Surviving in Japan's Telecommunications JungleToday, the Japanese telecommunications industry is experiencing changes greater than any since the mid-1980s, when the semi-governmental NTT Public Corporation was (partially) privatized, KDD was formed, and limited competition was introduced. From the viewpoint of the established market players, it's definitely a jungle out there.by NorikoTakezaki Survival of the fittest. The strong prey upon the weak. That is the law of the jungle, and it applies to Japan's newly deregulated telecommunications business environment. Shielded by strict governmental market oversight, for the past decade Japanese telecom firms have enjoyed a profitable "regulated competition" under the guidance of the Ministry of Posts and Telecommunications (MPT). But foreign pressure for a more-open market and the modern business realities created by new technologies have changed the landscape. Japan's telecom playing field has turned into a jungle, with the question now being: Who is predator, and who is prey? The impending reorganization of the nation's predominant domestic carrier, Nippon Telegraph and Telephone Corp. (NTT), has spurred drastic changes in Japan's telecommunications business environment. Already, preliminary scuffles have broken out among the leading domestic telecommunications carriers, and international telecommunications carriers are preparing for NTT's intrusion into their territories.
NTT goes international That the long-discussed restructuring of NTT will finally be realized owes much to the Hashimoto Cabinet, which has strongly backed NTT's entry into international services as a way to make the carrier (and, thus, Japan) more competitive in the global business scene. "If NTT were not allowed to enter the international telecommunications business, our operation would taper off, and the telecommunications market in Japan would be taken over by foreign carriers," warns Norihiko Ohkubo, NTT's senior manager of the strategic planning division. Revision of the NTT Law, which sailed through the Diet with the support of the Hashimoto Cabinet, means that NTT is ready to make a smooth transition into a new and potentially lucrative market segment Ñ in direct competition with international carrier KDD. "Although the market size of international communications for Japan is still small," says Ohkubo, "we are excited about having this new challenge which requires flexible and innovative ways of thinking. Younger employees are particularly enthusiastic about facing this challenge, and we expect it will change our entire corporate culture in a positive direction." NTT has started laying the groundwork in preparation for 1999, when its full-fledged entry into the international telecommunications business will be permitted by the revised law. Already, the company has established two subsidiaries for its initial international telecommunication services. In July, NTT established NTT Worldwide Telecommunications Corporation (NTT Worldwide Telecom) as a Type II carrier. NTT Worldwide Telecom started operations in September 1997 by offering such permitted services as leased circuits, frame relay, private IP (Internet protocol) networks, and one-stop billing to major corporate customers, including Dai-ichi Kangyo Bank, Sakura Bank, and NEC. The initial destination service areas are the US, UK, France, China (Hong Kong), Singapore, and the Philippines. NTT Worldwide Telecom plans to extend its services to Germany, Belgium, Italy, Australia, and Malaysia in the near future. In October 1997, NTT also set up a new Type I carrier, NTT Worldwide Network Corporation (NTT Worldwide Network), that will offer high-speed leased circuit services mainly to Type II carriers (including Internet service providers). The planned initial destination service areas are the US, UK, China, Korea, Singapore, Taiwan, the Philippines, Thailand, Malaysia, and Indonesia. NTT Worldwide Network's services are scheduled to start in April 1999, soon after the NTT restructuring takes place.
Unfair advantage? As one example of possible unfair advantage, Nagao notes that NTT has been dispatching employees to its customers' sites on the pretext of providing customer support. "Such NTT employees," he says, "may recommend that the customer use the services of NTT Group companies for both domestic and international communications." "Since NTT will remain as a holding company, to supervise the reorganized operational bodies, the sense of an ÔNTT Group' will remain unchanged. Their monopolistic tendency will not be changed unless the MPT keeps a watchful eye on them," argues Nagao. As evidence of its serious concern, KDD in October took the unprecedented action of sending an "opinion letter" to the MPT requesting strict ministry observation of NTT's behavior. Among the measures requested by KDD are that the ministry prohibit NTT companies from taking advantage of NTT's dominance in the local network business by requiring separate bill handling for the services of each domestic and international communications company. KDD has also asked that the ministry prohibit the dispatch of board members from the NTT holding company to the reorganized international/ long-distance communications company.
New fields to plow In January 1997, NTT established the Asian Multimedia Forum (AMF) for joint development of multimedia applications and services in Asia. The AMF will conduct joint trials in such areas as ATM (asynchronous transfer mode) network interconnections, Internet phone connections, Internet-satellite communication, and Internet EDI (Electronic Data Interchange). The AMF had 30 member companies as of September, including telecommunications carriers, Internet service providers, satellite communications companies, and communications equipment vendors. Among the general members are two American companies, Cisco Systems and PanAmSat. In addition to establishing the AMF, NTT is expanding its Asian connections in other ways. NTT has invested in Sri Lanka Telecom, for example, and has also applied for a Type II carrier license in Singapore as part of a consortium formed together with British Telecom, Singapore Technologies Telemedia, and Singapore Power. NTT is also eyeing tie-ups with US carriers. In September, NTT invested $100 million in Teligent, a Virginia-based wireless local access service provider. NTT's Ohkubo says that Teligent is attractive to NTT since it represents a new business field, one that is relatively easy for a Japanese company to enter. He adds, however, that NTT considers entry into the American telecommunications market, particularly the long-distance one, to be very difficult. NTT has no intention, at this stage, of forming a strong partnership with any major American carriers, says Ohkubo. "We would like to accumulate the know-how in international business on our own, and we think we can do it by utilizing our subsidiaries overseas. There are already many NTT subsidiaries in many countries who have been accumulating business know-how in their respective areas through support work for Japanese customers there."
KDD plays its hand Featuring 100G-bps line capacity (equivalent to 1.2 million telephone lines), the JIH will enable KDD to offer low-cost, high-quality, highly reliable service to its subscribers. The JIH is particularly suited to the demands of Internet, extranet, and video communications use. KDD also intends to wholesale this backbone network to other Japanese New Common Carriers (NCCs; the domestic long-distance competitors to NTT), as well as to foreign carriers who could use KDD's network as a junction point for their service to other Asian countries. KDD's other major strategy is creating alliances with Japan's NCCs. KDD inked agreements with DDI and Teleway in August, and with Tokyo Telecommunication Network (TTNet) in September, for joint provision of telephone, leased circuit, frame relay, and other international-domestic communications services. By using these joint international-domestic telephone services, customers can enjoy such benefits as service discounts and a single bill for both international and domestic calls. DDI, Teleway, and TTNet have all agreed to interconnect their networks with KDD's JIH, in large measure so that they will not have to depend so heavily on NTT's network (which has higher access charges and requires long-term interconnection negotiation). KDD additionally plans to establish an Internet-related joint venture with TTNet. KDD is also tackling the issue of drastic cost reduction, mainly by reducing its staff size. KDD will relocate redundant personnel to one of the many KDD subsidiaries, which range from a think tank to a real estate business to a golf course management firm.
Toward an open market "The entry of foreign carriers is a natural process following the transformation of the domestic telecommunications industry," says Kaye. "Already, AT&T has entered the Japanese market, offering a cheap callback service. And many other foreign operators have been thinking about how they should offer their service here: whether they should form an alliance with Japanese companies, or should buy some telecommunications operator here. This is the market everybody is looking at." In fact, Teleglobe, a Canadian carrier, has already applied to the MPT for a Type I carrier license, and intends to initiate service in Japan this year. Also, British Telecom and American long-distance carrier WorldCom are reportedly set to apply for Type I carrier licenses. Many other foreign carriers have been visiting Japanese carriers to discuss potential tie-ups or establishing firmer relationships. Most of the Japanese carriers, however, remain passive and circumspect, seemingly wanting to be cautious in the face of drastic changes in Japan's telecom business environment. In the long term, though, caution may not be the best policy for Japanese telecommunications firms. "Be active, and be a tough negotiator" is probably the best way to survive in Japan's telecommunications jungle.?
| |||||||||||||||||||||||||||
