The NTT Law: Good or bad for business?

KAZUAKI NAGATA STAFF WRITER

2023-11-21T08:00:00.0000000Z

The Japan Times

https://epaper.japantimes.co.jp/article/281522230826208

Front Page

Is it better to release the decadeslong shackles on telecom giant NTT so that it can compete against global players such as Google and Microsoft? Or would that let the genie out of the bottle and lead NTT to monopolize Japan’s communications market? A ruling Liberal Democratic Party idea, first floated June, to sell the government’s NTT shares to finance Prime Minister Fumio Kishida’s defense spending increase has now morphed into something else — what to do with the law regulating NTT’s business activities. And it has reignited a battle between NTT and its rivals KDDI, SoftBank and Rakuten over the past few months, with a key LDP panel holding its fate — and possibly the fate of the mobile carrier industry — in its hands. The NTT Law requires the government to own a third or more of NTT. But the proposal on how to secure increased funding for defense said that may need to be revised, with the technological and business landscape having changed greatly since 1984, when the law was enacted. The government held about 34% of the stake as of September, with this worth roughly ¥5 trillion. The debate heated up last week after the LDP panel reportedly compiled a draft proposal that would entail the law being scrapped by 2025, with the aim of beefing up NTT’s competitiveness. That move essentially saw the panel side with NTT. Some LDP members have seen the debate as a golden opportunity to free NTT from existing restrictions and increase its international competitiveness against global tech giants in the realms of artificial intelligence and other emerging technologies. NTT’s history goes back to 1952, when state-run Nippon Telegraph and Telephone Public (NTTP) was established with a mission of rebuilding and improving Japan’s communications infrastructure after the severe damage caused by World War II. With fixed phone services having become more common in the 1980s as the Japanese economy boomed, the government moved to nominally privatize NTTP to create competition in the telecom industry. Given that NTTP possessed massive telecommunication infrastructure assets — built with taxpayers’ money — along with advanced technologies and manpower, the NTT Law was enacted in 1984 ahead of its privatization the following year, with this restricting its activities to secure fair competition and protect NTT’s assets from foreign companies. The NTT Law applies to the main holding company as well as NTT East and NTT West, its regional fixed-line operators. The NTT group itself has more than 950 subsidiaries. Because NTT, NTT East and NTT West have to conform to the NTT Law, they operate under strict rules that a normal private company would not be subject to. For instance, because communications infrastructure is crucial to daily life, NTT West and NTT East are obligated to provide phone access anywhere in the country, even if it is unprofitable. The companies are also banned from changing their names, and they are obliged to disclose their research and development. In addition, as NTT East and NTT West took on the nation’s communication infrastructure, built when NTT was a public entity, they are not allowed to merge into a single company. NTT claims that the law has fulfilled its role and no longer matches the current business environment. When the law was created, NTT monopolized the fixed landline infrastructure and related services. But now, broadband and mobile communication services have become the main field of competition. In the mobile phone business, NTT Docomo may have the largest share of users, but it is no longer a monopoly, with rival firms — KDDI and SoftBank — catching up, NTT argues. For NTT, the obligation to reveal its R&D is a huge disadvantage in doing business with other companies, who want to keep joint projects under wraps. Speaking at a news conference earlier this month, NTT President Akira Shimada said that domestically and globally, the disclosure obligation has been a constraint just as collaborating with other companies has become more crucial in launching new businesses. What’s more, a clause preventing the company’s more than 150,000 non-Japanese workers from becoming executives at NTT’s holding unit is a hindrance to attracting foreign talent, the firm says. United opposition KDDI, SoftBank and Rakuten have shown their understanding in easing some of the regulations, such as the R&D disclosure clause. But they have created a united front in firmly opposing the scrapping of the NTT Law, which they believe would give too much freedom to NTT. For the three telecom operators, NTT’s communications-related infrastructure is a “special asset” created through the investment of taxpayers’ money, so NTT should be constrained by regulations to maintain a level playing field. Without the NTT Law, they fear the company might restructure its units, for instance merging NTT East, NTT West and Docomo to consolidate and streamline their operations while taking advantage of their nationwide communication infrastructure. For instance, NTT leases its fiber optic lines to other telecom operators so they can provide internet services. But the rival firms are worried that the price of that might be unfairly increased if the NTT Law is abolished, allowing NTT to strengthen its group cooperation. Also, when combining NTT West and NTT East’s shares of subscribers to the fiber optic network, they dominate about 62% of the market. “If the NTT Group acts as one company, it will disrupt fair competition, which could cause users to pay high service fees and slow down efforts by other companies to innovate,” KDDI CEO Makoto Takahashi said during a news conference last month. “Moreover, we are concerned that NTT Group’s powerful market dominance could push out smaller local players,” which would diminish local competition and weaken the quality of services, he said. Last month, KDDI, SoftBank and Rakuten Mobile submitted a letter on behalf of a total of 180 firms and municipalities to the LDP and the government, in which they expressed their opposition to scrapping the law and calling for a “careful” discussion. NTT has denied speculation that it would regroup NTT East, NTT West and Docomo even if the regulations were eliminated. Yet the rival firms are skeptical, partly because in 2020 NTT purchased all the shares of Docomo to bolster cooperation with other NTT units and streamline operations. Ever since NTT was split into several entities in 1999, the basic policy of NTT was to have each unit act as an independent firm to keep competition fair. But the Docomo buyout was an about-face and took place without any prior debate, which riled up the rival operators. To make sure NTT doesn’t merge NTT East, NTT West and Docomo, it must be “written in the law,” Takahashi said. Outlook uncertain The fate of NTT appears to depend on how the LDP panel finalizes its proposal to the government. But it is still unclear what approach it will take. According to media reports, the draft proposal revealed last Thursday suggests that the government may revise the law during next year’s ordinary parliament session, normally convened in January, to eliminate the R&D disclosure obligation. Then, the law would be abolished by the 2025 ordinary parliament session while ensuring necessary legal revisions to maintain the provision of universal services and protect NTT from being taken over by foreign companies. But whether the draft proposal will become government policy remains unclear amid opposition from a number of LDP lawmakers as well as NTT’s rivals. The LDP is expected to finalize the proposal by the end of this month. The LDP’s draft proposal has further fueled the battle among telecom firms, with top executives of KDDI, SoftBank and Rakuten speaking out on social media. The LDP panel’s move to “abolish the NTT Law and leave the precious and unique optical fiber network built with taxpayers’ money to a completely free private company is insane,” Rakuten Chairman Hiroshi Mikitani posted on X, formerly known as Twitter, last week. NTT’s public relations account responded to Mikitani’s post by saying that his claim was “nonsense,” because the firm started building its fiber optic networks after it was privatized. SoftBank CEO Junichi Miyakawa also wrote on X that the matter needs to be thoroughly discussed by communications operators rather than leaving it in lawmakers’ hands. “We are ready to engage in a face-to-face discussion,” Miyakawa wrote. If such discussion does not take place, “it will leave resentment” in the industry, he said.

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