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Regulatory Governance and the Implementation of Universal Service: A Comparative Study of the US and Japan
Unformatted Document Text:  Tracking Number: ICA-1-11804 Regulatory Governance and Universal Service 14 almost seven years since liberalization, NTT subsidized all other services by huge profits in the long distance market (Hayashi, p.208). The public telephone service was not profitable before the rate rebalancing in 1994 and even after rate rebalancing it remained unprofitable. The lower rate level for the service means it is supported socially and politically, and deficits are subsidized internally by NTT (Sugaya, 1997, p.179). Regulators have become gradually aware of NTT’s seriously troubled financial situation. They understood that the low cost of the local tariff could not be sustained in conjunction with universal service goals. During the period between 1993 and 1994, the deficit in exchange lines, which should be covered by monthly flat rates, was so huge that MPT (now MPHPT) 17 reluctantly admitted NTT’s financial difficulty could not be recovered without adjustment of the charge. MPT permitted a 30% tariff raise in pay phones, followed by a 16% raise in monthly basic charge. Both of these adjustments were implemented in two phases during the 1994-95 timeframe. The rate adjustments compensate for some portions of losses caused in local services, but it has been still far from the rebalancing of tariffs in a real sense because the local call tariff itself still remains at the same level as before. In addition to subsidies from long distance to local, urban customers subsidize local users and business customers subsidize residential users. This is due to the fact that long distance NCCs concentrate on their marketing on the high-density Tokyo-Nagoya-Osaka area. NTT’s revenues from this area accounted for two-thirds of the total, while the number of subscribers was one-third of the total (Hayashi, p.210). The NTT Corporation Law of 1997 again specifies that NTT has the responsibility to contribute to securing appropriate, fair and stable provision of nationwide telephone services. Universal service objectives have been implemented by requiring uniform geographically- averaged rates for both access and local calling. In high-cost areas, these charges from more densely-populated, less costly areas, by long distance charges (Intven, 2000, p.55). In July 1999, NTT was reorganized into a pure holding company (NTT) with two companies providing regional telecommunications (NTT-East and NTT-West) and one providing long distance telephone services (NTT Communications Corp.) (OECD, 2001, p.2). According to this reorganization, NTT East is obliged to provide universal service of telephony in Eastern Japan and NTT West is in Western Japan (MPHPT, 2001, p.6). However, until the early 2000, there has been no funding mechanism of universal service and the cost of providing universal service has not been calculated (OECD, 2001, p.10). 17 In line with the Japanese government reorganization, on January 6, 2001, the Ministry of Posts and Telecommunications (MPT), together with the Ministry of Home Affairs and the Management and Coordination Agency, was integrated into the “Ministry of Public Management, Home Affairs, Posts and Telecommunications (MPHPT).

Authors: Park, Namkee.
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Tracking Number: ICA-1-11804 Regulatory Governance and Universal Service 14
almost seven years since liberalization, NTT subsidized all other services by huge profits in the
long distance market (Hayashi, p.208). The public telephone service was not profitable before
the rate rebalancing in 1994 and even after rate rebalancing it remained unprofitable. The lower
rate level for the service means it is supported socially and politically, and deficits are subsidized
internally by NTT (Sugaya, 1997, p.179). Regulators have become gradually aware of NTT’s
seriously troubled financial situation. They understood that the low cost of the local tariff could
not be sustained in conjunction with universal service goals. During the period between 1993 and
1994, the deficit in exchange lines, which should be covered by monthly flat rates, was so huge
that MPT (now MPHPT)
17
reluctantly admitted NTT’s financial difficulty could not be recovered
without adjustment of the charge. MPT permitted a 30% tariff raise in pay phones, followed by a
16% raise in monthly basic charge. Both of these adjustments were implemented in two phases
during the 1994-95 timeframe. The rate adjustments compensate for some portions of losses
caused in local services, but it has been still far from the rebalancing of tariffs in a real sense
because the local call tariff itself still remains at the same level as before. In addition to subsidies
from long distance to local, urban customers subsidize local users and business customers
subsidize residential users. This is due to the fact that long distance NCCs concentrate on their
marketing on the high-density Tokyo-Nagoya-Osaka area. NTT’s revenues from this area
accounted for two-thirds of the total, while the number of subscribers was one-third of the total
(Hayashi, p.210).
The NTT Corporation Law of 1997 again specifies that NTT has the responsibility to
contribute to securing appropriate, fair and stable provision of nationwide telephone services.
Universal service objectives have been implemented by requiring uniform geographically-
averaged rates for both access and local calling. In high-cost areas, these charges from more
densely-populated, less costly areas, by long distance charges (Intven, 2000, p.55). In July 1999,
NTT was reorganized into a pure holding company (NTT) with two companies providing
regional telecommunications (NTT-East and NTT-West) and one providing long distance
telephone services (NTT Communications Corp.) (OECD, 2001, p.2). According to this
reorganization, NTT East is obliged to provide universal service of telephony in Eastern Japan
and NTT West is in Western Japan (MPHPT, 2001, p.6). However, until the early 2000, there
has been no funding mechanism of universal service and the cost of providing universal service
has not been calculated (OECD, 2001, p.10).
17
In line with the Japanese government reorganization, on January 6, 2001, the Ministry of Posts and
Telecommunications (MPT), together with the Ministry of Home Affairs and the Management and
Coordination Agency, was integrated into the “Ministry of Public Management, Home Affairs, Posts and
Telecommunications (MPHPT).


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