NTT is the world’s largest telecommunications company (Figure 2) and is central to any Japanese plans for a NII: as noted earlier, all existing NII plans assume that NTT will be building the information infrastructure to the consumer’s door. NTT was a government agency until 1985, when it was officially spun off as a “private” company and MPT acquired responsibility for regulating NTT. Even after stock sales from 1986 to 1988, the Ministry of Finance still holds about 65% of the shares of NTT; with ongoing MPT influence, NTT has become at best a quasi-private corporation.
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After the 1985 privatization, the question of breaking up NTT further — a la AT&T — was postponed. Further privatization also has been on hold since the collapse of the stock market, because MOF has not wanted to offer additional shares in a soft market. However, with the prospect of an expanded information infrastructure, and ongoing market power of NTT to crowd out smaller rivals, MPT and the new common carriers (NCCs) have renewed their push to break up NTT; the first salvo came with an MPT (1995) report documenting NTT’s market concentration (Table 1). A special committee of the MPT Telecommunications Council is scheduled to recommend a future structure for NTT to ensure a healthy Japanese telecommunications industry, with a report due in March, 1996. It is expected that the committee will recommend the breakup of NTT, but that will be just the first step in a long process before a final decision is made.
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In fact, the battle over NTT has been waged in the court of public opinion throughout 1995. MPT argues that breaking up NTT would create a dynamic telecommunications market, with competition leading to lower prices and new services. NTT responds that competition is now international, and that it should be allowed to stay intact to compete in international markets. NTT also argues that a breakup would damage network coherence. Finally, NTT argues that its R&D labs are a national resource that should be preserved.
NTT took two pre-emptive strikes against divestiture in late 1995. First it announced that it would provide local network to other carriers in order to create a competitive environment. It also announced that it would cut its workforce by 50,000 from the present 200,000 to reduce its operating costs, in return for the company being kept intact. NTT President said, “We present this restructuring on the assumption that the breakup will not go forward.” (Timmermans, 1995). One industry analyst argued that NTT’s pricing structure for interconnection made the offer to open local connections “a fake,” intended to win political points rather than create true competition. Potential local competitors are mostly small carriers, cable TV companies and other utility companies that have their own fiber optic networks between cities. None have the capital or technology to compete seriously with NTT.
NTT’s plan to cut labor costs will be difficult to implement, given the political clout of NTT’s union. The average salary at NTT is estimated at between 8 million and 10 million yen (US$80,000-100,000) per year, and NTT has a higher worker/customer ratio than its international competitors. NTT’s union has not agreed to job or salary cuts, and past efforts to spin off units such as NTT’s Software Center were successfully thwarted by the union.
A former NTT executive argued that the real purpose of NTT’s announcements was to "move the playground from the NTT Law to the Telecommunications Business Law." Under the NTT Law, the issue of breaking up NTT is within MPT’s regulatory jurisdiction. However, by broadening the agenda to encompass the Telecommunications Business Law, NTT is trying to shift the debate to the Diet, where it can line up its allies to oppose breakup. Shifting the debate to the Diet, and/or to some kind of interministerial negotiations, means probably delaying the issue for years. If the Telecommunications Basic Law is to be rewritten, a host of issues will have to be resolved, including the demarcations between local and long-distance service, domestic and international service, Type I and Type II service, and broadcast and cable TV.
One of NTT’s goals is to be allowed to expand into international markets. Since its privatization, NTT has been prevented by MPT from providing international service, which remains the domain of international carriers KDD, IDC and ITJ.53 MPT is unlikely to allow an intact NTT to provide international services, as it would lose one of its most important sources of leverage over NTT. NTT would also like to end the separation of Type I (common carrier) and II (value-added) services. By opening its local lines to competitors, NTT is positioning itself to be allowed to compete in value-added services free of MPT’s regulation. This strategy puts NTT’s monopoly profits in local service at risk in order to pursue new growth markets in the future. Again, however, MPT is not likely to agree to such a change, as it would prefer to increase, rather than decrease its regulatory reach.
By putting such a broad agenda on the table, NTT hopes to attract allies in its battle with MPT. So far the battle lines seem to be as follows:
Pro-breakup: MPT, NCCs, cable television companies, other potential competitors
Anti-breakup: NTT, MITI, NTT’s family of equipment suppliers, NTT union
A key player is likely to be MOF, which is very concerned about maximizing the value of its shares in NTT. In the past it was assumed that MOF would oppose a breakup because NTT’s share value would be hurt. However, in 1995, Nomura Research Institute produced a report stating that NTT would actually be worth more in parts than as a whole, as the smaller units could pursue profitable alliances to enter new markets and cut costs. Morgan Stanley came to a similar conclusion (Interview with Tadao Saito, Oct. 23, 1995). Another possible factor will be the outcome of the next national election, expected in 1996. If an LDP majority is restored, the party and its Prime Minister will have more influence over the NTT issue than the present coalition government can muster.
It is difficult to forecast the final outcome of the breakup issue. No one is happy with the present regulatory regime, which maintains artificial market barriers between different categories of service and hamstrings NTT and its competitors alike. However, the present political climate seems more conducive to continued standoff than a decisive resolution of the issues. For the near future, NTT is likely to remain intact under the present regulatory structure, but uncertainty surrounding NTT’s future will be an obstacle to rapid development of Japan’s NII.