policy is to comply with all kind s of requests for connection of telecommunication networks... (however, that does not mean the company will do it without profits." An interesting comment, considering that the MPT is in the process of limiting NTT's requested rate hike to 10% (rather tha n 18%) on grounds that NTT's revenue from subscription fees have exceeded their subscription division's operating costs.

President Kojima went on to explain, "The dispute involves wider, more important issues... of how to share the cost burdens in intracity services." The negotiations went on longer than expected due to NTT's proposal for the drafting of a comprehensive framework of rules on phone access and connections by new service operators like Japan Telecom. President Kojima indicated that Japan Telecom should agree to pay a fair amount of money for the access to NTT lines, referring to the fact that Japan Telecom had requested special discounts for heavy-use customers. NTT denied the request on the grounds that there is no competition in the intracity market, so they should not have to lower rates while they are losing money. However, one wonder's if NTT is treat ing their subsidiary, NTT DoCoMo, the same; the group has just requested approval from the MPT to offer discounts to corporate users with multiple subscriptions.

The play has several acts. DDI is following in the footsteps of Japan Telecom in applying to the MPT for an independent frame relay service license in a strategic move to restart stalled negotiations with NTT. In addition, the three long-distance new common carriers (NCCs) have also quoted infractions of Section 39 of the Telecommunications Business I,aw, which requires the MPT to act in the interest of the public and force a carrier to offer access to its circuits, in an attempt to coerce NTT into gi ving line access for their corporate discount services. These disputes, and the MPT's role therein, will most likely have a great effect on the outcome of next year's scheduled review of the corporation's structure. Widespread recognition of NTT's role as 3 bottleneck in providing advanced telecommunications services gives weight to the argument advocating the breakup of the company, whose proponents include the Ministry of International Trade and Industry (MITI) and the US telecommunications industry. If NTT keeps up its current policy, the duel in the final scene will most likely be to the death.

MTP reports advocate telecom deregulation

Starting this month, the Ministry of Posts and Telecommunications (MPT) is expected to start to apply pressure to realize cuts in cellular phone, international telephone call, and leased line fees. The ministry expects to reduce first-time subscription fees by as much as 50% for cellular telephones, and reduce basic monthly charges by about 10%,. In addition, the MPT has made a recommendation, based on a survey of potential personal handy phone system (PHS) users, that the sign-up for new PHS users sho uld be set at 5,000 yen, one seventh the equivalent cellular charge. Eventually, the MPT is aiming to implement a monthly flat-rate pricing structure for domestic communications, regardless of volume use, to bring the basic monthly charge for all communic ations to around 10,000 yen, by the year 2000. The envisioned services would be similar to the current Japanese system of a "tax" for NHK television (i.e., a monthly rate for anyone who owns a television) or the US's cable TV system.

The initiative was spurred by the ministry's acknowledgment of the substantial difference in US and Japanese telecommunications charges: a typical new subscription charge in Japan is 36,000 yen, but only approximately 5,000 yen, in the States, and bas ic monthly charges average 9,500 yen, in Japan compared to about 4,500 yen, in the US. An MPT spokesperson remarked that the carriers are believed to be able to absorb the rate cuts. However, the understood -- but little mentioned -- fact is that most of the reduction will have to come from the coffers of NTT; the MPT implicitly acknowledged this when they remarked that the current slowdown in the three new common carriers' (NCC) share of the Japanese telephone market, stalled at 54.4%, is due to NTT's mo nopoly over regional public networks.

The MTP visualizes high-bandwidth services to every home through fiber optic cable by the year 2010. Subscribers would be able to access a full range of sound and image services combining television, phone, and computer services for the monthly fee of 10,000 yen. While this is greater than the present 5,300 yen for a family's average telephone bill and 3,000 for urban CATV, the ministry claims that the level of service would more than make up for the extra cost.

The Japanese attraction to Cisco

Following their investment with 12 other companies in Cisco Systems Japan this summer, Softbank has upped its stake in the company by buying an additional 1,920 shares in early October, making the Japanese company the second-largest investor after the parent company, Cisco Systems of California. The move gives Softbank a total of 12% of the network equipment manufacturer, which was set up to develop I,AN products for the Japanese market. The remaining companies will own about 13'%, and Cisco Systems wi ll retain 75'%, of the company.

The move followed a decision to increase the company's capital from 1 12 million to 2.22 billion. Further capital increases are expected, since the original thirteen investors Softbank, NEC, NTT Data Communications, Sega Enterprises, Oki Electric, Comp aq KK, Toshiba, Hitachi, Mitsubishi Electric, CSK, Network Systems, Fujitsu, and Itochu Techno-Science -- had reportedly pledged a total of 3.68 billion yen to Cisco Systems in July. The actual stake of each investor in the company has not been revealed.

In the past, many of the companies who have joined the coalition have had reseller or OEM agreements with Cisco Systems, the leading worldwide supplier of high-performance, multimedia, and internetworking products. Most recently, NEC has been providing the company with small ATM switches for reselling and Toshiba, after receiving the go-ahead from Cisco to invest in the company, has begun marketing Cisco's Advanced Router (AR) series and Cisco 7000 routers for interconnecting LANs. Due to the power beh ind the coalition, Cisco Systems Japan has already taken a leadership role in the internetworking industry and is expected to take a large part of the industry market share.

Japan aims to surpass the US in infrastructure race

Despite battles over whose domain the multidisciplinary beast of Multimedia will become, Japan ministries are making good progress towards correcting their infrastructure deficit and are aiming toward surpassing the US in multimeda-associated technolog ies, especially communications. Japanese industry is jumping wholeheartedly into the endeavor with the establishment in November of the Gigabit Network Council, whose membership of 12 major companies is expected to eventually grow to over 100.

The government has marshalled much of the industry's strength in an attempt to capture a major portion of the market and, rather than fighting a losing battle in the here and now, has decided to plan for the future. The Ministry of Posts and Telecommu nications (MPT) and the Gigabit Network Council, a coalition of Japanese- and foreign-owned companies, will launch a joint experiment in 1995 utilizing NTT's super-high speed networks. Meanwhile, the Ministry of International Trade and Industry (MITI) is establishing economic incentives for companies which promote corporate communications and computerization; starting next year they will offer tax breaks -- 7% deduction from corporate taxes for equipment or 30% accelerated depreciation -- for companies th at purchase equipment such as asynchronous transfer mode (ATM) switches and LAN devices.

On the research front, MPT plans to develop a 2.4T bps optical transmission system by the year 2000. The system will be based on multiple wavelength communications, where up to 1000 frequencies of light will be transmitted simultaneously through an op tical fiber. Several companies have also had recent advances. NEC has developed a 1.3-micron semiconductor laser which enables optical data transmission at 1G bps and, in conjunction with a Keio University research group, has succeeded in demonstrating 2. SC; bps transmission over plastic optical fiber (POF). KDD, the long-distance telephone company, has been able to transmit optical signals over a distance of 10,000 km at more than 20G bps using "amplitude-alternating" solitons, a technology that is a lik ely candidate for high-bandwidth transmission from the latter half of this decade. In early October, Fujitsu reported success in non-relay optical transmission at a speed of 160G bps over a distance of 150 km using 1.3micron zero-distribution fiber and 16 multiplexed wavelengths.

Industry insiders have pointed out that while Japan has far to go to catch up to the US, their infrastructure may surpass the US networks as the US's legacy equipment will not he phased out very quickly. However, much depends on how fast the Japanese c onsumer catches on to these services the rate of usage of computers and communications services is still much lower than in the US.

MO drive technology flourishes

Unlike other technologies, optical media has been an area of computers that Japan has developed much more heavily than the US, where removable hard drives have slowed the optical advance. Recently, three major companies Hitachi, Matsushita, and Sony -- have shown their dedication to maintaining their leadership in the field.

Hitachi has succeeded in producing a 4-bit recording magneto-optical disk capable of storing 10 to 20 times more than today's media, opening the way to 2GB 3.S-inch media. The media uses two recording layers that, when combined, give four magnetic orie ntations, thereby quadrupling the storage capacity. Further increases are expected from additional layers and increased density.

Meanwhile, Matsushita has unveiled their phase-change recording (PCR) optical disk system, aiming to start full-scale production next spring. The 100,000 yen system, which the company hopes to establish as a standard, uses proprietary rewritable disks (priced at 10,000 to record 650MB, but can also read audio CDs and PhotoCDs at a data transfer rate of 870K bps.

Finally, Sony has revamped its minidisk (MD) system and is marketing it as the storage system to replace the floppy disk drive. The MDH-10 drive (price 64,800 yen) and the MMD140 media (price 2,500 yen per disk) were released in November. The disks can store 140MB each, or 365 still 4:3-screen pictures using Sony's new Picture MD standard.

Sharp's power PDA

The phenomenal success of Sharp's pen-based Zaurus electronic organizer has the company scrambling to provide users with more functionality. While the personal digital assistant (PDA) can already transmit fares, the company hopes to provide users with true communications ability. By 1995, the company will release a card enabling the Zaurus to link to PC services and LANs. In a year or two, the handwritten data input function will be improved to allow text data conversion.

However, Apple Computer is not very happy about the company's success, as Sharp's Zaurus is claiming part of the long-delayed Newton's market and Sharp is Apple's development partner for the Japanese Newton. The Zaurus's success must be grating on Appl e -- especially since they finally admitted the Newton will be delayed at least a year.

News Briefs

Softbank puts out roots

Softbank has been making the news for the past few months with all the deals that it has been closing. Supposedly the driving force between the establishment of Cisco Systems Japan, the giant now owns 120/0 of the company. In addition, at the beginning of November, Softbank closed a deal for the Exhibitions division of Ziff-Davis Communications for US$220 million, after trying for several months to buy the whole company.

Other business deals have also gone well. Softbank has signed an agreement with Microsoft Japan to sell Windows NT-related products. Softbank has also arranged for leading bookseller Bunkyodo to sell the company's PC software, books, and magazines, whi le receiving sales information through a POS (point of sale) system which allows sales, inventory, and order data to be instantly shared on-line with the company. Finally, Softbank has tied itself up with Synoptics Communications in a distribution agreeme nt for the small US company's LAN products.

LCD giant still growing

According to the Semiconductor Equipment Association of Japan, the domestic LCD equipment market will likely surpass 100 billion in fiscal 1994, up 90'%, over fiscal 1993. Leading equipment makers Nikon and Tokyo Electron are anticipating near-twofold growth in sales. Orders are coming from Korean users as well as domestic LCD makers.

Improvements in procurement?

Intel Japan won an order from the Japan Atomic Energy Research Institute to supply a massively parallel XPIS1S computer for analysis of atomic fusion plasma. Intel won the tender, the tenth competitive supercomputer bid from government institutions thi s year, by underbidding Gray's T3D by 5 million. The year's total stands at: Fujitsu with five orders, Gray with two, and Hitachi, Intel, and nCUBE with one each.

Despite complaints of unfair procurement practices, foreign (i.e., US) companies are not doing badly. IBM Japan has delivered one of its latest UNIX parallel computers to Ryukoku University in Kyoto. Some 12 machines from Japanese and overseas companie s were under consideration, but IBM's parallel computer was finally selected. However, in supposedly open markets, the US companies are being beaten by their Japanese competitors, as when Fujitsu won out against rival Gray Research in head-to-head competi tion for a supercomputer order from Korea's Meteorological Agency. This will be the first time that Fujitsu has ever delivered a supercomputer in an Asian country other than Japan. Meanwhile, NEC, the only Japanese manufacturer with a track record of supe rcomputer deliveries in Asia, won its second supercomputer order from Singapore.

Fujitsu to develop IBM compatibles

Fujitsu has started developing IBM-compatible machines for the PC sector in a move that follows NECs entry into the IBM-compatible server market. Although the company sells both IBM-compatibles and its own original machines, it has decided that the IBM -compatible market is poised for expansion in Japan as well as elsewhere in the world. IBM-compatibles accounted for one in four units sold by Fujitsu in the first fiscal half of this year, but the company plans to boost this figure to nearly three of fou r units in fiscal 1995.

3DO price slashing

Matsushita Electric has responded to market pressure by abandoning the recommended retail price system for 3DO Real game machines. Fierce retail competition has been forcing dealers to supply the units far below recommended prices. The company supplies units wholesale at 32,000 and has set a recommended price of 54,800 with this restriction lifted, dealers have begun retailing at around 39,000. Sales of the 3DO Real have been poor, and Matsushita hopes that the abandonment of set prices, along with the launch later this year of a small, light version, will allow it to post first-year sales of 500,000 units. The new models, which will offer the same functions as the current player, will be priced at around 40,000.

Relatively strong RDBMS sales

A report from Dataquest Japan forecasts that the Japanese market for relational database software will grow at an annual rate of 33.3% over the next four years to reach a value of Y151.8 billion in 1998. The domestic market for UNIX-based relational da tabase software expanded 36.5% during 1993 to 36.6 billion yen on the sales of three main relational systems, and further growth will be supported by increased demand for client/server systems. Year's PC sales in stratosphere Domestic PC sales are likely to surpass 3 million units in fiscal 1994. Growth is particularly strong in the entry-level sector, and Pentium-based server system sales are picking up as well. NEC recently revised its sales projection from 1.37 million units at the beginning of fiscal 1994 to at least 1.7 million units, while Seiko-Epson reported a 50% increase in first-half fiscal 1994 sales by shipping 120,000 units. Apple Japan, which ended its fiscal year in September with sales exceeding Y100 billion ($1.00 billion), is confident that its domestic share will exceed 20% this year.

MiniTel comes east

Japan Multimedia Service (JMS), a France Telecom VAN operator, and NTT have begun negotiations regarding plans to offer a Japanese version of the Minitel videotex service that is available is France. NTT's circuits are to be used, and service is expect ed to begin around spring 1996. JMS was set up in June with investment from 19 companies, including France Telecom, Tomen, Mitsubishi Electric, Casio Computer and Seiko-Epson, to provide information set-vices ranging from traffic and real estate to touris t and financial information.

Looking for magic

NEC, Mitsubishi Electric, and Oki Electric should have invested as planned in General Magic when the US developer of the next-generation Telescript communications software implements 3 capital increase reportedly slated to take place in late October. N ew investment by the Japanese makers will mean that all major data communications players from Japan, the US, and Europe have stakes in General Magic, virtually ensuring that the company's multimedia communications software will become the world standard.

General Magic has also begun developing a Japanese version of the Magicap operating system for personal digital assistants. The California-based company is negotiating with its five current Japanese investors -- Matsushita Electric, Toshiba, Fujitsu, N TT, and Sony -- about joint development of Japanese character conversion software.

NEC scouring US for innovation

By the end of the year, NEC will be seeking promising new US-made PC software products through 3 dedicated research office to be established at San Jose-based NEC System Laboratories. The new office will become the base for scouting out the latest appl ication software for potential procurement and release in Japan. NEC previously had operating system development staff stationed in the US, but now hopes to holster its software operations by beating competitors to the punch in finding outstanding US appl ication developers.

Modernizing the telecom laws

MPT is set to abolish the need for type-i telecommunications carriers to obtain approval before revising many VAN service rates. As part of the government's deregulation program, the number of service items that require rate approval will be halved fro m the present 120 to 140 during 1995, find carriers will be obliged simply to notify the ministry in advance of any changes.

To keep the growth of mobile communications growing, MPT will ease the spectrum licensing regulations on cellular phone and PHS (personal handy phone system) base stations from January. A service provider installing a new base station or altering frequ encies presently has to submit multiple applications to the ministry approximately one month ahead of use, giving the ministry time to assess the impact on surrounding facilities. Under the new system, carriers will have the power to take their own initia tive. Among other deregulatory moves proposed by the Radio Regulatory Council is a lifting of the ban on using radio waves to transmit PHS subscriber data; this eliminates the need for a dedicated connector.

Developing the Asian info highway

The Ministry of Posts and Telecommunications (MPT) expects to start cooperative research on an Asia version of an information superhighway. The ministry plans for Japan representatives to make a formal proposal at the October 20 meeting in Malaysia of the ASEAN ISDN Council (AIC), a group which includes Korea, China, and other key ASEAN members. MPT already took the initiative in this area by calling for an "Asia information infrastructure" at the Asia-Pacific Telecommunications (APT) meeting in August , but plans to give the project more impetus at the upcoming AIC meeting.

Japan to change intellectual property rights framework

The Agency for Cultural Affairs has published the interim findings of a survey of user and vendor views regarding the legal framework of intellectual property rights in the software field. It found an even split of opinion among both groups over the le gality of reverse engineering, which has become a central topic: in US-Japanese framework talks. It also revealed that 38% of vendors handled copying programs, while 58'%, of users had worked with them. The aim of the survey is to aid the government in pr oposing international harmonization of intellectual property right laws.

The MPT has also decided to begin deliberating Japan's intellectual property rights strategy in preparation for the coming multimedia age. The move is seen as part of the efforts to achieve a truly global information infrastructure. A group of expert s is slated to produce a mid-term report on the intellectual property rights strategy by January of next year.

Meanwhile, the MPT's nemesis, the Ministry of International Trade and Industry (MITI), has also begun to discuss measures to strengthen the protection of intellectual property rights in new sectors such as multimedia and genetic engineering. The mini stry wants to clarify relationships between different rights, since hardware and software claims are likely to become intertwined in the multimedia sector, where computer and communication technologies are converging. MITI hopes that implementing intellec tual property right protection measures will also serve to prevent Japan-US friction.

MITI supports multimedia The Ministry of International Trade and Industry (MITI) will provide 100% funding for promising domestic venture operations in the multimedia software field. The move, for which the ministry will lay aside 1.7 billion ($17.4 million) in next fiscal year's budget, is an attempt to cure what is seen as Japan's Achilles' heel in computer technology. Specifically, interest has been generated in next-generation operating systems and support for distance learning and healthcare applications.

Highly visual folly

If you cannot win over the next generation, shoot for the one after that. This seems to be the logic behind the Ministry of Posts and Telecommunications (MPT) Communications Research Laboratory's development, slated for next year, of what it terms "ult ra-high definition TV" that features 2,000 scanning lines and a 6O times/second refresh rate. The research, which the ministry claims as essential to support true multimedia applications, will first focus on development of compatible cameras, and will aim to create the basic technology by 2000.

Considering that Hi-Vision never truly died, the development makes a strange sort of sense, as does the Hi-Vision Plasma Display Development Association's launch on October 18 with members such as NHK (Japan Broadcasting Corp.) and 24 glass, semiconduc tor, materials, and consumer electronics manufacturers. The aim of the organization is to develop and commercialize a 40-inch plasma display television receiver by the time of the Nagano Winter Olympics in 1998.

NEC measures waste

NEC, in cooperation with the Agency of Industrial Science and Technology's (AIST) National Institute for Resources and Environment and the Japan Environmental Management Association for Industry (JEMAI), has developed software to assess the environment al impact of electronic equipment. The software enables electronic product makers to measure energy consumed during production, use, and disposal, as well as to measure solid waste volumes generated by consumer electronic products. The new software antici pates life cycle guidelines that the International Organization for Standardization (ISO) intends to formulate by 1997.

Internet TV

Metropolitan Television, a TV broadcaster due to begin services in Tokyo in November 1995, will first begin broadcasting via the Internet. The move, which is viewed partly as a bid for free publicity, will nevertheless provide a test case for digital b roadcasting accessible to the Internet's estimated 30 million terminals worldwide. Cost considerations have limited the number of similar ventures to date, but Metro TV needs to create a distinctive profile for itself when competing in Tokyo's already cro wded TV market. The programming format is yet undecided. MPEG2 lands in Japan Decoder/encoder boards for the MPEG2 (Motion Picture Experts Group) standard have landed in Japan in droves -- or so it seems. NTT has developed a board which supports the MPEG2 video data compression standard and can be plugged into an IBM-compatible PC. NTT, which has also developed an MPEG2 image expansion hoard, plans to make both hoards support other PCs and commercialize them through its subsidiary NTT Electronics Technolo gy from the spring of 1995.

Toshiba has also developed an MPEG2 decoder IC. Designed for use in interactive cable TV, interactive TV, digital video disk, and advanced game systems, the TC81200F encodes compressed digital signal in real time. It integrates a memory management unit and so can be used with 16 MB RAM.

VOD still gets high ratings in Japan

While many US businessmen have written off video-on-demand (VOD) as a money pit, Japanese companies seem fairly keen to develop the technology. NEC will next year introduce a PC-based system that it claims will cut the cost of video-on-demand (VOD) to 1/10 the level of dedicated parallel processor-based systems. The system will use SV-98 servers, PC-9800 clients running Windows NT, and Microsoft's forthcoming multimedia data management software, Tiger. Servers will be linked via an asynchronous transfe r mode (ATM) high speed LAN for cable TV support. Meanwhile, Toshiba has developed a VOD system which uses the VIDEOS memory server loaded with 16Mbit chips to provide 4GB of data storage capacity, large enough to record 120 karaoke videos. The system can play and record data using the MPEG2 (Motion Pi cture Experts Group) color video codec standard and process multiple tasks at high speed, enabling requests from a total of 25 subscribers to be handled simultaneously.