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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 23 cross-subsidy has been introduced into the payments made to the incumbent NTT by the new carriers such as DDI. Under the new model, the regulator defines the universal service obligations of NTT only in general terms. The regulator, MPHPT, provides for a flow of funds to NTT from other participants in the industry that is at least partly intended to contribute to the cost of satisfying the universal service obligations. This is typically achieved through the payments made by the new carriers for network interconnection as in Japan. However, in this regulatory regime, NTT is not required to provide detailed accounting to the regulator for different universal service related activities, and the flow of funds to support these activities is not unbundled into separate items linked to the cost of these activities. Thus, the Japanese model illustrates that policy for universal service is still developing rapidly as the regulator gains experience in a newly competitive environment and the market evolves (Tyler, p.68). Here, it is important to note that although Japan introduced competition—regardless of the meaning of competition—in the telecommunications industry, the methods for universal service are still unclear and not specified for implementation. Moreover, the Japanese universal service does not have Lifeline or LinkUp type of schemes. The dominant provider, NTT, has still financed the costs of universal service depending heavily on internal cross-subsidy and it brings about higher capital costs and less efficient usage of capital, although the new carriers began to subsidize and the new mechanism of universal service funds is created recently. Also, it is too early to diagnose the funds’ effective operation. Nonetheless, the recent changes in the methods of universal service in Japan can be an example of ‘strategic implementation’ or ‘market-conforming intervention’ in the sense that the ministry in charge, MPHPT, has directed a rapid adjustment in the implementation of universal service faced with increasing burden on NTT, recognizing that the threshold of competition is already reached and the regulatory agency’s concern is now turning to stability of market again. Conclusion We have seen that the decentralized regulatory process and formalized regulation in the US are largely rooted in its institutional governance and in turn have facilitated pro-competitive implementation in universal service. In essence, pro-competitive statutes in telecommunications, judicial reviews, and the jurisdictional divisions between the federal and state regulators provide structural protection for ensuring competition once it has been established (Noll & Rosenbluth, 1995). By contrast, in Japan strategic implementation has been possible through a more discretionary institutional system and the strong regulatory incentives for market-conforming intervention. The Japanese regulator, MPHPT, has been able to more strengthen its power through more specified reregulation than its counterpart of the US. However, the different

Authors: Park, Namkee.
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Tracking Number: ICA-1-11804 Regulatory Governance and Universal Service 23
cross-subsidy has been introduced into the payments made to the incumbent NTT by the new
carriers such as DDI. Under the new model, the regulator defines the universal service
obligations of NTT only in general terms. The regulator, MPHPT, provides for a flow of funds to
NTT from other participants in the industry that is at least partly intended to contribute to the cost
of satisfying the universal service obligations. This is typically achieved through the payments
made by the new carriers for network interconnection as in Japan. However, in this regulatory
regime, NTT is not required to provide detailed accounting to the regulator for different universal
service related activities, and the flow of funds to support these activities is not unbundled into
separate items linked to the cost of these activities. Thus, the Japanese model illustrates that
policy for universal service is still developing rapidly as the regulator gains experience in a newly
competitive environment and the market evolves (Tyler, p.68). Here, it is important to note that
although Japan introduced competition—regardless of the meaning of competition—in the
telecommunications industry, the methods for universal service are still unclear and not specified
for implementation. Moreover, the Japanese universal service does not have Lifeline or LinkUp
type of schemes. The dominant provider, NTT, has still financed the costs of universal service
depending heavily on internal cross-subsidy and it brings about higher capital costs and less
efficient usage of capital, although the new carriers began to subsidize and the new mechanism of
universal service funds is created recently. Also, it is too early to diagnose the funds’ effective
operation. Nonetheless, the recent changes in the methods of universal service in Japan can be an
example of ‘strategic implementation’ or ‘market-conforming intervention’ in the sense that the
ministry in charge, MPHPT, has directed a rapid adjustment in the implementation of universal
service faced with increasing burden on NTT, recognizing that the threshold of competition is
already reached and the regulatory agency’s concern is now turning to stability of market again.
Conclusion
We have seen that the decentralized regulatory process and formalized regulation in the US are
largely rooted in its institutional governance and in turn have facilitated pro-competitive
implementation in universal service. In essence, pro-competitive statutes in telecommunications,
judicial reviews, and the jurisdictional divisions between the federal and state regulators provide
structural protection for ensuring competition once it has been established (Noll & Rosenbluth,
1995). By contrast, in Japan strategic implementation has been possible through a more
discretionary institutional system and the strong regulatory incentives for market-conforming
intervention. The Japanese regulator, MPHPT, has been able to more strengthen its power
through more specified reregulation than its counterpart of the US. However, the different


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