NTT Law Review: The Future of Active Debate September 9 21:14

The debate over the NTT Act is becoming active. While NTT insisted that it needed to review its regulations, three competitors, KDDI, SoftBank, and Rakuten Mobile, rebelled. What is the NTT Act in the first place? Why is there a review discussion now? We will summarize the points of discussion and explore future prospects.
(Economic Affairs Reporters: TANIKAWA Kotaro, YAMANE Chikara , NAKOSHI Daiko, NISHIGATA Akaneko)

Full-scale review discussions

"I was really horrified when an article came out that the NTT Act would be repealed,"

said Hiroshi Mikitani, chairman of Rakuten Mobile, at a council meeting to review the NTT law held at the Ministry of Internal Affairs and Communications on September 9.

In addition to Chairman Mikitani, four other people attended the council meeting: NTT President Akira Shimada, KDDI President Makoto Takahashi, and SoftBank President Junichi Miyakawa.

The NTT Act was created following the privatization in 1985 of the Japan Telegraph and Telephone Public Corporation, which had monopolized the domestic telecommunications market. The aim was to impose certain regulations to promote fair competition among new entrants.

At the council hearing, the top executives of the three companies, excluding NTT, called for careful discussion, saying that there were concerns that the content of the review would damage the fair competitive environment.

Discussion Point 1: Optical fiber is indispensable for the mobile phone business

The three companies that are concerned about the revision of the NTT Law are all advocating the handling of the nationwide optical fiber network, which is indispensable for the mobile phone business.

For optical fiber lines connecting mobile base stations and the offices of each company, NTT East/West accounts for 74% of the domestic market share. Mobile phone companies borrow this line from NTT East and West and use it for mobile services.

Currently, the reintegration of the NTT Group is regulated by the NTT Law, but if the NTT Law is reviewed and there is room for NTT East/West and NTT DoCoMo to integrate, the three competing companies are increasingly concerned that DOCOMO may receive preferential treatment for providing optical fiber lines.

For this reason, the three companies are calling for the separation of telecommunications infrastructure such as optical fiber networks from NTT, including nationalization, if the NTT Act is to be reviewed.

NTT President Shimada denies this concern as follows.

NTT President
Shimada: "I would like to see room for the integration of NTT East and West, but if DOCOMO joins together, there is a possibility that we will not be able to fulfill our obligation to provide optical fiber fairly, which is unlikely. I would like you to evaluate me based on my achievements."

Discussion Point 2: Are regulations hindering NTT's strengthening of international competitiveness?

Another point of contention is the strengthening of NTT's international competitiveness.

Looking at the world, global competition in new fields such as AI and cloud computing is intensifying, creating a situation that was unimaginable at the time of the enactment of the NTT Law.

NTT's presence is declining against giant U.S. tech companies that invest large amounts of R&D money, but NTT insists that it is necessary to review the NTT Act to solve these problems.

The NTT Act stipulates that NTT is responsible for "promoting and disseminating research and development," and NTT is obliged to disclose information on research results under this provision.

NTT is said to have globally superior technologies, including technologies related to IOWN, a next-generation communication network that uses optical technology, but based on the provisions of the NTT Act, from the perspective of the possibility of being required to disclose information from overseas government agencies and companies, and the obligation to disclose information fairly, NTT argues that there may be cases where it is not possible to provide sufficient information to partner companies, which hinders international competitiveness.

However, other companies argue that NTT's claim misses the point.

SoftBank President
Miyakawa: "If there is something that does not match the times, we can review it, but I don't know why abolishing the NTT Act will lead to opposition to GAFAM.

Rakuten Mobile Chairman
Mikitani: "The loss of international competitiveness due to the disclosure of information stipulated by the NTT Act can only be seen as an excuse to amend the law."

Discussion Point 3: Is a landline phone a universal service?

NTT insists on the need to review the NTT Act, and competitors call for careful discussion.

On the other hand, it is also true that the environment surrounding information and communications in Japan is changing significantly. In particular, the main means of communication have changed from fixed-line phones to mobile phones, and services that utilize communication have entered all aspects of daily life.

The NTT Law obliges NTT to provide services such as fixed-line telephones nationwide, so-called universal services.

But compared to about 40 years ago, when the law was enacted, landlines are no longer necessary for life.

In fact, the number of fixed-line telephone subscriptions as of the end of last fiscal year (FY2022) was 1210.1996 million, one-fifth of the peak of 6145.5 million at the end of FY1, and is expected to fall below 1000 million in a few years.

NTT continues to provide universal services such as fixed-line telephones and public telephones, which are legally mandatory, but due to the high maintenance costs of aging equipment, the deficit of related businesses in fiscal 2022 amounted to 580 billion yen for NTT East and West, and is expected to continue to increase in the future.

Against this backdrop, NTT is calling for a review of the law.

Noting that it is necessary to reconsider what services are essential to the public, he argues that we should aim for more convenient universal services, including methods that are not limited to fixed-line phones and mechanisms to ensure efficient services for the entire operator.

Competitors are also divided on this.

In addition to SoftBank's view that "the obligation to provide telephone calls nationwide is not in line with the current era," KDDI believes that "the obligation to provide telephone services universally for the benefit of the public should be maintained," and Rakuten Mobile says that "[universal services] need to be discussed in the future."

Debate over the review: November?

The council of the Ministry of Internal Affairs and Communications is planning to compile a report on the revision of the NTT Act and related Telecommunications Business Act around next summer, but the schedule set by each company is different.

"There is also a council of the Ministry of Internal Affairs and Communications, but the general framework will be concluded in November," said an executive of a major telecommunications company.

The LDP plans to compile a proposal to the government by November, but it believes that the conclusions of this meeting, which precedes the council, will determine the course of future discussions.

In fact, at a press conference on September 9, Minister Suzuki stated, "We hope to submit a report around next summer, but we will promptly work on the necessary revisions that can be reached at an early stage in the course of discussions," indicating that he intends to hasten discussions.

An executive of a major telecommunications company who opposes the revision of the NTT law also watches closely the future of the LDP's debates, saying, "We are not talking about whether the government will sell its shares, but the LDP working team should hold hearings with each company in October.

Careful discussion from the user's perspective

The Japan telecommunications market, which had been monopolized by the state for many years, was liberalized in 1985 with the privatization of the Japan Telegraph and Telephone Public Corporation and the establishment of NTT.

The NTT Law was created with the aim of promoting free domestic competition between NTT, which has great power to succeed the infrastructure of the public corporation era, and new operators, and competitors are wary that NTT will again become a giant telecommunications company with great monopoly power if the constraints of the NTT Law are removed.

If free competition is eliminated in the market, there will be concerns about high prices and a decline in the quality of services, and it is we, the users, who will be affected.

Approximately 40 years have passed since the enactment of the NTT Law, and the environment surrounding telecommunications has changed significantly, and communication has become indispensable not only as a means of communication, but also in all fields of our lives, such as smartphone payment, payment for public transportation, Internet search, video viewing, and work tools.

How can we strengthen NTT's international competitiveness while ensuring a fair competitive environment? Also, from the perspective of economic security, how will foreign capital restrictions on telecommunications carriers be strengthened? How will we review the current universal service centered on fixed-line telephones, and how can we maintain stable communication services even in the event of a disaster?

In order to make our lives more convenient, those involved are required to engage in careful discussions from the user's perspective.

Kotaro Tanikawa, reporter
of the Ministry of Economic AffairsJoined Okinawa Bureau in 2013After
working at the Okinawa Bureau
and Osaka Bureau, he is currently in
charge of the Ministry of Internal Affairs and Communications.

of the Economic DepartmentChikara
YamaneJoined Matsue Bureau, Kobe Bureau, and Tottori Bureau
in 2007 in
charge of NTT and KDDI

Nagoshi of the Ministry of Economic Affairs Joined the Fukuoka Bureau
in 2017 and is in charge of his current SoftBank

Economic Department reporter
Nishigata joined the Fukuoka Bureau
in 2020, and has been in charge of Rakuten Mobile since
this summer.