Plans and confusion re Japan's optical communication infrastructure.

[David Farber <farber () central cis upenn edu>]

From: 
 Dr. David K. Kahaner
 US Office of Naval Research Asia
 (From outside US):  23-17, 7-chome, Roppongi, Minato-ku, Tokyo 106 Japan
 (From within  US):  Unit 45002, APO AP 96337-0007
  Tel: +81 3 3401-8924, Fax: +81 3 3403-9670
  Email: kahaner () cs titech ac jp


ABSTRACT. Status of Japanese efforts at B-ISDN, and associated
jurisdictional disputes.


The following article appeared in the Journal of Japanese Trade and
Industry, No 4, 1993, pp40-42. It was written by Maeno Kazuhisa, of the
Mainichi Shimbun. Readers who were confused about aspects of Japanese
telecommunications activities will find this report very interesting,
but will also appreciate that their confusion stems from similar crossed
signals from within Japan.


---------------------------------------------------------
Information Superhighway, Japanese Style


Japan is currently engaged in a heated debate over a plan to establish a
next-generation communications network. This fervor revolves around how
best to construct a telecommunications system for the 21st century.


There is a common saying: When the United States sneezes, Japan catches
a cold. Earlier this year, US President Clinton stated, "We endorse the
appreciation of the yen," which amounted to an endorsement of a
depreciation of the dollar. With an exchange rate around 110Y to the
dollar, the yen has never been so strong [the current rate is closer to
105Y, DKK]. Economically, Japan has become a power that is on a par with
the US, yet this common saying about the US and Japan is still very much
alive. Likewise, in Japan's scheming for a next-generation
communications network, the same pattern is being followed.


The plan for Japan to build this network stems from a proposal US Vice
President Albert Gore made shortly after taking office. His plan is "...
to build, by 2015, a high-speed telecommunications highway that would
connect the states across the US in an information transmission network
for the next generation." For an agricultural/industrial society, the
circuit commonly used for  transporting commodities has been highways.
But for the upcoming information society, information as a commodity
will be transported via telecommunications networks.


American interstate highways, it is said, were first proposed by Vice
President Gore's father who, at the time, was a senator. Gore, following
in his father's footsteps, called for building highways for the
information society, e.g., and "interstate information superhighway."
The plan calls for the building of a broadband integrated services
digital network (B-ISDN) across the US using optical cables.


Japan was ahead of the US in establishing a nationwide ISDN system, the
most updated system in telecommunications. The transmission used for
conventional communications systems is an analog format, involving
transmitting data through copper cables. In the ISDN system, data is
numericalized and transmitted by laser, using fiber-optic cables made of
fiber glass, through digital exchanges. B-ISDN, unlike the analog system
which requires separate communications lines for telegraph, telephone,
fax and data communications, provides for an integrated communications
network which uses a single channel of fiber-optic cables. And because
it is said to be capable of transmitting color images (video), the
system can also be used for color TV telephones. [As I have stated in
earlier reports, grey ISDN-capable public telephone booths are common
sights in Tokyo and other cities in Japan, DKK.]


Japan, in the days of Nippon Telegraph and Telephone Public Corporation,
started building the ISDN system using the name Information Network
System (INS). In the main cities on the Japanese archipelago, arterial
networks were laid and since 1988 the company has been providing Japan
with circuit lines called INS Net 64 and INS Net 1500. One theory has it
that the popularization of telecommunications services must be in
proportion to a particular nation's GNP and for the upcoming information
society, the telecommunications network is an indispensable
infrastructure that provides the technical basis for the new society.


Because Japan uses the N-ISDN (narrowband integrated services digital
network) system, Vice President Gore suggested the B-ISDN system which
is 1,000 times more powerful in data transmission and reception and can
transmit TV broadcasts via the same circuits.


Meanwhile, in Japan, as a means to pump-prime the sluggish economy, Mori
Yoshiro, minister for the Ministry of International Trade and Industry
(MITI), suggested, "Japan should build a nationwide fiber-optic system
as a next-generation communications network." As for funding, he stated
at a press conference that "it should come from construction bonds,"
With the combined-recession, sales of telecommunications and data
processing related products have been slow. While Minister Mori's view
is in compliance with the wishes of the Communications Industry
Association of Japan, his statement became the spark plug that started a
heated dispute between political, financial, and administrative circles.


As mentioned before, Vice President Gore proposed the use of
publicly-raised funds to construct optical cable networks across the US.
While the building of telecommunications systems is accepted in he US as
a public works project, the situation is different in Japan. Projects
eligible for construction bonds, according to guidelines set by the
Ministry of Finance (MOF), are limited to future-generation projects
that are semi-permanent. It follows that the main targets are public
works such as highways and sewerage. The development of a
telecommunications network is not eligible for public funds since it is
not considered a public works project. This goes to show how backward
the Japanese government is.


Officials at the Ministry of Posts and Telecommunications (MPT),
responsible for the development of telecommunications, are familiar with
the hitherto attitude of the Finance Ministry. But before they could
propose that the telecom plan should be included in construction bonds,
MITI beat them to it. Since telecommunications come under the
jurisdiction of the MPT, the officials there, in a big flurry, decided
at the last minute in mid-March to refer to the Telecommunications
Council, an advisory panel to the industry, a recommendation on what
should be the 21st century telecommunications system and how such a
system can be established.


This marked the beginning of MPT's counterattack. In the past, MPT and
MITI have been in constant disagreement. And today, over fiber-optic
networks, the two ministries are again engaged in a dispute,. As will be
mentioned further on, to MPT, ever since the privatization of Nippon
Telegraph and Telephone Public Corporation in 1985, Nippon Telegraph and
Telephone Corporation (NTT) is nothing more than one of many private
telecommunications companies. [NTT is the world's largest corporation,
with market capitalization of about US$150B. ATT is second, at about
US$80B, DKK.] Worse yet, the company has been plagued by competition
from newcomers in the market and is suffering from an unfavorable
business climate. MPT feels that they cannot trust to NTT the building
of a next-generation telecommunications network, a system which will
play a decisive role in the 21st century economy of Japan.


MPT launched a plan to organize a public corporation to be in charge of
the entire project and have NTT and other telecommunications companies
compete in the supply of cables for the network. This plan has been met
with keen opposition from MITI which openly argues that the
privatization of NTT had been a painstaking effort. Organizing a public
corporation will only defeat the purpose of the privatization reform
aimed at improving business effectiveness. But the ministry's true
motive, as is widely discussed among people involved, is in trying to
prevent a MPT-influenced public corporation from being organized, as the
existence of such an organization will only intensify its dispute with
MPT. Meanwhile the Finance Ministry is also against MPT's proposal,
saying that the plan to organize a public corporation will only dig
further into tax revenues and governmental bonds.  This, MOF fears, may
lead to a crisis in the nation's finances.


At the juncture NTT came out and announced, "As long as there is
capital, we can do it with our own hands just we have always done."
NTT's business performance has declined since the New Common Carriers
entered the telecommunications market. Because NTT had applied for a
price-hike with MPT earlier, the ministry looked at the company's
gesture merely as an excuse to open up the issue again.


Following the liberalization of the telecommunications market in 1985,
breaking the monopoly held by the then Nippon Telegraph and Telephone
Public Corporation, new enterprises, one after another, entered the
market. Three newcomers have entered the long-distance
telecommunications business: "Daini-Denden Inc (DDI), founded by
Kyocera, Sony and three other companies; Japan Telecom, in which the now
defunct Japanese National Railways was a major shareholder; and Nippon
Kosoku Tsushin (Teleway Japan), backed by the Japan Highway Public
Corporation and automobile manufacturers.


NTT's long-distance telephone charges are higher than in the US. MPT's
tactic in the privatization process was to allow new firms to enter the
market bringing prices down through competition. MPT initiated this
competition setting the starting rate at about 30% cheaper than that of
NTT. The result was that within seven years phone charges have decreased
four times. Take, for example, a three-minute call between Tokyo and
Osaka. While NTT charged 400Y seven years ago, now it only charges 200Y.
The new firms started at 300Y, but now charge on 180Y for the same
service. For telephone users this is indeed a big plus.


But for NTT, business began to deteriorate. For service between Tokyo
and Osaka, which is a major money maker, the New Common Carriers are now
in possession of as much as 53% of the business shares. For fiscal 1992,
NTT closed its accounts with a 102.7B Yen short fall in current profits,
originally projected at 351B Yen.


NTT went to MPT saying that the company's telephone billing system has
been such that profits gained in long-distance phone billing are used to
cover deficits incurred for local telephone bills. Owing to a drop in
profits in long-distance calls, NTT requested a price hike in local
calls to adjust for this imbalance. But MPT rejected the request,
saying, "... deterioration in your long-distance phone  business is due
to taking too much profit over the years, this cannot be a reason  for
your price hike. Why don't you develop new services to make up for your
declining business?"


In Japan the (average) length of time used telephoning per line per day
is a little less than 12 minutes--one third of that in the US. Although
the number of telephones has increased to 55 million, they are left idle
for 23 hours and 48 minutes per day, a great loss to the nation. While
MPT maintains that NTT should "diversify services and try to make people
use the phone more as a way to raise profits," NTT retorts with "local
phone bills must be raised for business improvement."  MPT then charged
NTT with lobbying aggressively among Diet members, trying to influence
the Liberal Democratic Party's Post and Telecommunications
"clan"--people who are influential in the administrative affairs of MPT.
The ministry and NTT became even more antagonistic and the former
insists that it will not grant NTT its wishes to raise local phone
bills.


The Finance Ministry and MITI have now added fuel to the fire. MOF holds
two-thirds of NTT's shares and this ministry, partially motivated by a
desire to raise share prices, is eager for NTT to raise phone prices.
Meanwhile, MITI feels strongly that NTT should be in charge of building
the next-generation communications network. The result is a complicated
situation where interests of the involved ministries are intertwined.


While the dispute over the selection of a main builder for the
next-generation communications network continues, so far the issue on
how the communications circuit should be used is being completely
ignored. Because B-ISDN is capable of transmitting enormous quantities
of data, the circuit can be used not only for transmissions of telephone
and communications, but also transmissions and receptions of color TV
broadcasts via the existing air waves.


MPT began its telecom administration by making a distinction between
communications and  broadcasts. Communication is defined as "limited,
small volume of communications" whereas broadcast is "unlimited
transmissions of large quantities of data." Because MPT treats the two
as different kinds of communications, the ministry has set up two
separate organizations, the Communications Policy Bureau and the
Telecommunications Bureau, to deal with the category of communications.
The result is that for satellite TV broadcasts, the broadcasters often
have to make use of two different kinds of satellites--a communications
satellite and a broadcasts satellite--for their transmissions.
Consequently, broadcast subscribers have to buy two separate antennas.


Ten years ago, when the first broadcast satellites were launched,
reception was poor and there was the need to specify that  broadcast
satellites must be more powerful than communications satellites. Now,
with the advance of technology it is believed that it is no longer
necessary to distinguish between   communications satellites and
broadcast satellites.


In addition, facsimile transmissions once could only be used on a
one-to-one basis with the receiving party restricted to one fixed
location. Now, technology has improved to such an extent that one fax
machine can be used to send transmissions to several hundred parties.
In other words, communications is increasingly moving towards the forms
of broadcast. As mentioned before, because B-ISDN can be used to
transmit animated color TV images via fiber-optic networks, there is the
sentiment that the time has come for MPT to review its policy of
treating communications and broadcasts as separate entities.


The is why MPT has decided to bring the issue up to the
Telecommunications Council. Recommendations are to be submitted by the
council by next March (1994). In Japan there is the high probability
that a new communications legislation will be drafted similar to the US.
In America, the Federal Communications Commission (FCC) has already
granted permission for a new service called Video Dial Tone which uses
telephone circuits to broadcast TV. It looks like Japan  will again
follow suit.