The Study Group on New Business Models and the Grand Design of Competitive Environments for the New Information and Communications Era.
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1 Attachment The Study Group on New Business Models and the Grand Design of Competitive Environments for the New Information and Communications Era Interim Report How Competitive Environments in the Telecommunications Business Field Should Be Established in the Broadband Age (Summary) Chapter 1 The basic perspective on competition policies in the future Necessity of competition policies for the broadband age (1) Considering how competition policies in the telecommunications business field should be in the future, it is necessary to accelerate the stream of broadband and to establish an environment in which fair competition enable s a variety of business models to emerge through lively competition. It is especially necessary to examine this in the light of the changes in the network and market structures brought about by the move to broadband. The basic perspective of layer-focused competition policies (2) Due to the progress in unbundling the functionality of all of the layers (see figure below) that accompanied the development of broadband telecommunications, business models have emerged such as the open access business model that provides services by freely combining what is required for each layer, and as new business models within the higher layers (e.g. the idc (internet Data Center) business). It is necessary to examine the approach for both interlayer fair competition environments and intra-layer fair competition environments. Basic view of layer-focused competition policies Telephone age IP age Emergence of a variety of business models Digitization of content (voice + data + video) Unbundling of functionality Procurement of network optimal for content delivery Emergence of a diversity of business models for each layer Content & applications layer Content creation, etc. Smooth provision of diverse, rich digital content Platform layer Authentication,billing, content delivery, copyright management, etc. Diversification of vertical integration business models Smooth delivery of digital content Integrated services by a single independent company Network layer Type II telecommunications carrier Type I telecommunications carrier Diversification of delivery channels Terminal layer Terminal sales Increase of value added in telecommunications services Variety of terminals provided Entry into broadband (high speed, high volume) Primary concern of this study group Reconsideration of how the Type I and Type II carriers are classified (Overall lowering of regulation levels) Establishment of a fair competition environment suited to the vertical integration business models Establishment of a fair competition environment within each layer 1
2 Basic approach to establishing rules for competition (3) As planning how to establish rules for competition, it is required to look at a variety of actions that can foster competition, such as those below, while giving priorities to ensuring the transparency and predictability of the system, establishment of rules that promote competition, and ensuring due process. 1) Implementing regular reviews of effective competition 2) Creating close interaction between the dispute resolution process among carriers and establishing the rules for competition 3) Establishing guidelines for competition 4) Creating close interaction between Telecommunications Business Law and the Antimonopoly Act 5) Valuing the importance of protecting users Chapter 2 Inter-layer business models and competitive environments Assessment of inter-layer business models (1) One characteristic of inter-layer business models that has been emerging recently is that in addition to the vertically-integrated single model, there is also now a joint model. In a single model, individual carriers develop their own independent businesses, such as mobile communications carriers. In a joint model, multiple companies join together, with each contributing its business resources to its own particular layer and combining all of the parts in order to form an "open-access" business model. As a result, compared with what has been the case in the past, it is expected to see market competition stimulated by more carrier groups (competition axes) will emerge. Inter-layer businesses developed by dominant carriers (2) Among inter-layer business models developed by dominant carriers 1) For NTT East/West (whose scope of business activity is restricted by NTT Law to the regional telecommunicatio ns business, but who can, with the authorization of the Minister of Public Management, Home Affairs, Posts and Telecommunications under specific conditions, expand its scope of business activity to the upper-level layers across prefectural boundaries), it is necessary to review each case carefully to determine if fair competition terms are secured or not, according to The Guideline for authorization on NTT East/West expanding their business activities, which was drawn up and publicly announced in December of last year. Further, from the viewpoint of achieving the smooth distribution of content, the provision of open access to the platform layer where authentication/billing etc. are performed is an extremely important element, and if NTT East/West enter platform layer business, it may also be necessary to examine the necessity etc. of unbundling of platform-business-related 2
3 functions (those recognized as indispensable elements for provision of similar services by other carriers). 2) With respect to NTT East/West subsidiaries advancing into higher-level layers, in general, it cannot be said that this is an indiscriminate loss of fair competition, but there are fears that in reality this has the same effect as NTT East/West itself advancing into the higherlevel layers. If, after this situation has been adequately examined, it is determined that structural problems are occurring, or that there is a substantial risk of their occurring, with respect to fair competition, it may be necessary to examine whether to take new measures, including enhancing the scope of specific related companies (currently limited to telecommunications carriers) within asymmetrical regulations (regulations for dominant carriers), and, with reference to the situation in other countrie s, whether, to introduce the concept of group dominance, if necessary. Chapter 3 How competitive environments should be established within each layer How competitive environments should be established within the network layer (1) To stimulate competition in local telecommunications markets through the diversification of subscriber networks, the following should be promoted: 1) Diversification of wireless access networks (creating high-speed Internet access environments using wireless LANs in locations expected to be hot spots, such as airports and train stations, etc.) 2) Diversification of fixed access networks (smoothing the achievement of a broadband environment in apartment buildings, achieving high-speed telecommunications services through the use of existing metal lines (for example, for VDSL (Very high-bit-rate Digital Subscriber Line)), etc.). 3) Immediate achievement of the resale of public switched networks. 4) Promotion of smoother exercise of rights of way (reevaluate the Guideline for Use of Utility Poles, Ducts, Conduits, etc. in the Telecommunications Field" (established in April of last year) within fiscal 2001) 5) Periodical review of access network bottlenecks (related to Implementing regular reviews of effective competition in Chapter 1) 6) Achievement of more diverse and lower fees and services (2) To diversify trunk line networks, it is necessary to establish market environments such as those below. 1) Cultivate wholesale markets based on the emergence of bandwidth trading/intermediation businesses 3
4 2) Promote less costly backbone lines (simplif ying licensing procedures for companies dedicated only to providing wholesale telecommunications services, establishing local Internet-eXchanges integrated with data centers, etc.) 3) Make effective use of fiber optic networks owned by those other than telecommunications carriers (draw up Standard Procedures for Providing Fiber Optic Networks to Telecommunications Carriers (provisional name) targeted to local governments, etc.) (3) As for the network resale markets, for example, in the mobile communications market where the number of licensed companies is limited due to restrictions on frequencies, from the perspective of stimulating markets through the introduction of MVNO (Mobile Virtual Network Operators) with a variety of business models, there is an immediate demand to formulate and officially announce Guidelines for becoming a MVNO (provisional name) in order to make MVNO related administration more transparent and predictable. As for MNOs (Mobile Network Operators) the existing mobile telecommunications carriers being obligated to resell services to MVNOs, it is not appropriate, at least at the present time, considering fears that interest in investment by MNO s is declining. (4) To build a high quality Internet network, it is important to achieve smooth interconnections between ISPs (Internet Service Providers) (particularly between general Type II carriers). For example, if it is expected to take advantage of mediation and arbitration procedures by the Telecommunications Business Dispute Settlement Commission, which was established in November of last year. How competitive environments should be established within the platform and other layers (5) In the mobile Internet field, all groups (MNOs) are working on measures that will open the ir networks, such as opening gateways for ISPs, ensuring the transparency of procedures for adopting content on their portal sites and ensuring the equality in selection of portal sites by users, and it is necessary to continue to watch carefully how they handle these issues from now on. (6) In the mobile communications field, in the light of the fact that telecommunications carriers are in an overwhelmingly superior position compared with content providers, it will be useful to make Prohibited Practices Constituting Problems under the Telecommunications Business Law, which is relevant to the transactions between MNOs and content providers, more specific when the Guideline for Promotion of Competition in the Telecommunications Business Field (competition guidelines), formulated and publicly announced in November of last year, is reviewed (expected within one year). (7) As a way of establishing an environment conducive to smooth content delivery, it is appropriate for standardization organizations to begin examination quickly to reach a 4
5 conclusion concerning self-regulation standards for a best effort model of Internet service quality (for example, deciding on a standard network model, setting objective benchmark values or fixed range values, and presenting users with classes of service quality). How competitive environments should be established within the terminal layer (8) In the mobile communications field, a vertical integration bus iness model has been adopted whereby terminal sales and telecommunications services (users choice of telecommunications carriers) are bundled (integrated), prices for terminal devices are set lower than costs, and that insufficient income from terminal devices is made up by telecommunications charges. (9) However, along with the introduction of next-generation cellular phones (3G), new capabilities are coming into view, such as releasing the locks on UIM (User Identity Module) cards, which makes it possible to unbundle terminal sales and telecommunications services, using these same cards as new electronic authentication cards, and the realization of number portability in the mobile telecommunications field. To examine these in an integrated manner, it is appropriate to organize a group where manufacturers, telecommunications carriers, and administrative authorities can consult with each other. Chapter 4 What a framework for competition within the telecommunications business should be Basic approach (1) In the interest of promoting the introduction of new IP-based business models and making it possible to cope with these in a flexible manner, it is necessary to lower overall regulation standards as much as possible. It is also necessary to maintain very clear and predictable administration for those participating in the market. To do this, it is appropriate to reconsider how telecommunications business types, which are now categorized into Type I and Type II carriers and form the basis of the regulatory framework for competition in the telecommunications business, should be reconsidered, while at the same time taking into consideration the merging of telecommunications and broadcasting as well as trends in other major countries. Basic direction of inquiry (2) Based on the changes in the market structure in recent years (diversification of business by Type I and Type II carriers and a lowering of the regulatory difference between Type I and Type II carriers through a series of deregulations), the following two approaches can be considered as examples of practical directions of inquiry for reevaluating telecommunications business categories: 1) Reevaluation of the applicable range of Type I and Type II categories 2) Unbundling of the service sector (retail sector) from the network sector (wholesale sector) 5
6 (3) With respect to reevaluating the applicable range of Type I and Type II categories, it might be possible to re-categorize the present Type I carriers which do not need rights of way into Type II carriers, and to reevaluate the applicable range of Special Type II and General Type II categories, which means to regulate companies that provide socially and economically important services, such as ISPs that offer VoIP services and MVNOs, as Special Type II carriers, and these Special Type II carriers should be obligated to notice before discontinuing their telecommunications business, from the standpoint of user protection, etc. (4) Another way to reevaluate the current business categories of Type I and Type II carriers is to separate the network sector (wholesale sector), which establishes and operates telecommunications circuit facilities and provides wholesale telecommunications services, and the service sector (retail sector), which receives services from the network sector and provides services to end users (it may also be possible to provide services belonging to the two sectors in one company). (5) Regardless of how the reevaluation will be proceeded, it is necessary to investigate the basic framework for competition within the telecommunications market, which is currently divided into Type I and Type II carriers, from a variety of vantage points. And at that time, it is also conceivable that more than just the two approaches above will emerge, and it is necessary to examine these further considering the opinions of all involved, legislative issues and trends among other major countries. Chapter 5 Direction of future inquiry (1) Based on this Interim Report and on further examination of how competitive environments should be established in the broadband age, this Study Group plans put together a final report by the end of June (2) In practical terms, the study group will, verifying the trends for the new business models that are still rapidly developing, examine desirable competition rules for such models, examine concrete methods for effective competition review, find out about initiatives for provision of competition rules for the broadband age in other major countries, and in addition, examine a framework for a new competition policy for the "full IP" age. 6
7 The Study Group on New Business Models and the Grand Design of Competitive Environments for the New Information and Communications Era How Competitive Environments in the Telecommunications Business Field Should Be Established in the Broadband Age Basic approach to establishing rules for competition Ensure the transparency and predictability of the system Establish rules that promote competition Ensure due process 1. Inter-layer business models and competitive environments Variety of actions that can foster competition Implement regular reviews of effective competition Create close interaction between the dispute resolution process among carriers and establishing the rules for competition Create close interaction between Telecommunications Business Law and Antimonopoly Act Establish guidelines for competition Value the importance of protecting users 2. How competitive environments should be established within each layer (practical examples) (1) Assessment of inter-layer business models Expect to see market competition stimulated on many different axes through a joint business model where multiple companies join together. (2) Inter-layer businesses models developed by dominant carriers Strictly enforce fair competition guidelines related to the authorization of NTT East/West expanding its scope of business activity as well as asymmetrical regulations (regulations for dominant carriers). Look carefully at the status of NTT East/West subsidiaries advancing into higher-level layers, and examine how to adopt newly revised measures as required. 3. What a framework for competition within the telecommunications business should be From the viewpoint of promoting the introduction of new business models for the broadband age, it is necessary to lower overall regulation standards as much as possible and create a competition framework that is clear and predictable. With respect to a desirable framework for telecommunications business, it is necessary to examine a variety of choices, including reevaluating the applicable range of Type I and Type II categories, separating the service sector (retail sector) from the network sector (wholesale sector), and so on. (1) Network layer Simplify company licensing procedures for companies dedicated only to providing wholesale telecommunications services (within the fiscal 2001) Quickly draw up "Guidelines for Becoming a MVNO (Mobile Virtual Network Operator)" (provisional name)" Draw up "Standard Procedures for Providing Fiber Optic Networks to Telecommunications Carriers" (provisional name) for local governments (2) Platform layer Set self-regulation standards for a best effort model of Internet service quality (start examining within standardization organizations) Specify "prohibited practices" within the November 2001 competition guidelines (drawn up in conjunction with the Fair Trade Commission) with respect to transactions between mobile telecommunications carriers and content providers (during a review in one year) (3) Terminal layer Examine the use of UIM (User Identity Module) as electronic authentication cards, the release of locks on UIM cards, and the achievement of number portability, etc. (organize a group for this investigation). A final report will be put together by the end of June 2002.
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