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THESIS

2.
20d

This is to certify that the
dissertation entitled

THE POLICY AGENDA-SETTING AND DECISION PROCESS:
RESTRUCTURING NIPPON TELEGRAPH AND TELEPHONE

presented by

Hiromi Maenaka

has been accepted towards fulﬁllment
of the requirements for

Ph.D. Mass Media

degree in

 

 

 

Maj r ofessor

Thomas A. Muth

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LIBRARY
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DATE DUE DATE DUE DATE DUE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

moo chlHC/DmoDuopﬁS—p.“

 

 

THE POLICY AGENDA-SETTING AND DECISION PROCESS:
RESTRUCTURING NIPPON TELEGRAPH AND TELEPHONE

By

Hiromi Maenaka

A DISSERTATION

Submitted to
Michigan State University
in partial fulﬁllment of the requirements
for the degree of

DOCTOR OF PHILOSOPHY

Ph.D. Program in the Mass Media
College of Communication Arts and Sciences

2000

ABSTRACT

THE POLICY AGENDA-SETTING AND DECISION PROCESS:
RESTRUCTURING NIPPON TELEGRAPH AND TELEPHONE

By

Hiromi Maenaka

This study tested the policy agenda-setting model as applied to the
policy-making process for the restructuring of Nippon Telegraph and
Telephone (NTT). The policy agenda is a set of problems that participants in
the policy-making process acknowledge the need for governmental action.
The decision agenda is the policy agenda that is placed as a legislative
agenda. Two categories of variables that affect policy agenda-setting are
participants and process. The process has three components: problems,
policies, and politics. Two components, when coupled, trigger setting of a
policy agenda, however, all three components should merge for a policy
agenda to be transformed into a decision agenda.

A qualitative single-case-study method was used. The unit of analysis
was organized groups. To incorporate the dynamics of participants into the
analysis, special attention was given to personnel changes within the groups.
Problems, policy alternatives, and political environment were investigated by
analyzing news articles (N=316), government documents, private
organizations’ publications, and a taped interview with the informant. The
effects of interactions among the three components on the movement of a
policy agenda were examined by synthesizing events in a systematic and
temporal order.

The idea of breaking up NTT continued for nearly a decade and half
since the early 19803. It lost the ﬁrst and second opportunities of being

placed on the policy agenda in 1985 and on the decision agenda in 1990

because of the weak linkage between problems and policy alternatives or the
lack of a favorable political environment. This study focused on the third
agenda-setting and decision process started with the advisory council’s
deliberation in 1995 and ended with the adoption of the breakup in 1997.
The period was divided into three stages by the .critical events. In the
ﬁrst stage, the breakup of NTT came very close to being submitted to the
legislature. However, the delicately balanced coalition cabinet avoided
discussing and coming to a vote on it in the unstable political environment.
In the second stage, the Ministry of Posts and Telecommunications and NTT
were exclusively negotiating for a mutually acceptable solution. The change
in the global telecommunications market was commonly identiﬁed as a
problem threatening Japan’s international competitiveness. Meanwhile, the
political environment again became to be stable with the recovery of the
Liberal Democratic Party’s dominance. The shared deﬁnition of problems
under the favorable political environment generated a breakthrough policy,
the breakup with a holding company. Consequently, the cabinet submitted
the proposal to the legislature with the assurance of its smooth adoption.
Based on the ﬁndings, the study conﬁrmed that the policy agenda-
setting model could explain the process through which a policy agenda was

established and transformed into a decision agenda in the selected case.

Copyright by
Hiromi Maenaka
2000

To Masami and Tane Maenaka,
Yasuko Koyago,
Pepe, and Hanna.

ACKOWLEDGMEN TS

A list of acknowledgments will not be adequate to express my gratitude
to many individuals that helped me in the long process of preparing and
completing this dissertation. My gratitude ﬁrst goes to Dr. Thomas Muth,
the dissertation committee chair, who always stood by me to advise and
encourage. His warm thoughts and prayers pulled me back on track out of
many difﬁculties I encountered on my way to the completion. This
dissertation could not have been completed without his consistent guidance
and unfailing support.

I also want to thank the other members of my dissertation committee:
Dr. Johaness Bauer for advice in economics, Dr. James Dearing for assistance
in conceptualization and sharing his collection of agenda-setting literature,
and Dr. Stephen Lacy for advice in methodology. Their constructive
comments, along with generous support and encouragement, guided my work.

I gratefully acknowledge Yasuhiko Ide and Shingo Kimata of NTT
Communications, Eiji Nishiyama of NTT East, and Hiroaki Koyago for their
kind help and cooperation in collecting references and data.

A special expression of gratitude goes to my family, who supported me
in many ways throughout my academic pursuits. I thank my late father,
Masami Maenaka, whose dearest wishes and prayers have always stayed in
my heart. My mother, Tane Maenaka, from whom I inherited tenacity and
perseverance, deserves my love and appreciation. Last but not least, I
express gratitude to my sister and my best friend, Yasuko Koyago. She kept
inspiring me to transform my dreams into actions while giving faithful care

and love to our parents during my long absence from home.

vi

TABLE OF CONTENTS

LIST OF TABLES .......................................................................................... ix
LIST OF FIGURES .......................................................................................... x
LIST OF ABBREVIATIONS .......................................................................... xi
CHAPTER I
INTRODUCTION ............................................................................................ 1
Theme and Purpose of the Study ............................................................ 3
Research Questions .................................................................................. 5
Background for the Selection of a Case ................................................... 6
Overview ................................................................................................. 10
CHAPTER II
THEORIES OF THE POLICYMAKING PROCESS .................................... 12
Introduction ............................................................................................ 12
The Rational Model and the Incremental Model .................................. 14
Policy agenda-setting ............................................................................. 16
Deﬁnitions ......................................................................................... 16
The Process of Policy Agenda-Setting .............................................. 18
Participants ............................................................................... 18
Processes .................................................................................... 20
The Problem stream ........................................................... 20
The Policy stream ............................................................... 24
The Political stream ........................................................... 26
Opening policy windows and coupling ...................................... 27
Empirical Test ........................................................................................ 30
CHAPTER III
METHOD ....................................................................................................... 32
The Case Study Approach ...................................................................... 32
Data Collection ....................................................................................... 33
Method of Analysis ................................................................................. 38
CHAPTER IV
TELECOMMUNICATIONS POLICY INSTITUTIONS IN JAPAN ........... 40
Introduction ............................................................................................ 40
Institutions of Telecommunications Policymaking ............................... 40
CHAPTER V
HISTORY OF THE RESTRUCTURING OF NTT ....................................... 51
Introduction ............................................................................................ 51
Emergence of the Breakup ..................................................................... 51
The 1985 Telecommunications Reform ................................................. 56
Resurgence of the Breakup as a Policy Agenda .................................... 66

vii

CHAPTER VI

POLICY AGENDA-SETTING AND DECISION PROCESS ....................... 75
Stage 1 (April 6, 1995, to March 29, 1996) ............................................ 77
The Participants ............................................................................... 77
The Problem Stream ......................................................................... 79
The Policy Stream ............................................................................. 87
The Political Stream ......................................................................... 92
Stage 2 (March 30, 1996, to December 6, 1996) .................................... 96
Changes in Participants ................................................................... 97
Changes in the Problem Stream ...................................................... 98
Changes in the Policy Stream ........................................................ 101
Changes in the Political Stream .................................................... 103
Stage3 (December 7, 1996, to June 13, 1997) ..................................... 105
Changes in Participants ................................................................. 105
New Problems and Solutions ......................................................... 106
The Political Stream ....................................................................... 109
CHAPTER VII
CONCLUSION ............................................................................................ 112
Synthesis of Findings ........................................................................... 112
Limitations and Recommendations ..................................................... 118
APPENDIX A
POLICY ON THE RESTRUCTURING OF NTT ....................................... 122
APPENDIX B
DRAFT BILL TO REVISE PART OF THE NIPPON TELEGRAPH AND
TELEPHONE CORPORATION LAW ........................................................ 123
BIBLIOGRAPHY ......................................................................................... 126

viii

LIST OF TABLES

Table 1 Classiﬁcation of Telecommunication Business and Regulatory
Framework ................................................................................... 59

Table 2 Number of Type 1 Carriers of Subscriber Telephone Service
Categories ..................................................................................... 80

LIST OF FIGURES

Figure 1 Agenda-setting in policy making process .................................... 21
Figure 2 Structure of the Japanese government ....................................... 42

Figure 3 Organizational structure of the Ministry of Posts and
Telecommunications ..................................................................... 44

 

Figure 4 Legislative process for the 1985 telecommunications reform ....46

Figure 5. Major events and three stages of the policy process toward the

breakup of NTT. ........................................................................... 76
Figure 6 Market shares of local and long-distance calls ........................... 82
Figure 7 Market shares of long-distance calls ........................................... 83

Figure 8 Market shares of long-distance calls between Tokyo,
Osaka, and Aichi ......................................................................... 84

Figure 9 Changes in the rates of three-minute calls between Tokyo and
Osaka on weekdays ...................................................................... 85

AT&T
CAPS
BT
DDI
DT

JFTC
JSP
JT

LECs
LDP
MCI
MITI
MOF
MPT
NCC
NFP

NTTPC
OECD
POP
PSTN
RBOC

LIST OF ABBREVIATIONS

American Telephone and Telegraph
Competitive Access Providers

British Telecom

Daini Denden, Inc.

Deutsche Telekom

France Telecom

Fair Trade Commission of Japan

Japan Socialists Party

Japan Telecom Co., Ltd.

Kokusai Denshin Denwa Co., Ltd.

Local Exchange Carriers

Liberal Democratic Party

Microwave Communications, Inc.

Ministry of International Trade and Industry
Ministry of Finance

Ministry of Posts and Telecommunications
New Common Carrier

New Frontier Party

Nippon Telegraph and Telephone Corporation
Nippon Telegraph and Telephone Public Corporation
Organization for Economic Co-operation and Development
Points of Presence

Public Switched Telecommunication Networks

Regional Bell Operating Companies

xi

SDP Social Democratic Party

TTNet Tokyo Telecommunications Network
TWJ Teleway Japan Corporation

VPN Virtual Private Network

xii

CHAPTER I
INTRODUCTION

The telecommunications network functions as one of the most essential
media in progressively more information-oriented societies and plays an
important role in people’s social, cultural, and economic lives. It delivers
services that are necessities of daily life, enabling people to communicate,
send or receive information, and conduct various transactions. Developing
telecommunications technologies, structuring networks, and administering
operations are the basic imperatives for fulﬁlling such functions.

The telecommunications network has a relatively short history as an
area of scholarly research in communications. A landmark work was Ithiel
de Sola Pool’s The Social Impact oftbe Telephone, published in 1977 .1
However, despite its signiﬁcant contribution through providing “a
crystallizing insight” for telecommunications research and attracting the
attention of scholars in various disciplines, it “did not stimulate much
additional research,” especially among scholars interested in the social
aspects of the telephone.2 Economics and law, on the other hand, have
generated a signiﬁcant amount of research that has provided policy
discussions with theoretical bases to shape and regulate the

telecommunications industry.

 

1 Ithiel de Sola Pool, ed. TheStmiaLImpamﬁlmlelephene
(Cambridge, MA: MIT Press, 1977).

2 Harmeet Sawhney and George A. Barnett, “Introduction,” in Harmeet
Sawhney and George A. Barnett ed., ' ' ' '
' ° ' ' (Stamford, CT: Ablex

Publishing, 1998), xi-xii.

The lack of interest in public telecommunications networks among
communications scholars is partly a result of their conservatism. They have
focused on production and consumption of messages but excluded distribution
in which telecommunications plays a part.3 “The issues raised by the
telephone do not oblige us by ﬁtting into our neat theoretical categories but

”4 Then how can

instead disrupt disciplinary patterns of thought.
communications scholars contribute to knowledge in the study of
telecommunications? This dissertation is an attempt to respond to that
question by focusing on the process of telecommunications policy making.
Communications scholars who wish to contribute to the study of
telecommunications can integrate and synthesize knowledge across different
domains.5 The ﬁeld of communications is characterized by its
multidisciplinary orientation6 and has shown strengths over time by its
ﬂexibility.7 This researcher made use of such advantages, incorporating

theories of political science and communications into the conceptual and

analytical frameworks of the study.

 

3 N. Garnham, “Editorial,” MW, 14, no. 3 (1992):
339-342.

" Sawhney and Barnett, xiv.

5 Douglas Gomery, “The Centrality of Media Economics,”J_Quma1_Qf
43, no. 3, (Summer, 1993). 196; MiltonL. Muellur, “Why
Communications Policy 1s Passing ‘Mass Communication’ by: Political

Economy as the Missing Link,” CriticaLStudiemMassﬁommunication 13
no. 3 (1995): 468.

6 William H. Melody, and Robin Mansell, “The Debate over Critical vs.
Administrative Research: Circularity or Challenge,” JQumaLQf
QQmmnniQatiQn 33, no. 3 (1983): 103- 116; Muellur, 468; Eli Noam,
“Reconnecting Communications Studies With Communications Policy.”

43, no. 3, (Summer, 1993): 205.

7 Muellur, 468.

Ihemeaniﬂumsmﬂheﬂudx

The process of telecommunications policy making is the central theme
of this study. The researcher focused on the policy agenda-setting and
decision process. The policy agenda-setting is one of the three traditions in
agenda-setting research.8 The other traditions are the media agenda-setting
and the public agenda-setting which have been attracting communication
scholars’ interest.9 Despite the lack of attention in communication scholars,
policy agenda-setting is “of key importance” in understanding the
relationships among the three agenda-setting components.10 Policy agenda-
setting, however, is complex involving various political behavior and
communication behavior. ”

If public policies were developed only by those who act rationally
following respected theories and procedures in a logical order, their outcomes
would always be predictable. In reality, that is not always the case. Few
policy-making processes are so simple as to be almost self-explanatory. Many
individuals identify numerous problems. Some problems get on the policy
agenda, whereas others never reach that far. Policy agendas change
constantly, and people who participate in policy making come and go. The
ﬂuidity of policy making often makes one wonder how certain problems get
on policy makers’ agenda and make them think that some government

actions are necessary, or how a certain policy appears on an agenda, moves

 

8 James W. Dearing and Everett M. Rogers, AgendazﬁeLﬁng.
Communication Concepts Series 6 (Thousand Oaks: Sage, 1996), 5.

9 Ibid.,16-17.
1° Ibid., 72.

“ Ibid., 73.

around, and reaches the legislature for judgment. At a glance, the process
and the outcome of policy making appear to be random, involving many
variables.

Based on Cohen, March, and Olsen’s “garbage can model of
organizational choice,”12 Kingdon developed a model to explain the patterns
prevalent in the process of policy agenda-setting. Policy agenda-setting
depends on two independent variables: participants and process. The process
is composed of three streams”: problem, policy, and political. Each stream
has discrete participants who play various roles in it. In the problem stream,
the participants identify and deﬁne problems. In the policy stream, the
participants look for, develop, and choose alternative policies to solve those
problems. In the political stream, the participants create the political
environment that either facilitates or inhibits the progress of agenda-
setting. 1“

A problem or a policy is more likely tmreach a policy agenda when the
policy window opens and the coupling of two streams takes place. There are
four types of coupling. In the problem stream, participants may ﬁnd a policy
alternative as a means of solution, whereas in the policy stream, participants
may ﬁnd a problem as a means of justiﬁcation. The problem and the policy

may separately be placed on a policy agenda in a certain political

 

’2 Michael Cohen, James March, and Johan Olsen, “A Garbage Can
Model of Organizational Choice, Adm1n151m1¥25212n22Quaﬂ211¥ 17
(March 1972): 1- 25.

‘3 Kingdon uses “stream” as the policy agenda- -setting process is ﬂuid

and continuous. John W. Kingdon, Agemlasﬂtemmnmjndﬂuhhc
29112125, 2nd ed. (New York: Addison Wesley Longman, 1995), 86- 88.

“ Kingdon, 90-164.

environment. When three streams merge, there is a chance for the policy
alternative to be placed on a decision agenda.15

Kingdon’s policy agenda-setting model has been tested and found
applicable to a number of policy-making processes in various policy areas in
the United States and a few other Western countries. The application of the
model to telecommunications policy making, however, has been limited.
Moreover, the model has seldom been tested using cases in non-Western
countries, Japan in particular, where cultural and institutional differences
have been claimed to signiﬁcantly affect the policy-making process.16 To ﬁll
the void, this researcher applied the policy agenda-setting model to the
telecommunications policy-making process in Japan and tested whether the

model can readily explain that process.

Reseamhﬂnestiona
Guided by the policy agenda-setting model, the researcher tested the
hypothesis that the policy window opens when coupling takes place and that
all the streams--problem, policy, and political, have to merge before a policy
agenda is placed on a decision agenda. In testing this hypothesis, the
following questions were posed:
1. What are the general characteristics of the problem?

2. What institutions are involved in the policy making?

 

‘5 Ibid., 165-195 passim.

’6 See Shumpei Kumon, Shumpei, “Japan as a Network Society,’ °

Shumpei Kumon and Henry Rosovsky, edsth2_2911t12al_E29n9mLQ£:Iap.an;

W, 3rd ed. (Stanford, CA: Stanford University
Press, 1992), 109- 141; and Daniel Okimoto, “Nihon no Seiji- kenryoku

(Japanese Political Power), MIRA 3, no. 4 (1990): 17 -18, for examples.

3. Who participates in each stream? What are the goals and the
incentives of the participants?

4. What problems do the participants identify? How do they deﬁne
the problems?

5. What alternative policies do the participants generate, favor, or
choose?

6. What political environment affects the policy agenda-setting and
decision process ?

7. Under what circumstances does a policy agenda transform into a

decision agenda?

Ba2kgrm1nif911h252122t19n2£a§252

In many countries, the telecommunications industry was organized as a
monopoly for most of its history.17 However, during the last two decades, a
series of regulatory reforms have altered the ownership and structure of the
industry. The public telecommunications networks in industrialized
countries, formerly owned and operated by the states, have been going
through the process of privatizing and accommodating themselves to
competition with the entrance of rapidly evolving new communications
technologies and services.

The ﬁrst wave of telecommunication infrastructure liberalization took
place in a few countries between 1984 and 1990. Japan, New Zealand, and
the United States were among the pioneers who liberalized the provision of

public switched telecommunication networks (PSTN). The United Kingdom

 

’7 Robert W. Crandall and Leonard Waverman,Talk_15_Ch2ap._The

 

(Washington, DC. The Brookingslnstitution,1995),1.

liberalized its telecommunications market as early as 1984; however, it
granted a license to only one entrant and had a duopoly until 1991.
The second wave, during the early 1990s, enveloped such countries as
Australia, Canada, Korea, Finland, and Sweden, although there was some
variation in the degree of liberalization.18 The evidence for the beneﬁts of
liberalization brought about the third wave, which has been sweeping the
Organization for Economic Co-operation and Development (OECD) countries
since the late 1990s. By the early 20003, no PSTN monopoly will exist in the
OECD countries.19 The wave of infrastructure liberalization has been
diffusing to the developing countries as well, although the reasons for
liberalization and the outcomes expected from it are sometimes different from
those of the developed countries. For example, many countries in Latin
America that were facing economic difﬁculties wanted to generate capital for
the governments ﬁom privatization to expand and modernize their
telecommunications networks, whereas several African countries wanted
technologies to be transferred by liberalization, allowing foreign investment.20

Nonetheless, competition in the telecommunications market as a policy choice

is becoming a matter of course everywhere in the world.

 

‘8 Australia adopted a duopoly. Canada opened a part of its market
segments. Korea liberalized international services in 1991.

‘9 The countries that have already liberalized their PSTN are
Netherlands in 1997, Belgium, France, Germany, Ireland, Italy, Luxembourg,
Norway, and Spain in 1998. Korea starts local competition in 1999. Portugal
will introduce competition in 2000. The Czech Republic, Greece, Hungary,
Poland, Turkey will open the market for competition between 2001 and 2006.

See OECD,C_0mm1m122119n5_O_uI199k_1929 (Paris: OECD Publications, 1999),
12.

2° International Telecommunication Union, Generallrendan
— Vol. 1 (Geneva: ITU, 1998), 3.

Despite the extensive adoption of policies for competition, the degree of
competition and market growth varies from one market to another,
depending on the regulatory frameworks that signiﬁcantly affect the entries
and performance of entrants. The OECD report indicates that liberalization
in long-distance and international service markets induced greater
competition21 than that in local-access markets.22 It also evidenced that
increased competition made prices for long-distance and international calls
fall substantially, whereas de facto monopoly remained and kept prices at the
same or even higher levels in local markets.23 An exception to the general
tendency of persistent market dominance of incumbents may be found in
Finland, where the privately owned incumbents of the local-loop market
captured their market share in the long-distance market from the state-
owned incumbent during the ﬁrst year of liberalization. The case in Finland
suggests that carriers controlling the local loop have a better chance to gain a
market share in the liberalized long-distance market than entrants seeking a
market share in the long-distance market without ownership of the local
loop.“ As long as the incumbents hold the local-loop bottleneck, the issue of
stimulating competition in local markets remains a challenge for policy

makers and regulators in many countries.

 

2‘ The new entrants in the US and the UK held more than 50 percent
of international market share. See OECD, C9mm11n12at19n_Qut199k_l&99,29
for international market share of new market entrants in other countries.

22 New entrants in OECD countries provided less than 0.9 percent of
the access lines 1n 1997. See OECD,C_Qmm1micatiQn_Qutlo_Qk_l99_9, 19.

2" 0ECD,Communicat19n_O_utlo_Qk_1999 173, 176.
2"OECD,Cm11m.1J_n1ea1mmLlutlmlglﬁﬂjl, 23; P. M. NattermannandD.

D. Murphy, “The Finnish Telecommunications Market: Advantage of Local
Access Incumbency,” 121229mm11n12at1m1529112¥ 22, no. 9, (1998): 757- 773.

Meanwhile, the environment surrounding the telecommunications
industry has changed considerably. Rapid technological innovations have
transformed the ways in which consumers communicate and transmit
information. The Internet and mobile telephones, for instance, have rapidly
diffused to households. Consequently, the nature of local telecommunications
services has been changing signiﬁcantly.

In the United States, for example, local markets were dominated by
the baby Bells following the breakup of AT&T in 1984. Then in 1996 the
Telecommunication Act allowed all companies to compete in all markets,
including telephony, television, and information services. Consequently,
several mammoth mergers across the diverse communications industries
have been taking place, such as, SBC and Ameritech, AT&T and TCI, and
MCI and WorldCom. More recently, MCI WorldCom and Sprint, and Bell
Atlantic and GTE, are seeking possible merger deals. Moreover, a few global
telecommunications operators have been forming alliances with each other
across continents.

In these circumstances, stimulating fair and effective competition in
dynamic telecommunications markets has become one of the most urgent and
important issues for telecommunications policy makers and regulators.
Different paths toward the development of a sound telecommunication
market may exist. However, few economic theories provide a deﬁnite
structural model for achieving such development. It is still not known
precisely how to develop and maintain a competitive market that maximizes
beneﬁts to consumers and maintains fairness among ﬁrms in the market.

Since early 1980, restructuring the telecommunications industry has
been considered one of the top priorities to prepare for the coming of an

information-based global society in Japan. The US. model of breaking up the

incumbent gave Japanese policy makers a procedural example for promoting
competition. The breakup of NTT was on and off the policy agenda for almost
15 years until it was ﬁnally decided in June 1997 . The breakup was
implemented in July 1999.

Because a strong converging force has been integrating the world major
telecommunications operators for the last several years, some people may
think that the breakup of N'IVI‘, at this time, is an anachronism.25 Although
Japan has one of the most developed telecommunications sectors of advanced
telecommunications technologies, only a few comprehensive studies have
been undertaken on the telecommunication policy-making process. Japan is
truly an underreported country on this subject. The present study about the
process of the restructuring of NTT is expected not only to add an empirical
test of the policy agenda-setting model but also to assist in understanding

Japanese telecommunications policies in general.

W

The dissertation consists of seven chapters. Chapter I served as an
introduction. It started with a brief review of the functions of the
telecommunications network as it has become an area of study in
communications. Subsequent sections provided the theme and the purpose of
the study, followed by a brief explanation of the model and a presentation of
research questions. A discussion of the recent situation in world
telecommunications industries and policies provided a background for

selecting the case that was analyzed in this study.

 

25 “Hanging on the Line: Telecoms in Japan.” W, 24
February 1996, 338, no.7954, p. 67.

10

Literature on policy agenda-setting is reviewed in Chapter II. In this
chapter, the researcher conceptualizes the study for the empirical test.

The methodology used in conducting the study is explained in Chapter
III. The methods of data collection and analysis are speciﬁed.

The telecommunications policy-making institutions in Japan are
described in Chapter IV.

Chapter V contains a history of the breaking up N'I'l‘ before the 1995
Telecommunications Council’s review of the status of NTT. The writer
explains how the idea was generated, put on the policy agenda, and
eventually shelved in 1985 and 1990.

In Chapter VI, the writer presents the results of the analysis along
three stages of the policy-making process, from the beginning of the
Telecommunications Council’s review of the status of NTT in 1995 to the
promulgation of the breakup in 1997.

Chapter VII concludes the dissertation. The chapter answers the
research questions. Limitations of the study are discussed, and directions for

future research are proposed.

11

CHAPTER II
THEORIES OF THE POLICYMAKING PROCESS

IntmdnctiQn
Economists have achieved a great deal identifying structure and
characteristics of the telecommunications industry. They have also helped to
explain the relationship among the structure, conduct, and performance of
the telecommunications industry under different policy settings. Economists
have been and will be playing central roles in studies of the
telecommunications industry and policies.

The telecommunications industry recently has been very dynamic,
experiencing rapidly increasing diversity and complexity. The problems and
the challenges for policy makers have become so intricate that few can
readily and straightforwardly ﬁnd solutions with conﬁdence. Under such
precarious circumstances, the outcome of a set of policy decisions is becoming
much more obscure than conventional economic models could predict. Even
the most up-to-date academic research has not been keeping abreast of new
challenges. As Laffont and Tirole commented, “important policy decisions
have been and are being made on ad hoc reasoning in the absence of clear
guidance ﬁ'om economic theory.”1 Increased uncertainty about future
industry performance has caused the people at stake to develop varied
scenarios, relying on often limited and ambiguous information. Hence,

telecommunications policy making has become increasingly controversial.2

 

1 Jean- Jacques Laﬁ'ont and Jean Tirole, '
(Cambridge, MA. MIT Press, 1999), xiii.

2 Gerald W. Brock,
1994), 61.

(Cambridge, MA: Harvard University Press,

12

The study of telecommunications policy ought to be more inclusive with
the understanding of the process through which the policies are formulated
and take effect. It is important to know how various people at stake identify
problems, develop various policy alternatives, discuss the issues, and reach.
consensus on either adoption or rejection of particular proposals. Theories
dealing with the political aspect of policy making guided the researcher to
investigate whether consistent patterns and a general structure exist in
telecommunications policy making.

Political scientists have tried to explain and generalize policy-making
processes. Three approaches--systems theory, structural functionalism, and
the policy cycle--have been taken, each of which focuses on the process of
policy making with distinctive assumptions.3 Systems theory views the
political system as a mechanism through which problems as input are
processed to produce policy as output to meet the public demand. Policy
making is seen as achieving a clear set of goals with a feedback loop. The
strength of the systems theory approach is that it allows us to identify the
interrelationship of the participants and institutions. It does not answer the
questions about how the policy decisions are made.4 Structural functionalism
is an attempt to discover the functions that the political system must carry
out to deal with the problems or achieve the goals, and the structures that
will facilitate its performance. It focuses on the functions of various

institutions.5 The policy-cycle approach views policy making as “a dynamic

 

3 Stella Z. Theodoulou, “The Contemporary Language of Public Policy:
A Starting Point,” in Stella Z. Theodoulou and Matthew A. Cahn, eds, 21112112
20112¥:_th2E552n112L222111ng5 (Englewood Cliffs, NJ: Prentice- Hall, 1995),3

‘ Ibid., 4.

5 Ibid., 4-5.

13

ongoing process” involving learning. The focus is on how the policy is made

and improved.6

WhnﬂMQdeLandlhiInmmntaLMQdd

In earlier studies of the policy-making process, two models were
generated: the rational model and the incremental model. The rational
model portrays policy making in terms of a logical sequence of several stages
of activity, including problem recognition and issue identiﬁcation, agenda
setting, policy formulation, policy adoption, policy implementation, and policy
analysis and evaluation. In the problem-recognition and issue-identiﬁcation
stage, a problem or a set of problems catches the attention of policy makers.
Agenda setting is the stage in which government ofﬁcials and interested
private parties give the issue status a matter for serious attention and
discussion. Once an issue is on the policy agenda, the policy process moves
ahead to policy formulation, where various conferences are held to seek
potential solutions and to develop proposals for dealing with the issue. The
proposals are then debated and voted on for support and adoption. In the
policy-implementation stage, the government fulﬁlls its mandate through
various measures using its resources. The ﬁnal stage is policy analysis and
evaluation, which involves examining the outcomes of policy implementation.
The process constantly moves through the stages. The process does not stop 1
at the ﬁnal stage but continues back to the ﬁrst stage with the feedback from

analysis and evaluation.7

 

6 Ibid., 5-6.

7 Stella Z. Theodoulou, “How Public Policy 1s Made,” in Stella Z.

Theodoulou and Matthew A. Cahn, eds.,21112112_2911211:_th2_E552n121&1
R2291nga. Englewood Cliff, NJ: Prentice- Hall, 1995), 86- 7.

14

Despite the frequent use of the rational model of policy making,
empirical evidence has failed to indicate a logical policy process.8 The
selection and perception of problems are not objective.9 The ﬁrst four stages
often intermingle with each other when the problem is many-sided posing
multiple issues in a dynamic environment.

The incremental model focuses on making necessary changes and
revisions in existing practices. It involves making policy one small step at a
time and is intended to deal with present problems and to seek solutions with
only minor alterations to the current system and regulations.10

The incremental model is suitable for describing government policy-
making processes in areas in which there are already established and rather
stable policies. Afraid of negative outcomes of their decisions, people inside
the government sometimes hesitate to take big steps. However, the
incremental model does not explain those agenda changes of considerable
magnitude that take place rather suddenly.ll Empirical case studies have
indicated that incremental approaches are prevalent in the development of
policy alternatives and proposals even when the agenda changes abruptly

and discontinuously.12 The incremental-model perspective is, therefore,

 

8 David A. Rochefort and Roger W. Cobb, “Problem Deﬁnition, Agenda

Access, and Policy Choice,” 29112y_S_t11£1125_J_011m21 21, no. 1, (1993): 56. See
Aaron Wildavsky, Wmﬁheliudgetmﬁmss, 3rd ed., (Boston.

Little Brown, 1979), for example.

9 David Dery, melemDeﬁniticninPQhQLAnalxsis (Lawrence, KS:
University of Kansas Press, 1984), xi.

1° Charles E. Lindblom, “The ‘Science’ of Muddling Through,” 21112112
Admimmanmﬂexmm 19 (1959) 79- 88

“ Kingdon, 79-80.
’2 Ibid., 80-82.

15

necessary in understanding and explaining the nature of developing

alternatives and formulating proposals.13

2 1' E 1 -S | l'
Kingdon focused on the process by which an idea becomes a policy

agenda.” He developed a model that explains why some problems arise to be

placed on policy agendas, why some policy alternatives receive more attention

than others, and how problems and alternatives reach decision agendas.

This study was based on Kingdon’s policy agenda-setting model, which was

reinforced with other relevant works. The discussion starts with deﬁnitions

of terms, followed by conceptualization.

D E . .

Participants are all of the individuals inside and outside the
government who are involved in various stages of the policy process.

A problem is a condition that presents uncertainty, confusion,
complication, and/or difﬁculty. An issue is “a conﬂict between two or more
identiﬁable groups over procedural or substantive matters relating to the
distribution of positions or resources.”15 A policy issue is a conﬂict whose
resolution necessitates some governmental action. A problem is not an issue
unless it involves disagreement between groups in their perceptions about its

cause, severity, solution, and other related elements.

 

’3 Ibid., 83.
1‘ Kingdon, 1-2.

‘5 .Roger W. Cobb and Charles D. Elder, BamcmamnjnAmerican
(Baltimore and London: Johns
Hopkins University Press, 1983), 82.

16

Policy agenda is a set of problems to which the people who take part in
the policy process pay serious attention, acknowledging the need for
governmental action at any given time.16 It is “speciﬁc, concrete, and limited

in the number of items.”17

Some policy agendas become decision agendas
when they placed in the legislature for active decisions.18 Policy alternatives
or proposals are measures that might be taken to cope with the problems and
are therefore solutions to the problems. Members of the policymaking
community narrow all conceivable alternatives to a set of proposals for

19 A typical decision agenda involves the question of

serious consideration.
whether a certain policy alternative or proposal should be adopted as a
measure to solve the problem at hand.

Policy agenda-setting is the process through which problems are placed
on the policy agenda and ultimately to the decision agenda. Problems or
alternatives need serious attention before they are put on the policy agenda.
A policy agenda that carries both problems and alternatives for solving the
problems has a chance of moving up to a decision agenda in certain political

environments. This process generally accounts for a substantial part of the

policy-making process.

 

. ‘6 Kingdon, 3. Cobb and Elder call this type of agenda the
“1nstitutional, government, or formal agenda” interchangeably. This study
uses the policy agenda to avoid confusion.

‘7 Cobb and Elder, 87.
‘8 Kingdon, 4.

‘9 Ibid.

17

T] 2 E2 1' l 1 -S .
Kingdon used the “garbage can model” of organizational choice20 to
elucidate the process of agenda-setting, alternative speciﬁcation, and policy
formation. The policy agenda-setting model explains the patterns prevalent
in public policy making, focusing primarily on the “predecision processes”
ﬁ'om problem identiﬁcation to decision agenda-setting in the United States.21
The model involves two major categories of variables that affect the
policy process. The ﬁrst category includes “the participants who are active in
the process.” The second category is “the process by which agenda items and
alternatives come into prominence.”22
Participants. Some participants are more active and inﬂuential than
others are in one or more of the policy-making stages. The participants who
are active and inﬂuential in a particular stage may be less active or even
absent in other stages. Some are visible actors who receive considerable
press coverage and public attention, whereas others are “hidden” from the
public.23 Who are those participants? How are they involved in each stage of
policy agenda-setting, speciﬁcation of alternatives, and decision? Identifying
the participants and their roles and activities is the ﬁrst step in
understanding one of the two factors that affect the policy-making process.
Kingdon categorized participants by their locations, either inside or I

outside the government. The administration, civil servants, and Congress,

for example, are participants inside of the government. Interest groups,

 

2° Cohen, Michael, James March, and Johan Olsen, 1-25.
2’ Kingdon, 196.
22 Ibid., 15.

23 Ibid., 199.

18

academics, the media, and public opinion are participants outside of the
government.“ Kingdon states that “the line between inside and outside of
government is exceedingly difﬁcult to draw”25 because people outside of
government sometimes hold positions within the government. However, the
classiﬁcation of participants is still meaningful because some participants
within the government have “a formal decision-making authority” and others
are “bound by rules of accountability.”26
Cobb, Ross, and Ross recognized three models of different initiatives
that may account for variations in policy agenda-setting.27 The outside-
initiative model describes the situation in which a group outside of the
government “articulates a grievance” and “expands interest in the issue to
other groups in the population in order to gain a place on the public agenda.”
Consequently, decision makers are moved to put the issue onto the formal
agenda for their serious consideration.28 The inside access model describes
the situation in which people inside the government initiate the agenda
building and expand it to particular inﬂuential groups in placing it on the
decision agenda.29 In the mobilization model, the political leaders are active

participants who choose issues to put on the agenda and transfer the issues

from a systemic agenda to a government agenda by actively mobilizing the

 

2" Ibid., 21-70 passim.
25 Ibid., 45.

26 Ibid.

27 Roger Cobb, J ennie-Keith Ross, and Marc Howard Ross, “Agenda
Building as a Comparative Political Process,” AmencanPQliticaLSm'ence
22112121 70, (1976): 126-138.

28 Ibid., 132.

29 Ibid., 135.

19

relevant public through effective use of symbols and mass media.30 Parties
and elected ofﬁcials may initiate changes in the agenda reﬂecting changes in
control and balance of their political power.31 Issues may also be elevated to
the agenda through the diffusion of ideas among professionals and
bureaucrats.32

Processes. The garbage can model, as applied to policy making, reﬂects
the view that the government is “an organized anarchy” of order and
disorder.33 The agenda at any given time depends on the mix of garbage in
the can. The garbage originates from three separate streams: the problem
stream, the policy stream, and the political stream. Figure 1 illustrates the
process of policy agenda and decision agenda settings.
The Problem stream: The problem stream is participated by people in and out
of the government who identify problems. There are three means of
identifying some conditions with problems. The ﬁrst is the use of indicators,
which sometimes show a problematic condition. Indicators measure the
magnitude and change of the condition. The second means is “a focusing
event” such as “a disaster, crisis, personal experience, or powerful symbol” as
a ﬁrmer indication of a problem, conﬁrming “a preexisting perception,” or

taking it as the reinforcement of other events of similar problems. The third

 

3° Ibid., 132-135; Cobb and Elder, 82-159.

3‘ Benjamin Ginsberg, “Elections and Public Policy,’ Am2112an_291111291
70, (1976). 41- 49; Barbara D. Sinclair, “Party Realignment of

SemncaRemew
the Political Agenda,” Americanmliticalﬁciencaﬂenm 71 y:(1977) 940- 953

32 Jack L. Walker, “The diffusion of Innovations Among the American
States,” AmericanEoliticaLScienceBaxiem 68 (1969): 880- 899

33 Cohen, March, and Olsen, 16.

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means is formal and informal “feedback about the operation of existing
programs.”34

Conditions become problems only when they are deﬁned as problems.
Problem deﬁnition is, therefore, a fundamental part of policy agenda-setting
in which a certain condition is perceived, interpreted, and described as a
problem. Because the problem deﬁnition involves subjective translation of
conditions, it is affected by three factors: values of the person who deﬁnes,
comparisons with some comparable others, and categories into which
problems are classiﬁed.35 As “policy problems are socially constructed” by
beliefs and values,36 there are always possibilities for multiple deﬁnitions of a
problem.” Blumer connected policy making with the concept of “collective
deﬁnition,” in which social problems are formed, approached, and considered
for the solution.38

Recent investigators looked for one or more of the four major themes in
problem deﬁnition: causality, image, solutions, and people who deﬁne the

problem.39 Causality concerns what produced the problem or who/what is

responsible for the problem.40 Image deals with symbols attached to the

 

3‘ Kingdon, 90-103.
35 Ibid., 109-113.
3" Cobb and Elder, 172-173.

37 Ibid, 173; Aaron, Wildavsky,
WES (Boston: Little Brown, 197 9) 57.

38 H. Blumer, “Social Problems as Collective Behavior,” 5.9.2181
Emblems 18, (1971): 301.

39 Rochefort and Cobb, 58.

4° See D. A. Stone, “Causal Stories and the Formation of Policy
Agendas,” BohticaLSsﬁehcaQuarterlx 104 (1989) 281- 300

22

problem and the policy alternatives. The image itself, as well as the change
in image, affects the subsequent policy process."1 Studies with the theme of
solutions have focused on how solutions determine the way a problem is
deﬁned. Problems are deﬁned in terms of solutions; in other words, problems
without a solution will not be given serious consideration.42 The theme of
people who deﬁne the problem concerns the relationship between problem
deﬁnition and the attributes of the people.

Among the themes that characterize problem deﬁnition,43 problem
causation, nature of the problem, and nature of the solution are particularly
useful in distinguishing differences in deﬁnitions of primarily economic
problems among participants. Causation characterizes a problem in terms of
whether the cause of that problem is personal or impersonal, intended or
accidental, blame allocated or blame avoided, and simple or complex. Nature
of the problem has ﬁve subcategories: severity, incidence, novelty, proximity,
and crisis. Severity denotes the degree of severity of the problem. Incidence
deﬁnes the problem by determining whether it is growing, stable, or declining.
Novelty deﬁnes the problem according to whether it is unprecedented or
familiar. Proximity deﬁnes the problem based on whether it is personally
relevant or a general social concern. Crisis deﬁnes whether the problem is a
crisis or non-crisis, an emergency or a non-emergency. Last, nature of the
solution deﬁnes the problem according to availability, acceptability, and
affordability."4

 

‘“ Frank R. Baumgartner and Bryan D. Jones,
inAmericanﬂolities (Chicago: University of Chicago Press, 1993), 27.

‘2 Wildavsky, Wu” 42.
‘3 Rochefort and Cobb, 59.

‘4 Ibid., 61-68.

23

As Kingdon noted, “there are great political stakes in problem
deﬁnition.” Some gain beneﬁts whereas others suffer losses, depending on
how problems are deﬁned.45 Some agree with others on one dimension but
disagree about other dimensions. Thus, the gap between policy participants
in problem deﬁnition can generate conﬂict and controversy. The wider the
gap, the greater the conﬂict and controversy.

The policy stream: The policy stream is the process by which proposals about
problems and issues are generated, debated, redrafted, and accepted for
serious consideration.46 The process often takes a long time and involves
reiterating a sequence of activities—generating and exchanging ideas,
drafting proposals, debating the proposals, and revising them in response to
reactions—until ﬁnal proposals are accepted for serious consideration. The
policy stream eventually results in a short list of proposals to be put on the
decision agenda.

Active participants in the policy stream include various policy
specialists who have knowledge of and interest in a particular policy area.
They are the members of the policy community for that policy area. The
lineup of members varies, depending on the policy areas."7 Staff members of
various government agencies, academics, congressional committee members,
industry representatives, and analysts and consultants for various organized
groups are some of the members of policy communities.

Some policy communities are characterized as closed or tightly knit

when the members of those communities hold narrowly deﬁned ideas. Other

 

‘5 Kingdon, 110.
‘6 Ibid., 143.
‘7 Ibid., 117.

24

communities are considered diverse and fragmented when members hold
widely varied ideas. The extent of closeness or fragmentation among
members of a policy community manifests itself in the cohesiveness and
consistency of the policy making. Whereas a ﬁagmented community is likely
to lead to policy fragmentation and instability, a tightly knit policy
community communicates better and “generates common outlooks,
orientations, and ways of thinking.”48

In addition to members of policy communities, there are people labeled
policy entrepreneurs who are willing to invest their resources and advocate
their ideas within and outside of the policy communities. Their incentives
include promoting personal interests, promoting their values, aﬁ'ecting pubic
policy formation, and enjoying participation in policy making."9

Many policy alternatives or proposals can be generated and considered.
Some survive and others do not. The selection process is “evolutionary.” The
evolution takes place, not by mutating new inventions but rather by
recombining familiar elements to create a new package of alternatives and
proposals.50

What makes certain ideas and proposals become prominent in the policy
community? Policy entrepreneurs not only initiate discussions of their
proposals but also try to promote their ideas, educating the members of policy
communities, people inside and outside of government, and the public. They
use various communication channels-for example, public speeches, lobbying,

reports, and media interviews. It may take a while for a proposal to spread;

 

‘8 Ibid., 119-120.
‘9 Ibid., 122-124.
5° Ibid., 124.

25

 

however, advocacy and education are essential before the proposal receives
serious consideration.“

To survive, proposals must meet certain general criteria. First,
proposals deserving serious consideration should work when implemented.
In other word, they are feasible. Second, they are compatible with the values
of the members of the policy community. Third, they satisfy some future
constraints: budgetary cost, politicians’ approval, and public acceptance.52
Eventually, the policy stream reduces the number of proposals to a few that
meet the criteria. Having qualiﬁed proposals “dramatically increase [s] the
chances for placement on a decision agenda.”53
The Political stream: The political stream ﬂows separately from the problem
and policy streams. It promotes or inhibits high agenda status.“ It consists
of the public mood, degree of consensus and power balance among organized
groups outside the government, and events inside government such as
election results, changes in power distribution in the legislature, changes in
members of the administration, and changes in staff of government
agencies.55

Public mood is what a “rather large number of people out in the country

are thinking along certain common lines.”56 It changes ﬁom one time to

another. Not only public mood itself but also changes in public mood

 

51Ibid., 127-131.
521bid., 131-139.
53 Ibid., 144.
5‘ Ibid., 163.
55 Ibid., 145.
56 Ibid., 146.

26

signiﬁcantly affect policy agenda-setting and outcomes as participants sense
the public mood through communication channels and reﬂect their
perceptions of that mood in their policy-making activities.57

The degree of consensus among organized groups inﬂuences what
government officials do in policy agenda-setting. They tend to support and
accommodate proposals when organized groups share a high degree of
consensus. On the other hand, when there is conﬂict, government ofﬁcials
judge the balance of power among organized groups primarily by the
frequency and intensity of communications and the resources they have.

In the political stream, consensus is more likely to build through
bargaining than through persuasion. Participants who rigidly held their
positions in the early political processes join coalitions for particular
proposals as an issue starts moving. They support a particular proposal
either for promised beneﬁts or out of fear that they might lose the
opportunity to be beneﬁted.58 As they observe that a proposal is likely to be
adopted, they jump in to support it in one way or another.“9 Even initial
opponents of the proposal may compromise and introduce their own proposals,
trying to ﬁnd a middle ground or to integrate their interest into the

proposal.60 This sometimes causes a “sharp agenda change.”61

Qpemngpnhcmndmsandmnlmg. Opening a policy Window

presents an opportunity for advocates to push their favored solutions or to

 

57 Ibid., 146-149.
58 Ibid., 161.
59 Ibid., 162.
6° Ibid., 159-162.
6‘ Ibid., 163.

27

stimulate attention to their special problems.62 The window opens at a
particular time and closes at another time. The timing of the policy window’s
opening and closing is sometimes predictable, such as when a policy has a
regular schedule for review and renewal. The timing is quite unpredictable
at other times.

The policy window opens when a change takes place in the problem
stream or the political stream. In the problem stream, for example, the
window opens when a problem grows more serious, or a crisis or an event
takes place and captures the attention of government ofﬁcials. In the
political stream, the policy window may open when changes occur in the
administration, legislature, or other political actors. The interaction between
two separate streams “couples” problems with proposed solutions, problems
with political actors, or proposals with political actors. When coupling occurs,
the policy window opens and an issue may become a policy agenda. The
policy window, however, does not stay open but closes after a short time
without allowing advocates to push their proposals up to a decision agenda.
The probability that a policy proposal will move up to a decision agenda
increases if all three streams, problem, policy, and politics, converge at one
point in time; that is, problems are recognized, policy proposals are available,
and a favorable political climate exists.

Kingdon’s greatest contribution to understanding the policy agenda-
setting process is that his model provides at least three independent
variables--problem, policy, and political climate--that signiﬁcantly affect that

process. The concepts and theories have been tested and supported in a

 

62 Ibid., 165, 203.

28

number of case studies.63 Zahariadis conﬁrmed the usefulness of the model
in the privatization of telecommunications in the United Kingdom and
France, and the privatization of British railways.64

The model has given some people the impression that the policy agenda-
setting process works at random. It has also disappointed those who seek
more deterministic models that specify necessary and sufﬁcient conditions for
accurate predictions of the future.65 Kingdon recognized that the policy
agenda-setting process is highly “ﬂuid” and “not tidy and tight,” and he
argued that the model generally explains the process well and has “room for
residual randomness” to meet the facts in the real world.66

Mucciaroni pointed out that the model ignores structural and historical
factors.67 However, Kingdon argued that the model incorporates historical
factors, assuming that “what happens at one time depends on what happened
previously.”68 He admitted that institutions are so important because they
constitute constraints on policy making. Baumgartner and Jones stated that

some policy issues are assigned to particular government levels or

 

63 Kingdon presented seven cases in health, transportation, budget,
and tax reform. See Kingdon for a description of each case.

6“ Nikolaos Zahariadis, “To Sell or Not to Sell? Telecommunications
Policy in Britain and France,”s1911mal_9£211.b112_29112y 12, no. 4, (1992): 355-
376; Nikolaos Zahariadis and Christopher S. Allen, “Ideas, Networks, and
Policy Streams: Privatization 1n Britain and Germany,’ We,
2.211211 14, no. 1/2, (Spring/Summer 1995): 7198; Nikolaos Zahariadis,
“Selling British Rail: An Idea Whose Time Has Come?” Comparatme
W 29, no. 4, (1996): 400- 422.

65 Kingdon, 222.
66 Ibid.

67 Gary Macciaroni, “The Garbage Can Model and the Study of Policy
Making: A Critique,” Polity XXIV, no. 3, (Spring 1992): 465-472.

68 Kingdon, 224.

29

institutions with jurisdictional authority.“9 Jurisdictional authority and
change in jurisdiction affect the problem and policy streams. Policy
institutions, therefore, should be included as an intervening variable.

The model can be visualized through an analogy. The policy agenda-
setting and decision process consists of three streams of different ingredients.
Each stream ﬂows separately through a landscape shaped by the institution.
The stream runs fast or slow at times. It gets turbulent or calm. It may dry
up and disappear completely. It may join the other streams and become a
river depending on the nature of ingredients or the landscape. When three
streams merge in a certain landscape or under certain conditions, they form a

river with a considerable current.

E . . l T |
The process by which a public policy is made is often dynamic and
complex. Models that have the potential to generate theories need to survive
empirical tests. Kingdon’s policy agenda-setting model has been supported in
case studies concerned with several policy areas in the United States.70 In

addition, the model was tested and supported in cases dealing with
privatization of telecommunications in the United Kingdom, France, and
Germany.71 This researcher attempted to expand the applicability of the
model to telecommunications policy making in Japan. She investigated,

retrospectively, the policy agenda-setting and decision process for

 

69 Baumgartner and Jones, 32-35.
7° See Kingdon, 209-221, “The Reagan Budget in 1981,” “The Tax

Reform Act of 1986,” and “Health Care Reform During the Clinton
Administration in 1993” for examples.

7‘ See Zahariadis, and Zahariadis and Allen.

30

../ _ ,

restructuring NTT by breaking it up into one long-distance and two local
companies.

The writer attempted to identify the participants in each stream and
describe the process through which the policy agenda and later the decision
agenda for the breakup of NTT were set, deliberated, and decided. In
addition, she investigated the history that the breakup of NTT became an
issue and the structure of Japanese policy institutions. History and
institutional structure were assumed to specify the context and the condition

in which the process moved.

31

CHAPTER III
METHOD

W
This researcher used the qualitative single-case-study method to test
the policy agenda-setting model. The case selected for study was the policy-
making process for the restructuring of Nippon Telegraph and Telephone
Company by breaking it up into three companies under a holding company.
The case study is “one of the more important methods of political

”1

science analysis because it “permits speciﬁc and systematic examination of

”2 of policy making. It also enables one to analyze the

each component
interrelations between components and to measure their effect on the policy
decision.3

The case study approach is appropriate when a study has somewhat
broad research questions covering contextual conditions along with the
phenomenon under study. Multiple sources of evidence are used.4 This

approach is also suitable when “the context is hypothesized to contain

important explanatory variables about the phenomenon.”5 As the policy-

 

‘ Theodore Lowi, “American Business, Public Policy, Case-Studies, and
Political Theory,” W155 16, no. 4, (July 1964), 677.

2 Donald Hellmann,

' (Berkeley and Los Angeles:
University of California Press, 1969), 4-5.

3 Quansheng Zhao,1lananese_29112xmalnng._’l2h229ht125_22h1nd
(Westport, CT:
Praeger Publishers, 1993), 11.

4 Robert K. Yin, ApnlicaﬁonufﬁamStudLBasearm (Newbury Park,
CA: Sage Publications, 1993), xi.

5 Ibid., 31.

32

making process involves a series of events taking place over time, this study
required the historical approach as well.

“Case studies are particularly useful in the theory-building process.”6
However, each case “can only contribute in part to theory building and will

7 It is important for researchers using the single-

have its own limitations.”
case-study approach to recognize that the ﬁndings may be idiosyncratic and

to avoid overgeneralizations.

22123922211911

First, the researcher conducted a search for relevant public documents
and literature to answer the questions about the general characteristics of
the problems, the policy institutions, a history of the restructuring of NTT,
and the ﬁnal policy-making process leading to the decision.

Obtaining information related to Japan’s public policies often is difﬁcult.
Government agencies are involved in most research projects on public policy
issues but keep almost all documents only for internal use. Only a few
documents are published and distributed for public use. Japanese vertical
social linkage, maintained by trust and loyalty of group members, allows
information to be shared only within a speciﬁc group, whether it is a ministry,
an agency, a department, or an academic circle. Intense horizontal rivalries
often exist between groups. Thus, members of different groups are reluctant

to share information with each other.8 However, due to a growing awareness

 

6 Zhao, 11.
7 Ibid.
8 Ichiko T. Morita, “The Promise of Cyberinformation,” in Ichiko T.

Morita ed., °
(Washington, DC: Library of Congress, 1996), 1-2.

33

among the Japanese concerning their right to public information, the
government enacted Joho Kokaiho (Information Disclosure Act) in 1997 .
Nonetheless, the act leaves the government agency considerable discretion in
selecting the categories of information to release; some information is still not
open to public.9

After the above mentioned diﬁiculties were overcome, the search effort
yielded a number of documents published by government ofﬁces throughout
the course of the policy making in question, from 1995 to 1997. They
included reports on the status of NTT, minutes of the Telecommunications
Council’s hearings, the ﬁnal report of the Telecommunications Council’s
Special Subcommittee on the Status of NTT, policy guidelines for the reform,
the draft bill to revise the NTT Corporation Law, and the Basic Policy for
Restructuring NTT. Selected proceedings of the General Assembly of the
House of Representatives and those of the House of Councilors were also
obtained. Information on NTT was obtained from various reports and
documents published by NTT. Selected economic statistics and indicators
concerning about the telecommunications industry in Japan and the status of
NTT were collected ﬁom TsushinHakushQ (Telecommunications White
Paper), D2nhlsn5hm19km and J_9h9_T5115h1n_T_9k21 (Telecommunications
Statistics),lo NTT’s business reports, and a few other sources.

Articles from newspapers and periodicals also were collected for
analysis. One hundred sixty-seven newspaper articles from N1h9n_K21za.1
Shinhun were collected, based on a search of headlines and key words in all

morning and evening issues from April 6, 1995 to the end of June 1997.

 

9 Ibid., 4-5.

'0 The title changed from D2nk115115111n19k21 to J9h91595h1n19k21 in
1996.

34

Additional articles from AsahLShinbhn and Ynmimiﬁhinhnn were collected
through a search of headlines and key words for the same period to
supplement Nitheizai’s coverage. Ninety articles ﬁom Asahi and 59
articles from Yomiuri were gathered.

There are theoretical and practical reasons for using articles from a few
newspapers. First, few scholars would deny the media’s substantial
involvement in policy agenda-setting. Baumgartner and others found that
media attention and legislative attention are positively related, although
causality has not been clearly established.” Some researchers found that the
media play an active role in policy agenda-setting. Linsky argued that the
media’s inﬂuence on problem deﬁnition and solution formation is relatively
large.12 The media draw public attention to policy-related issues by
“highlighting some events, activities, groups, personalities, and so forth,”
claiming conditions as problems or concerns, and linking events with issues.13
Further, the media mobilize ideas among people, especially the participants,
without making direct contacts. Iyengar argued that the media do framing

and priming. The media frames give an issue a particular meaning and

 

‘1 Frank R. Baumgartner, Bryan D. Jones, and Beth L. Leech, “Media
Attention and Congressional Agendas’ in Shanto Iyengar and Richard
Reeves, eds., ' ' '

(Thousand Oaks, CA: Sage, 1997), 349-363.

‘2 Linsky, Martin,
(New York: W. W. Norton & Company, 1986), 87-118.

‘3 Engel Gladys Lang and Kurt Lang, “Watergate: An Exploration of
the Agenda- Building Process,’ in G. Cleveland Wilhoit and Harold Beck, eds,
WWW Vol.2, (Beverly Hills, CA: Sage,
1981), 465. Hall, S. and others saw that the media reproduce the deﬁnitions
of those who have power rather than form their own deﬁnitions. Refer to
Stuart Hall, C. Critche, T. Jefferson, J. Clarke, and B. Roberts, quicingthe
WWW (New York: Holmes & Meier,
1978), 57 .

35

increase its importance by emphasizing selected aspects of the issue.14 By
priming, the media affect the criteria with which audience members judge
issues.115

Second, news-media reporters obtain information related to policy
through press clubs located in every important government agency, political
party, and faction headquarters in Japan. Such information takes the form
of brieﬁngs, lectures, and press releases. In addition, reporters gather a
tremendous amount of information through direct contacts with individuals
in each government unit.16 As NTT originated ﬁom a public corporation run
by the MPT, until 1999 it allowed a press club to continue to station reporters
in its head ofﬁce, hold regular interviews with the president and other
executives, obtain press releases, and gather other news.17

When reporters determine the value of information and select a news
item for a particular story, they often discuss it with colleagues from other
news media. They also do not want readers to judge their capabilities based
on the contents of news items. “As a result there is a tendency among
reporters to pack together and to monitor each other and to share the news
with other media representatives.” The ultimate result of such a tendency is

relatively conservative and uniform coverage across the news media.18 In

 

1“ Shanto Iyengar, ' ‘7
2911115aLI551155 (Chicago. University of Chicago Press, 1991),11.
‘5 Ibid., 133.

’6 Ofer Feldman, BohticaandtthMediamianan (Ann Arbor:
University of Michigan Press, 1993), 194.

‘7 Toshihide Kanda, “Masukomi no Shoten: Aoi- Kurabu no Rekishi ni
Maku, (Focus 1n Mass Communication: the End of the Historical Aoi Club), ”
5,75 (June 1999), 82- 84.

‘8 Feldman, 194-195.

36

addition, news stories are less likely to be extremely biased. Considering
these unique characteristics of Japanese political news reporting practice, the
newspapers that carried comprehensive coverage of the policy making for the
restructuring of N TT were sufﬁcient for the purpose of this research.
NihonKeizaLSMnbun is the “most inﬂuential business newspaper” in
Japan, the Japanese equivalent of the WM. Although Nihgm
Keizai’s share of nationwide distribution is 11.1 percent, it is viewed as
essential reading by most Japanese business executives. Asahi’s nationwide
share is 30.4 percent; the paper has kept its “leftist ﬂavor” and maintained
the image of an “intellectual paper” characterized by serious tone and somber
makeup. Yomiuri has the largest share (36.2 percent) among Japanese daily
newspapers and is “more conservative and pro-government.” ‘9 As the
breakup of NTT was an issue that affected both the business community and
general consumers, this selection of newspapers was deemed appropriate.
Scant literature and few public documents supplied information about
what was going on from September 1996 to December 1996, when the MPT
and NTT engaged in dialogue to reach consensus. To ﬁll in the missing
information, the researcher conducted and tape-recorded an interview with
the then-director of NTT’s legal department, who was actively involved in the
entire process. Later, the researcher reviewed the tape and extracted the

factual responses for analysis.

 

19Ibid., 11.

37

M21h99.9£Anal¥515

First, the researcher reviewed the pertinent literature to understand
the economic theories, policy institutions, and history of the restructuring of
NTT before the 1995 Telecommunications Advisory Council’s deliberations.
Then, the collected data were systematically analyzed to answer the research
questions concerning the policy-making process surrounding the breakup of
NTT. The analysis was done in four steps. During the ﬁrst step, the
government documents were examined to develop a chronology of major
institutional events. Only the events that had direct relevance to the
analysis were marked and put in chronological order. The chronology
provided the researcher with the overall development of the policy-making
process. Then the process was divided into three stages separated by the
critical events. The critical events were determined based on whether they
shifted the process to a different phase. In the second step the collected data
was sorted and organized chronologically according to the three stages.

The unit of analysis for participants was primarily organized groups.
The organized groups included, business ﬁrms, trade associations, trade
unions, political parties, government institutions, and research institutes.
The individuals who participated in one or more stages were identiﬁed with
the organized groups that they belonged to and represented in the policy-
making process. Each organized group was assumed to have some distinct
and exclusive interests that should manifest themselves in the deﬁnition of
problems and the speciﬁcation or preference of alternatives. The distinctive
interests of the participating groups were identiﬁed by analyzing published
statements and discourse of group members in the data.

The interests of an organized group might be dynamic throughout the

course of policy making. Individual participants, therefore, needed special

38

attention when the behavior of an organized group changed along with
internal personnel affairs, for example, appointments of new executives of a
ﬁrm or new leaders of a political party, the election of a new Prime Minister,
and reshuﬂling of cabinet members. Individuals whose roles were signiﬁcant
in the process were analyzed at the personal level.

During the third step, the data ﬁom each stage were examined to
identify participants, their publicly expressed ideas and opinions, and their
reported actions and communication behavior. In examining journalistic
articles, factual descriptions were carefully distinguished and extracted.
Factual descriptions concerned who did or said what, how, where, and when,
or what happened and how, where, and when it occurred. In the ﬁnal step,
the ﬁndings ﬁ'om the third step were synthesized to answer the research

questions.

39

CHAPTER IV
TELECOMMUNICATIONS POLICY INSTITUTIONS IN JAPAN

Intr9d112119n

The laws and regulations that govern the telecommunications industry
are the products of policy making. Just like any manufacturing process, the
policy-making process has multiple stages. It involves generating ideas for
developing a set of policy proposals to make things work, solve existing
problems, or improve the systems and functions of existing policies. The
ideas follow many layers of processes to be shaped, fabricated, reﬁned,
examined, and approved before they become a formal proposal to be discussed
at a legislative body. It often takes a long time for the ideas to go through the
processes to be developed into policy proposals and to be ﬁnally adopted.
Some parts of the particular policy-making process are highly structured,
whereas others have few formal structures. The telecommunications policy-

making institutions in Japan are described in this chapter.

I l' . [I] .. 21.1“.

Policy making in a democratic country involves multiple institutions. In
the United States, for example, there are plural regulatory bodies, at both the
federal and state government levels, each of which has its own legislative,
judicial, and administrative systems that govern telecommunications policies.
In Japan, telecommunications policy making is completely under the national
government’s jurisdiction. Japanese government branches comparable to
those of the United States are the Diet as the legislative branch, the Ministry
of Justice as the judicial authority, and the Cabinet and various ministries as

the main administrative organs for their respective jurisdictions.

40

!‘*+5

The structure of the Japanese government is shown in Figure 2. The
Diet consists of the House of Representatives and the House of Councilors.
The House of Representativesis comparable to the Congress and the House
of Councilors is comparable to the Senate in the United States.

The Cabinet consists of the Prime Minister’s Ofﬁce and 12 ministries
that have jurisdiction over speciﬁc administrative issues.
Telecommunications is generally under the control of the Ministry of Posts
and Telecommunications (MPT). Other administrative departments that are
frequently involved in telecommunications are the Ministry of International
Trade and Industries (MITI), the Ministry of Finance (MOF), and the Fair
Trade Commission (FTC). The MITI has jurisdiction over manufacturing
industries and international trade of services and procurement. The MOF
has been the largest shareholder of NTT stock. It held 100 percent of NTT
shares as a national asset when NTT was privatized. The shares were
periodically released to the public, and the proceeds were put into the
government budget. Due to the unfavorable stock prices since 1988, the MOF
postponed further release and still held more than 60 percent of NTT shares
in 1995. The FTC monitors unfair practice in business and takes necessary
actions when it detects activities in violation of the antitrust laws and
regulations. Unlike the FTC in the United Sates, the Japanese FTC

interprets antitrust laws “rather loosely” and treats cases generously.‘

 

1 Megumi Komiya “Japan’s Changing Telecommunications Industry:
Analysis of Competition, Market Power, and Regulation” (Ph.D. Diss.,
Michigan State University, 1990), 83-89.

41

 

Diet House of Representatives
House of Councilors

C l . | D I . I S I . I
Prime Minister's Ofﬁce Cabinet Legislation Bureau
Fair Trade Commission National Defense Council

National Public Safety Agency

National Police Agency
Imperial Household Agency
Management and Coordination Agency
Hokkaido Development Agency
Defense Agency
Economic Planning Agency

Science and Technology Agency Supremeﬁqun

Environmental Agency High Courts

Okinawa Development Agency District Courts

National Land Agency Summary Courts
Ministry of Justice Family Courts
Ministry of Foreign Affairs

Ministry of Finance
National Tax Administration Agency
Ministry of Education
Agency of Cultural Affairs
Ministry of Health and Welfare
Social Insurance Agency
Ministry of Agriculture, Forestry, and Fisheries
Food Agency
Forestry Agency
Fisheries Agency
Ministry of lntemational Trade and Industry
Agency of Natural Resources and Energy
Small and Medium Enterprise Agency
Patent Ofﬁce
Ministry of Transportation
Maritime Safety Agency
Meteorological Agency
Ministry of Posts and Telecommunications
Ministry of Labor
Ministry of Constructions
Ministry of Home Affairs
Fire Defense Agency

 

 

 

Figure 2. Structure of the Japanese government (as of July 1, 1995).

Source: Japan, Management and Coordination Agency, ed.,
(Organizational Structure of Government) (Tokyoszosei-Kanri Center,1996),
1-2.

42

The criteria for antitrust decisions include “international competitiveness,
production efﬁciency, world market share, industrial orderliness,
technological virtuosity, and adaptation to shifting comparative advantage”
in addition to “ﬁrm size, price, and market concentration.”2

Unlike in the United States, Japan’s Ministry of Justice seldom gets
involved in telecommunications policy making. Telecommunications is not an
exception but an indication of the fact that the Japanese Supreme Court
tends to be reluctant to go against the political decisions of the Diet and a
willingness to “defer to what the Diet majority has voted.”3

Four organizational divisions in the Ministry of Posts and
Telecommunications are presented in Figure 3. The departments that handle
matters related to telecommunications policies are the Minister’s Secretariat,
the Communications Policy Bureau, the Telecommunications Bureau, and
the Telecommunications Council.

The Minister's Secretariat conducts a wide range of activities aimed at
taking responsibility for telecommunications and broadcasting
administration. Their functions include preparing and distributing ofﬁcial
documents, generally coordinating important matters, formulating general
policies, supervising studies, providing secretarial functions for various
councils, investigating crimes under their jurisdiction, handling personnel
affairs, overseeing budget management and settlements, doing supply-and-

demand planning for materials and contracting construction of facilities,

 

2 Daniel I. Okimoto, Sugano, T. and Weinstein, F. B., eds.,
' ' ' (Stanford, CA:
Stanford University Press,1984), 111, cited in Komiya, 85.

3 Edwin O. Reischauer, Thedapanese (Tokyo: Charles E. Tuttle, 1977),
263.

43

ﬂu}. taunt

acquiring and disposing of real estate, and formulating general policies for

international affairs.

 

 

 

Bureaus (7) Regional
Departments (4) Councils (5) Institutions Bureaus (5)

(4)

 

 

 

 

 

 

 

 

 

 

 

Figure 3. Organizational structure of the Ministry of Posts and
Telecommunications (as of July 1, 1995)

Source: Management and Coordination Agency, ed., Gmsei

K1k9z11 (Organizational Structure of Government) (Tokyo: Gyosei- Kanri
Center, 1996), 207- 208.

The Communications Policy Bureau is in charge of planning,
formulating, and promoting basic and general telecommunications policies.
It covers a broad area of information and communications infrastructure
development. The Bureau takes the initiative in guiding the nation’s future
telecommunications as well as in coordinating various efforts with global
telecommunications environments.

The Telecommunications Bureau is responsible for developing and
executing various measures to foster and promote the telecommunications
business in particular. The Bureau is also responsible for planning and
formulating telecommunications policies, regulating the telecommunications
business in accordance with the applicable laws, and guiding and supervising

the activities of telecommunications operators and radio operators.

44

 

The Telecommunications Council is an advisory council (Shingikai) that
plays one of the most important roles in telecommunications policy making.
Members of the Council are selected from academics, specialists, and
representatives of various organizations and appointed by the Minister’s
Secretariat. The Council holds hearings and discussions on the issues at
hand and produces reports and makes recommendations to the Minister.
Although the Council does not have any legal authority, it is believed that its
objective and reliable input should prevent the ministry’s one-sided and
arbitrary policy making.

In Figure 4, Japan’s telecommunications legislative process is
diagramed, based on the 1985 policy making for NTT privatization. In
addition to the standing council, the MPT forms special Kenkyukai (study
groups) and Shingikai (advisory councils)4 consisting of government ofﬁcials,
academics, company executives, representatives ﬁom trade associations,
consumer groups, journalists, and others to obtain input for particular policy
issues.

A Kenkyukai studies an issue and produces various types of report. A
Shingikai plays a more signiﬁcant role than a Kenkyukai in terms of policy
making. It collects information and ideas from various sources, holds
hearings, develops and discusses the policy alternatives, builds consensus
among the members, and ﬁnally submits a unanimous report with
recommendations to the ministry and the cabinet. The report of a Shingikai,

however, is not legally binding.

 

" Shingikai is translated either as Advisory Council, Consultative
Council, or Council. In this study, Advisory Council and Council are used
interchangeably.

45

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(hbinet
Kenkyukai (study groups) (Xher Ministries
S . .1 . (a dviscry .1 )
Initiation Repcrt ‘ I
I l . . '(n I l .
Mnislry (1‘ Posts and Ruling party (IDP)*
Telecannmmcatnons T elec . tions
1. Batting at the section Subormmittee
in clarge (f the issues. ‘—
2. Ilscmssn'm, revisim, i
3111 apmnval at bureau decy Affairs
conference Research Cbuncil
3. Ilscussn'on, revision,
and approval at
ministerial ornfenence
' LDPs Erecutive
(11111211 of Vice- (hmcil aprn‘oval
Ministers

 

 

 

 

 

Discussimandvotingata (hbinetcouncil

 

 

i

 

Decmsim and voting at the general
assembly of the Home of Rqresentatives

 

f

 

 

Ilscmsimandvotingatthegermal
assanblyoftheHaBeofCanxilcrs

 

 

*Arrows pointing to both ends indicate bilateral negotiations.

Figure 4. Legislative process for the 1985 telecommunications reform.

l

 

 

Pranulgaticn

 

 

Drawn based on Megumi Komiya, “Japan’s Changing

Telecommunications Industry: Analysis of Competition, Market Power,
and Regulation” (Ph.D. Diss., Michigan State University,1990), Figure 3.

46

The original rationale for having the Shingikai system was to introduce
new ideas and to increase participation of diverse parties in policy making.
However, the provision of outsiders’ special insights has been less valuable
than originally conceived because expert knowledge is concentrated in the
administration through the conduct of the ofﬁce and the collection and
storage of relevant information.5 Diversity and plurality of participation
depends on the parent ministry’s or agency’s selection of members. Those
who hold prestige but have limited expertise often are selected. This is why
critics have portrayed Shingikai as “supporting devices for the government”6
that rarely go against the parent ministry. Suspicious of neutrality of the
telecommunications advisory council’s recommendations in the early 1980s,
Komiya found that it was, in fact, just serving the MPT’s ultimate objectives
by committing itself to rationalize the MPT’s intentions.7 When a Shingikai
is formed by members on the side of the parent ministry, “the referral of a
problem . . . may be no more than a stratagem to authorize a predetermined
policy with the imprimatur of seemingly disinterested citizens, in the process
lending a semblance of democracy to the decision.”8

A Shingikai supports the government in other ways. The Shingikai’s

deliberation and reports are some of the important preliminary steps leading

to subsequent policy making.9 The Shingikai mediates the conﬂicts among

 

5 Frank J. Schwartz,
iniapan (Cambridge: Cambridge University Press, 1998), 52- 53.

6 Yung Ho Park, “The Government Advisory Commission System 1n

Japan’ qumalnfﬂomnaranyeAdmmstrancn3, no. 4, (1972): 455.
7 Komiya, 79.

8 Schwartz, 54.
9 Park, 454-455.

47

r—v-irm

various stakeholders by providing forums, listening to opinions, balancing
interests, and inducing them to form consensus.” A Shingikai plays a pubhc
relations role for the government. A Shingikai consisting of members with
prestige and mass-media background attracts media attention and increases
coverage.11 A valuable contribution of Shingikai to policy making is the
enhancement of communication among the government, the private, and the
public.

Once the advisory council submits its recommendation, oﬁicials at the
Telecommunications Bureau prepare a draft bill integrating internal and
external input. When the draft bill is completed, the Minister submits it to
the Cabinet for discussion and approval. When there are conﬂicting views
and opinions about the draft within the Cabinet or the ruling party, an effort
is made to coordinate and build consensus. The draft is then sent back to the
MPT to review and revise if necessary.

When the Council of Vice-Ministers (the actual heads of the various
ministries’ operations) approves the draft, the Minster of Post and
Telecommunications proposes the bill to the ruling party’s Executive Council
for approval. The ruling party’s Executive Council, with the Cabinet’s
approval determines whether the bill is ready for discussion at the Diet.
Upon approval, the bill is on its way to the Diet.

The Diet consists of two houses: the House of Representatives and the

House of Councilors. There are three kinds of Diet sessions: ordinary,

 

” Schwartz, 57- 58; Mitsunobu Sugiyama and Won Gyu Ha, “De- and
Re- construction of Telecom- System of 1980-1-es Japan (2): A Veriﬁcation on
tshe Process of Policy-Making and Consensus- Building Through “Shingikai
ystemﬁ’Th2B1dletinnfthelnstituten139219-informationand

CommunicationStudiesno 46, (1993)' 1- 60
’1 Schwartz, 54.

48

extraordinary, and special. An ordinary session usually is convoked once a
year, in January, with a term of 150 days. The Cabinet convokes an
extraordinary session when unexpected bills need urgent deliberation. A
special session is opened immediately after the general election to appoint
new members of the Cabinet and other important posts in the Diet.12

Either the Cabinet or a member of the Diet can propose a bill to the
Diet at any time during the session. In general, either the Prime Minister on
behalf of the Cabinet or one of the members of the ruling party submits
telecommunications bills. Important bills usually are submitted ﬁrst in the
General Assembly of the House of Representatives. Most of these bills are
immediately referred to one of the specialized committees consisting of Diet
members for initial deliberation. The Communications Committee (Teishin-
iinkai), for example, takes telecommunications bills. The Committee
examines and discusses the bill thoroughly so that further examination and
deliberation are not necessary at a plenary meeting of the Houses. The fate
of a bill may be in the hands of the committee because the committee may
amend, shelve, or reject the bill’s submission to the plenary meeting.” Upon
the committee’s approval, the bill is presented at the plenary meeting for
examination, discussion, and decision by voting. When the House of
Representatives passes the bill, it is referred to the General Assembly of the

House of Councilors for examination, discussion, and decision. If the bill

 

‘2 House of Representatives, 35W [Online] Available
http:l/www.shugiin.go.jp/guide/sessions.html, July 26, 2000.

‘3 House of Representatives, Leglslany22mceeding5 [Online]
Available http://www.shugiin.go.jp/guide/legislat.html, July 26, 2000.

49

Tara“.

receives a majority of votes, it is presented to the Throne through the Cabinet

for promulgation.”

 

1" House of Representatives, WW
[Online] Available http: //www. shugiin. go .jp/guide/diagram. html, July 26,
2000.

50

CHAPTER V
HISTORY OF THE RESTRUCTURING OF NTT

Introduction

The idea to break up the dominant telecommunications carrier had been

on and off a policy agenda for almost a decade and a half before it was placed
on a decision agenda. In this section the writer traces the history of the
restructuring of NTT before the 1995 review, during which the idea of
breaking up NTT was born, nurtured, supported, rejected, shelved, revived,
and rejected. The analytical description focuses on, ﬁrst, the period before
privatization in 1985; second, the changes in the telecommunications
industry as a result of the laws enacted in 1985; and third, the period from
the late 1980s to the early 1990s.

EmergencemmBreakun

Two telecommunications laws promulgated in 1952 established the
structure and operation of the telephone and telegraph services in postwar
Japan. The Public Telecommunications Law prescribed that the
telecommunications services should be provided by a 100 percent
government-owned organization, Nippon Denshin Denwa Kosha (Nippon
Telegraph and Telephone Public Corporation [NTTPC]‘), separate from the
Ministry of Telecommunication. Subsequently, in 1953, Kokusai Denshin
Denwa Kaisha (International Telegraph and Telephone Company Limited
[KDD]) was split off ﬁ'om NTTPC as a special joint-stock company to provide

 

1 Nippon Denshin Denwa Kosha, a public corporation, is abbreviated as

NTTPC to distinguish it from NTT, which the company was renamed after
privatization.

51

international telecommunications services.2 The clear boundary between
domestic and international services and the rigorous regulations ensured a
monopoly for more than three decades.3 During this period, Japan’s
telecommunications network expanded to serve the entire nation.

The Public Telecommunications Law had no provision to preclude
entries by other carriers into either the domestic or the international
telecommunications market. However, there was a tacit agreement between
the Diet and the Ministry of Posts and Telecommunications that NTTPC and
KDD were exclusively authorized to own telecommunications facilities and
oﬁ'er public telecommunications services.‘ The Public Telecommunications
Law also stipulated that NTTPC had to submit its annual business plan
including changes in tariffs to the Diet for approval. The law had stipulated
that tariffs should be kept reasonable; however, it did not specify how to
ensure that a particular rate was reasonable or what "reasonable" meant.
NTTPC interpreted the provision to mean setting rates based on costs.

NTTPC put priority on expanding facilities and meeting the rapidly
growing demand for the coming three decades. The availability of secured
funds supplied by issuing compulsive telephone bonds to subscribers upon
installation and the absence of competition enabled NTTPC to achieve its
goals. The backlog of telephone installation orders was eliminated in 1983.
NTTPC grew and continuously supplied revenue to the national budget as it

expanded and increased subscribers.

 

2 Yoshiro Takano,Nip_an_'2212gLanh_and_Telenlmn2_2nlaL1M19n
(W ash1nn .C.: World Bank, 92), 3. .

3 Komiya, 34-35.

‘ Tatsuro Tomita, "Japan' s Policy on Monopoly and Competition 1n

Telecommunications, " T21229mm11n12at19n529112¥ (March 1984): 45.

52

Besides the smooth growth of NTTPC, the government had been
suffering a large debt caused by the economic slowdown since the mid-19708.
In March 1981, then-Prime Minister Suzuki and then-Chief of the
Administrative Management Agency N akasone appointed nine committee
members from government, private businesses, and academic circles to form

the Second Ad Hoc Committee for Administrative Reform, called “Second

Rincho” to discuss measures to bring the government’s ﬁnances back in order.

The mission of the Rincho was to recommend policies for a balanced budget
without increasing taxes, which would involve a large reduction in annual
expenditures by cutting the number of government employees, improving
managerial and operational efﬁciency, and reforming the structure of
various government ofﬁces and public organizations.

The Second Rincho submitted its ﬁrst recommendation in July 1981. It
asked the government to consider a drastic managerial restructuring,
including privatization of three public corporations, NTTPC, Japan National
Railways, and Tobacco and Salt Monopoly Corporation, where poor eﬁiciency
associated with the monopoly structure had been recognized for quite a
while.5

In response to the Second Rincho’s recommendation, NTTPC formed an
internal study group to consider how to improve its operational and
managerial efﬁciency. In February 1982, N'ITPC reported that lack of
managerial ﬂexibility as a public corporation had been preventing the
company ﬁ'om undertaking drastic measures to improve its efﬁciency.
NTTPC proposed three alternative structures that it would accept: (a) a

public corporation with less government regulation, (b) a special corporation

 

‘NanKeizaLShinbun 7 July 1981. p- 1.

53

.F.‘ ..'.’f.

with public and private joint ownership, and (c) a completely private
company. NTTPC was looking into the opportunity to be independent from
the MPT and to carry on business with greater freedom.

The MPT, on the other hand, called for NTTPC to increase eﬁiciency
without changing its managerial structure.6 The MPT objected to the
privatization of NTTPC, arguing that public telecommunications should be
regulated to ensure the maintenance of technical standards and the provision
of universal service, to prevent NTT from abusing monopoly power, and to
maintain communication capabilities for the nation’s security.7 The MPT’s
approach was conservative and incremental.

In May 1982, the idea of breaking up the public corporations was
presented ofﬁcially for the ﬁrst time in the Forth Rincho report. Based on
intensive study and deliberation about what to do with public corporations in
the administrative management reform, the Rincho concluded that N'I'I‘PC,
together with Japanese National Railways, should be privatized and broken
up. The reform plan prescribed that NTTPC would ﬁrst start as a special
corporation owned by the government, and subsequently the special
corporation would be privatized and broken up into a central company for
long-distance services and several local companies for local services in ﬁve
years. It was further recommended that the telecommunications market
should allow entries and that local operators should interconnect to the

entrants.8

 

6Nippon Telegraph and Telephone Corporation, W
(Collections of Debates on the Status of NTT) (Tokyo.
Nippon Telegraph and Telephone Corporation, 1998), 22,24.

7.YQm1111'1_Sh1n1211n, 6 March 1982, p. 1.

“AsahLShinhnn. 18 May 1982. p. 1;Nih9nKeizai_Shinb11n,18 May
1982,p.1.

54

The Rincho’s proposal generated controversy within and outside of the
government. In mid-July 1982, Kanamaru, a member of the House of
Representatives and one of the leaders of the Liberal Democratic Party (LDP)
developed an alternative proposal to mediate the conﬂicts inside the
dominantly ruling LDP. Kanamaru’s proposal was that NTTPC would
remain intact as a special corporation but would be given greater managerial
autonomy.

A few months later, still reluctant to privatize NTTPC, the MPT
insisted that measures to introduce competition should be given priority over
structural reform of NTTPC.9 The MPT was afraid of losing its power over
NTTPC in the event of privatization. To many people, the idea of breaking
up NTTPC was inconceivable, simply because it was incompatible with the
prevailing belief that telecommunications was a natural monopoly and that a
breakup would reduce NTTPC’s efﬁciency.

In March 1983, Rincho submitted the ﬁnal recommendation to then-
Prime Minister Nakasone. The proposal to reform NTTPC still included both
privatization and breakup. NTTPC, on the other hand, advocated
privatization while it remained inconclusive about a breakup. It decided to
put oﬁ’ the breakup and study its feasibility in terms of the progress in
improved efﬁciency, network development, competition, and other related
issues.

Based on the Rincho’s ﬁnal recommendation, the Cabinet requested the
LDP’s Administrative and Financial Research Committee, headed by
Hashimoto, to prepare the basic framework to liberalize the

telecommunications market and reform NTTPC. Trying to ﬁnd the middle

 

9 Nippon Telegraph and Telephone, MW“, 8.

55

W“. _
ﬁ .‘.-5 ’D

ground between the MPT and NTTPC, Hashimoto developed the basic reform
plan of making NTTPC a special corporation in which the government would
hold 100 percent of the shares at the beginning but would gradually release
its shares to the public. The decision whether to break up or not would be
scheduled for review in 10 years.” Subsequently, the bill was drafted based
on Hashimoto’s ﬁ'amework.

After going through many political twists and turns inside the LDP and
generating additional conﬂicts among the LDP, other political parties, the
ministries, NTTPC, and the Japan Telecommunications Workers’ Union, the
bill was ﬁnally submitted to the Diet in April 1984. The Diet passed it in
December 1984. Eventually, Nippon Telegraph and Telephone Corporation, a

new special corporation, was established--on April 1, 1985.

I] 1955 T l . I. B E

The stated policy goal for the structural reform of telecommunications
was to promote more effective telecommunications services for consumers.
The government chose the privatization of NTTPC, opening the market to
allow new entries, and the promotion of competition as the means of
achieving that goal.

The Telecommunications Business Law was the core legislation of the
reform. The purposes of the law are “to ensure the proper and reasonable
operation of such business, to secure the consistent provision of
telecommunications service, and to protect the interests of its users, and

thereby guarantee the sound development of telecommunications for the

 

” Ibid., 46.

56

convenience of people, and promotion of public welfare.”11 The law speciﬁes
the framework for allowing new entrants into the telecommunications
market. It stipulates the classiﬁcation of carriers, the provisions for entry
and withdrawal, and the various measures required of telecommunications
business operators.

Article 6 places telecommunications carriers into two categories, Type I
or Type II. A Type I telecommunications business is deﬁned as "a business
that provides telecommunications services by establishing
telecommunications circuit facilities." A Type II telecommunications
business refers to any telecommunications business other than a Type I
business.” Typical Type II business operators are those who lease facilities
from Type I carriers and provide value-added services. The classiﬁcation
based on facility ownership organizes Japan's telecommunications industry
structure vertically, with Type I carriers above Type II carriers.

Type II businesses are classiﬁed further into General Type II and
Special Type II ﬁrms. The criterion for classifying a Type II carrier as either
General Type II or Special Type II is the size of the carrier. Special Type II
ﬁrms provide communications services for "many and unspeciﬁed persons,"
using more than 500 leased trunk lines, or international communications
services. General Type II ﬁrms are those other than Special Type II.13

The vertical categorization of telecommunications carriers indicates
the MPT's conceptions of the telecommunications industry structure and the

degree of government regulation. Table 1 indicates how carriers in each

 

l1Telecommunications Business Law, Article 1, (1984).
12Ibid., Article 6.
‘3 Ibid., Article 21.

57

Wt. m;

category differ in terms of facility ownership, line of business, size, entry and
withdrawal procedures, and rates according to the Telecommunications
Business Law.

Article 10 stipulates means of entry into a Type I business. Any
person who intends to operate a Type I telecommunications business must
ﬁle an application for permission with the MPT. The MPT then examines the
application based on a set of standards. A license is granted when the
application meets all of the following conditions: It responds to user demand
within the speciﬁed market, it does not create an unacceptable excess of
facilities, the applicant has a sound ﬁnancial basis and technical capability;
and it is appropriate for the sound development of telecommunications.14 The
MPT has legal authority to determine how many Type I carriers should be
allowed in a particular market. The level of competition is, therefore, under
the complete control of the MPT. The law does not specify how to maintain a
supply-demand balance in a particular market or what constitutes an excess
of facilities.

Anyone who intends to start a general Type 11 business does not have
to go through the MPT's extensive examination process as in Type I
applications, but has to submit a notiﬁcation.” Special Type II carriers are
requested to apply for registration to the MPT. Then, the MPT examines the
application for truthfulness of information, ﬁnancial basis, and technical

capability. Applicants are notiﬁed of the results.”

 

1" Ibid., Article 10.
‘5 Ibid., Article 22.
” Ibid., Article 24.

58

TABLE 1

Classiﬁcation of Telecommunications Businesses and
Regulatory Frameworks

 

Facility Line of business

 

C lassiﬁcation ownership Entry Withdrawal Rates
Type 1 business Yes No restriction Approval Approval Authorization
Special Type ll N0 N0 restriction Registration Notiﬁcation Notiﬁcation
General Type ll N0 N0 restriction Notiﬁcation Notiﬁcation N0 regulation

 

Source: The Ministry of Posts and Telecommunications,

(The Information and Communications Statutes Book.
1994) (Tokyo: Daiichi Hoki, 1994); The Ministry of Posts and
Telecommunications,
E155aL1985 (Tokyo. The Japan Times, 1986), 2.

Different standards and procedures are used for entering carriers in
each category because the magnitude of social and economic consequences
signiﬁcantly varies depending on the number of users. Type I carriers serve
more users than Type II carriers, and special Type II carriers serve more
users than Type II general carriers. Such differences might have inﬂuenced
the subsequent formation of the telecommunications industry structure by
either encouraging entries into one category or discouraging them ﬁom
entering another category.

Type I carriers have to establish service charges and obtain

authorization of those charges ﬁ'om the MPT. Any change in service charges

59

ﬂ“‘r‘_‘.—T“

also needs to be authorized. The MPT grants authorization if it is
determined that an application conforms to each of the following conditions:

1. Charges shall be fair and reasonable in consideration of proper costs
under efficient management.

2. Calculating methods of charges shall be properly and clearly
stipulated.

3. Charges shall not include any provision that unfairly discriminates
against any person.17

The NTT Corporation Law of 1984 replaced NTTPC, a government-
owned public corporation, with NTT, a joint stock company owned partially
by the government and partially by public shareholders. The ﬁrst provision
of Article 1 limits the NTT’s business to domestic telecommunications.” NTT
can provide both domestic local and long-distance services but cannot enter
the international market. The law set geographical boundaries but leaves
lines of services out of regulation. No provision precludes NTT’s participating
in other related businesses. The second provision of Article 1 allows NTT to
"engage in subsidiary businesses and/or other business activities necessary
for execution of its objective," subject to the MPT’s approval.” Moreover, the
law does not restrict NTT’s investment activities. Therefore, NTT can make
any investment other than in its principal business and establish

subsidiaries, either to start new ventures or to enter joint

 

l7Ibid., Article 31.
” NTT Corporation Law, (1984), Article 1.
19 Ibid.

60

ventures with other companies.20

Universal service was not a policy issue in Japan when the
telecommunications business was monopolized by the public corporation. It
was rather an issue of network plan.21 By taking over the nationwide
networks owned by NTTPC, the privatized NTT is now required to continue
providing "universal service."22 The NTT Corporation Law states that NTT is
obligated to ensure the stable supply of telephone services throughout the
nation under appropriate and nondiscriminatory conditions.”

The NTT Corporation Law requires the government always to hold at
least one-third of the corporations’ stocks.24 Setting this strict ratio of
shareholding was motivated by the Commercial Code, which would allow
shareholders to exercise veto power over the decisions made in shareholders'
meetings. Maintaining such crucial government control over the privatized
NTT was considered imperative for securing the nation's communications
infrastructure. However, that deprived N TT of the advantages of being a
semi-private company.25

The law originally prohibited individuals of foreign nationality, foreign

governments and representatives, and foreign corporations and organizations

 

2° In Japan it is an acceptable business practice for a company, .
especially a big company, to form a keiretsu (a group of affiliated compames)
to increase efﬁciency and mutual beneﬁt by collaborating with each other.

2‘ Minoru Sugaya, “Advanced Universal Service in Japan,”
' ' ' 21, no. 2, (1997): 177.

22 Although a concept comparable to "universal service" exists, the term
has rarely been used in Japan until recently.

23 NTT Corporation Law, Article 2.
2" Ibid., Article 4.
2” Takano, 126.

61

from being registered as NTT shareholders. In 1992, the law was revised to
allow them to be registered as long as the aggregate of stocks held by foreign
nationals did not reach or exceed 20 percent of the outstanding shares.
Imposing such a limitation on foreign ownership was the government’s
precaution against foreign threat to the domestic communication
inﬁ'astructure.

NTT must submit an annual business plan before each ﬁscal year to
obtain approval ﬁom the Minister” and present a ﬁnancial plan within three
months after the end of the ﬁscal year to the MPT.27 The MPT’s involvement
in the NTT’s management extends to the selection of executives, as well. All
directors and auditors are elected by the shareholders; however, every
appointment and dismissal is subject to ﬁnal approval by the MPT.28
Requiring the shareholders’ decisions to be validated by the MPT reinforced
the MPT’s bureaucratic control over NTT. In fact, increasing numbers of
retired MPT ofﬁcials have gone to NTT as managing directors.

Article 2 of the Supplementary Provisions of the NTT Corporation Law
ordered the government to reexamine the organizational structure of NTT in
terms of the progress made by the reform and the change in other
telecommunications environments and to take necessary measures within
ﬁve years after the day of establishment. This provision did not eradicate but
preserved the possibility of the breakup of NTT in the near future.

The relationship between the MPT and NTTPC before privatization

was relatively independent, yet collaborative. NTTPC demonstrated its

 

2" NTT Corporation Law, Article 11.
27 Ibid., Article 12.
28 Ibid., Article 9.

62

expertise in every aspect of telecommunications operations, whereas the MPT
was specialized in postal operations. Retired MPT ofﬁcials, so-called
amakudari (descended from heaven), often occupied the NTTPC’s top
managerial positions.” The NTTPC sent personnel on loan to work for the
MPT, whose employees lacked business and technical knowledge. Such
personnel exchanges created and reinforced a favorable political and
operational environment for NTTPC with minimum intervention from the
MPT. In contrast to the MITI, which always maintained its overwhelming
power over private ﬁrms under its control, the MPT had little authority over
NTTPC, and some of the career ofﬁcials often found their powerlessness to be
irritating and humiliating.30

The Telecommunications Business Law and the NTT Corporation Law
changed the relationship between the MPT and NTT. The laws granted the
MPT substantial power and authority necessary for bureaucratic control over
NTT and other private telecommunications businesses. The relationship
between business corporations and the bureaucracy in control is not normally
antagonistic in Japan. The companies, however, have no option but to
comply with bureaucratic wishes when a conﬂict between the two parties
arises. One of the tools that Japanese bureaucrats use to implement a

particular policy based on their interpretation of the law is "administrative

 

”Accepting amakudari is still common in many private companies.
Each year some 300 bureaucrats enter the private sector as directors or
senior advisers of corporations they monitored during their government
careers. Such bureaucrats are expected to work for another 20 years after
their retirement at age 55 to help ensure smooth communication between the
company and the ministry. See Karel van Wolferen,

(New York: Vintage Books,

1990), 45.

3° Hajime Fujii, W (Breakup: NTT vs. the
Ministry of Posts and Telecommunications) (Tokyo: Diamond, 1996), 6-7.

63

guidance." Although no administrative guidance has legally binding power
over corporations, its subtle "coercion by intimidation" induces voluntary
cooperation.” The MPT had often been disparaged as the ministry in name
only with telecommunications administration until it gained unprecedented
discretionary power over NTT. The MPT became responsible for approval for
every one of NTT's essential business activities. The relationship between

"32

the MPT and NTT was transformed to "an inimical one as the Ministry
often had to tighten the reins on the NTT's conduct to accomplish its mission
to create competition.

The MPT’s functions range over administrative and technical
regulation, control, supervision, and veriﬁcation to ensure continuity,
regularity, equality, and broad availability of services; to promote universal
basic telephone service at a fair and reasonable price; and to foster
development of a competitive market. The MPT grants, revokes, or cancels
licenses. It can limit entries or require existing companies to obtain
authorization before installing or operating new facilities. In addition, the
MPT reviews and approves prices, quality of service, technical compatibility,
interconnection of networks, and investment plans. Licensees are required to
supply accounting information, trafﬁc data, and other required statistical
data at the end of each ﬁscal year. By exclusively collecting such information,
the MPT stands as the only authority that has jurisdiction over the
telecommunications industry.

The MPT’s approach to creating competition was focused on controlling

the number of entries into the market and regulating prices. Since 1985, the

 

31Wolferen, 344.

3” Komiya, 61.

64

MTP has maintained the principle of allowing a small number of Type I
carriers to operate. Within a few years, three new common carriers (N CCs)
entered the domestic-long distance market, whereas two NCCs entered the
international market. In the regional telephone markets, at most one .
operator was allowed to enter to compete with NTT.

The MPT provided NCCs with extraordinary assistance for their smooth
and rapid growth. Price regulation seemed to be designed to assist the
growth of N CCs. Oniki explained:

Since 1985, the price of long-distance transmission provided by the
three NCCs has been set, on average, at a level lower by 10 to 20
percent than the price of the same service provided by NTT. (In October
1989, when international NCCs were started, the MPT determined that
the price of services given3 by the NCCs must be set 20 percent lower
than that given by KDD. )33

The MPT informally ordered NTT to send some of its engineers to NCCs to
help construct their long-distance network. It also provided necessary
permissions much faster than usual, with the cooperation of the Ministry of
Transportation, the Ministry of Construction, and local governments.34
Although NTT’s dominance in the Type I business continued, a slow but
steady sign of NCCs’ growth was observed between 1987 and 1990. Daini
Denden Inc. (DDI), Japan Telecom Co., Ltd. (JT), and Teleway Japan
Corporation (TW J) entered the long-distance market. Their combined

market share of total sales ﬁ'om telephone services increased to 4.7 percent in

 

33 Hajime Oniki, "Impacts of the 1985 Reform of Japan 3
Telecommunications Industry on NTT, " in Meheroo J ussawalla ed. 11191231
(W estport CT:
Greenwood Press, 1993), 72.

3" Oniki, 7 2-7 3.

65

1990.35 Their market share of long-distance calls between Tokyo, Osaka, and
Aichi, the high-trafﬁc metropolitan markets where they started up their
businesses, grew rapidly to 45.8 percent in 1990.36 The NCCs’ uniﬁed price
for long-distance services, substantially lower than NTT’s, caused NTT’s
long-distance price to fall 30 percent between 1987 and 1990.37 On the other
hand, the local market had only one Type I entry. Tokyo
Telecommunications Network (TTNet) started providing local telephone
services to the Kanto region in 1988. 'IVI‘Net’s growth was sluggish, and the
number of subscribers was minimal.” Nippon Ido Tsushin Co., Ltd., the ﬁrst
provider of cellular telephone service, started its operation in December 1988.
It took several years for other mobile communications providers to enter the

market, capturing an unexpectedly high share.

BesurgencecfthaBreakimuPolicLAgenda
In March 1988, the Minister of Posts and Telecommunications
requested the Telecommunications Advisory Council [Shingikai] to identify
the appropriate roles of the telecommunications industry in the coming
advanced information society and to review what N TT’s status ought to be as

a provider of the essential infrastructure. The inquiry was the ﬁrst step in

 

35 The share was obtained based on the total sales found 1n Ministry of

Posts and Telecommunications ed., Denkilsushinlokei
(Telecommunications Statistics), (Tokyo: Nippon Data Tsushin Kyokai, 1992),
16.

36 Ministry of Posts and Telecommunications, ed., Tsushinﬂakusho
(Telecommunications White Paper), (Tokyo: Ministry of Finance Printing
Bureau, 1993), 8.

37 Ministry of Posts and Telecommunications, ed., MW.
(1992), 156.

38 According to Ministry of Posts and Telecommunications ed., Tsushin
11911115119, (1993) the number of subscriptions was 8,172 in September 1992.

66

the MPT’s carrying out the Supplementary Provisions of the NTT
Corporation Law.

After a year and a half of deliberation, the Council submitted an interim
report to the Minister of Posts and Telecommunications on October 2 1989.
The report disclosed the Council’s ﬁrm position in support of the breakup.
The Council admitted some of the positive effects of privatization and
liberalization, as evidenced in lower prices, more and diversiﬁed services,
expansion of digital networks, and contribution to the domestic economy.
However, it was believed that the beneﬁt of the reform could have been
greater if the structural obstacles to fair and effective competition were duly
removed. The Council pointed out that NTT accounted for some of the
greatest obstacles, for example, the persistent inefﬁciency associated with its
gigantic size of more than a quarter million employee, the extremely strong
market power with its overwhelming customers, and the integration of local
and long-distance businesses with substantial cross-subsidies.

The Council proposed that removing these obstacles by breaking up
NTT was essential for the promotion of fair and effective competition. There
were three alternatives for the breakup: (a) break up NTT into 11 regional
companies providing both local and long-distance services, (b) break up NTT
into a local company and a long-distance company, and (c) break up NTT into
a long-distance company and 11 local companies.” The Council favored the
last alternative. It was also recommended to seriously consider separating
NTT’s mobile communications, maintenance, and equipment sales divisions,

as well as setting guidelines for NTT’s subsidiary establishments.

 

3” NihonKeizaiShinhun, 3 October 1989, p.1.

67

Meanwhile, other government bodies separately reported on the status
and structure of NTT. The Economic Planning Agency recommended the
separation of the N'I'l‘ business in April 1989. The Sangyo Kenkyusho
[Institute of Industrial Studies], a fringe organization to the MITI, compiled
their studies into a report advocating that the breakup should be considered
as the last measure after all other alternatives including extensive
deregulation, were explored.” Later, in September 1989, the
telecommunications policy study group of the FTC concluded that it would be
too early to carry out the breakup. The FTC study group acknowledged the
possibility that NTT would abuse its monopoly power through rejecting
interconnection with other operators, exercising predatory pricing enabled by
cross-subsidy, or driving other operators out of the market with its technical
advantages. However, the study group did not ﬁnd the necessary evidence
necessary to justify a breakup. Then the FTC pointed out that the breakup
would jeopardize the economies of scale and operational efﬁciency and
proposed that the alternative measures should rather force NTT to
interconnect with NCCs on the same terms as with NTT’s long-distance
division, separate long-distance accounts ﬁ'om local accounts to prevent cross-
subsidies, and provide NCCs with information about its local networks and
customers.

From the consumers’ point of view, on December 4, 1989, the Keizai
Dantai Rengokai or Keidanren (Japan Federation of Economic Organizations)
published a report on what the structure of NTT and the telecommunications
policy should be. The Keidanren is one of Japan’s top associations, with a

membership of more than 100 trade associations and about 800 large

 

”WM, 27 September 1989. In Nippon Telegraph and
“91911110119, W1 66-69-

68

companies. It has 30 basic committees that deal with various policy issues.
The Keidanren has considerable power, inﬂuence, and authority, as
demonstrated in its ability to mediate conﬂicts and build consensus among
member industries and businesses. Because of its large ﬁnancial
contribution made to the ruling political party, the Keidanren has signiﬁcant
power and inﬂuence in the political community, as well."1

The Keidanren contended that the role of government should be limited
to the development of a basic framework to promote competition in the
market, and that excessive government intervention should be avoided as
much as possible. The report evaluated the development of the
telecommunications market since 1985 in comparison with other industries
and found it to be unsatisfactory in terms of level of competition, price
reduction, and diversity and quality of services. One of the reasons was the
NTT’s integrated structure owning and operating both local and long-
distance networks. To remove the obstacles arising from the bottleneck, the
report suggested that the NTT’s local business should be separated from its
long-distance business, that NTT should provide equal access and
interconnection to its local network, and that entries to the local market
should be encouraged. However, the Keidanren was reluctant to draw a rash
conclusion about the breakup. Instead, the report proposed that the effect of
the breakup should be carefully and thoroughly estimated by collecting
suﬁicient ﬁnancial and technical information. As well, such issues as the

nationwide digital network under construction, the research-and-

 

“ Richard Boyd, “Government- Industry Relations in Japan. Access,
Communications, and Competitive Collaboration’ in Stephen Wilks and

Maurice Wright, eds.,
(Oxford: Oxford University Press,
1987), 72-74.

69

development (R&D) capability, consistent network operation, the obligation
to provide universal service, and the rights of NTT shareholders needed to be
considered. Taking a cautious approach, the report concluded that further
deliberation was warranted and that a decision on restructuring of NTT
should be made in about three years. The Keidanren added a few measures
on which both NTT and the MPT needed to take immediate action. For NTT,
the measures included separating the local business and accounting, opening
a local network, publicizing various information, and completing the
nationwide digital network as soon as possible. The MPT was expected to
disclose and relax the criteria for approval of entries, to simplify various
application and approval procedures, to develop rules to make
interconnection obligatory and simplify the interconnection agreement and
approval procedures, and to set up fair access charges.

On March 2, 1990, the Telecommunications Advisory Council submitted
its ﬁnal recommendation. The Council followed the logic for the breakup of
NTT presented in the interim recommendation and selected one of the
alternatives that would split NTT up into a local company and a long-
distance company in ﬁve years.42 In addition, NTT would split off the mobile
communications business as soon as possible, within a year or so. The local
company would continue to be a special corporation subject to government
control. The local company would take over all equities of the separated
companies and subsidiaries, as well as the R&D departments. The
recommendation set forth the positive effects of the split. The beneﬁts for the
telecommunications industry and its consumers would include development

of a market structure that would enable fairer and more effective competition,

 

‘2 The MPT used the term “split” when the breakup was to separate the
local business from the long-distance business.

70

improvement in the managerial efﬁciency of NTT, and a consequent decrease
in price, and increase in quality and diversity of services. The beneﬁt for the
new long-distance company would be its increased autonomy as a pure
private company free ﬁom government approval and regulations.”

Upset about the ﬁnal recommendation of the Telecommunications
Advisory Council, NTT expressed strong opposition to the split into a local
company and a long-distance company. Several negative effects of the split
were pointed out. First, division of the network would make operational
coordination difﬁcult and cause delays in repair services. Second, the local
company would have to raise prices because it would not be able to reach a
break-even point. Third, the R&D capability would decline due to scattered
investments and incentives; consequently, NTT would lose its technological
competitiveness. Fourth, the loss of uniﬁed network operations would harm
network security, reliability, and trafﬁc control, creating serious problems
especially in case of emergency. Fifth, the stockholders’ rights would not be
guaranteed in the absence of concrete protective measures. Sixth, no
countries other than the United Sates had ever divided their nationwide
public telecommunications operators into local and long-distance companies,
and the breakup would pull NTT back from the world trend of network
convergence.

Underestimating the potential growth of the mobile division, NTT did
not resist splitting off the mobile communications business. NTT also
announced that it would contribute to the development of fair competition by
separating accounts, opening its network, and making more information

available to the public. Other measures included reducing long-distance

 

”Asah'LShinbun, 3March1990, p. 1, 3, 8;NihonKeizaiShinb11n, 3
March 1990, p. 1, 3; X91111111‘.1_Sh1nb11n, 3March 1990, p. 1, 6, 7.

71

prices, cutting the number of employees, and investing in digital and ﬁber-
optic network expansion.44

The threat of the breakup made people uncertain about NTT’s future
performance. Anxiety diffused quickly among individual shareholders, as
well. Within two weeks following the submission of the Council’s ﬁnal
recommendation, NTT’s stock price plunged to record lows, even below the
price at its initial release in 1987. The Ministry of Finance, the largest NTT
shareholder, became very upset about the negative impact of the Council’s
recommendation on NTT stock prices. The MOF promptly requested that the
MPT should freeze the proposal of splitting NTT until it could develop
concrete measures to protect shareholders’ interest based on reliable
projections of NTT’s ﬁnancial situation in the event of a breakup."5

Contrary to the MPT’s expectation, the proposal to break up NTT
encountered strong opposition not only from NTT but also from the MOF. In
fact, the MPT had not anticipated such a sharp decline in NTT stock prices
and was not ready to provide any countermeasure to protect the value of
NTT equities. Instead of moving the proposal forward to a Cabinet meeting,
the LDP, the then-dominant ruling party, had to seek a compromise that both
the MPT and the MOF could accept. Through the intensive mediation of the
LDP, the Cabinet abandoned the proposal of breaking up NTT and instead
had to work out a few alternative measures to execute the Supplementary
Provisions of the NTT Corporation Law. One measure was to force NTT to
internally separate the local business department ﬁom the long-distance

department. NTT was also ordered to disclose the account information for

 

‘4 Nippon Telegraph and Telephone, W, 186.

45Nj.hg2ILK5izai_Shj.n121.m, 20 March 1990, in Nippon Telegraph and
Telephone Corporation, W, 101.

72

each division separately, so that problems associated with cross-subsidy and
suspicion of unfair interconnection could be resolved.”

NTT experienced a constant decline in proﬁts because of the nation’s
long economic depression and the loss of revenue in the long-distance
business due to substantial price reductions between 1990 and 1995.‘7 NTT
tried to reduce costs through extensive downsizing. Twenty-seven regional
ofﬁces were combined into 11, and 252 local branch omces were either closed
or combined into 157 between 1990 and 1994. The number of employees was
reduced from 257,000 in 1990 to 194,700 in 1994.“8 NTT split off its mobile
communications business and established NTT DoComo, an independent
subsidiary, in July 1992. Separate account statements for local and long-
distance businesses were prepared and released for the ﬁrst time in June
1993.49 The question still remained as to whether NTT could eradicate the
potential breakup by doing as much as what they could to increase efﬁciency.

Some MPT ofﬁcials felt that they lost the battle against NTT when they
had to give up the breakup of NTT in 1990. The breakup of NTT, alone, was
becoming their long-term goal that would satisfy their desire to conquer the
enemy NTT, rather than one of the policy alternatives available to solve
particular problems. Those tough MPT warriors were trying to make

themselves well prepared for the next round of the battle.

 

‘” Nippon Telegraph and Telephone, W, 103-
105.

‘7 Nippon Telegraph and Telephone, W, (Tokyo:
NTT Public Relations Department, 1998), 15.

‘” Ibid., 30.
49 Ibid., 274.

73

In fact, a few MPT bureaucrats were reportedly active in creating a
positive attitude toward the breakup among NTT’s shareholders, in
preparation for the next round of discussion scheduled for 1995. These
individuals were Mitsuo Igarashi, then-Director of Telecommunications
Bureau, and Koji Hamada, one of Igarashi’s subordinates as head of the
Telecommunications Business Department, who had a reputation for being
well prepared and good at making strong arguments.50 They did not want to
repeat the bitter experience of the last-minute failure to move the breakup of
NTT up to a decision agenda in 1990 due to shareholders’ negative reaction.‘51
As early as mid-1994, the MPT visited the security analysts and persuaded
them to support the breakup.52 Many security analysts shared the generally
favorable view that the breakup would pull up the stagnant stock market.
The MPT’s reinforcement and encouragement generated a number of articles
by the analysts, who made positive estimation about the impact of the
breakup on NTT stock price.53 The theory was quickly diffused among the
shareholders. Upset by the reports, NTT complained to the security ﬁrms
and forced them to keep quiet about the relationship between the breakup
and stock prices.54 Yet, the theory survived and the price of NTT stocks

maintained the normal range of volatility.”

 

5° Fujii, 1.

51 Ibid., 2, 20-21.
52 Ibid., 21.

53 Ibid., 22

54 Ibid., 23-24

55 Ibid., 22.

74

CHAPTER V1
THE POLICY AGENDA-SETTING AND DECISION PROCESS

The Minister of Posts and Telecommunications consulted the
Telecommunications Advisory Council about the structure of NTT on April 6,
1995. By that time, the issue of whether to break up NTT had been a policy
agenda on and off for more than 10 years. Frozen for the last ﬁve years, the
issue was ofﬁcially revisited on schedule, called for serious attention, and
brought up onto a policy agenda. The issue, involving the complex, deep, and
prolonged conﬂict between the MPT and N'I'I‘, inevitably took a long time to
reach the House of Councilors, Japan’s ﬁnal legislative organ, where the
revised NTT Corporation Law was passed. In this chapter, the writer
present the results of the analysis for the period during which the breakup of
NTT ﬁnally reached a decision agenda.

Figure 9 shows the major events that took place in the agenda-setting
process and the three stages divided by the critical events. The chronology
indicated that the entire agenda-setting and decision process took two years
and two months--ﬁom April 6, 1995, to June 13, 1997 . The period was then
divided into three stages by the critical events that shifted the process to a
new phase. The ﬁrst stage started on April 6, 1995, with the Minister’s
request to the Telecommunications Advisory Council for an inquiry into the
status of NTT and ended on March 29, 1996, with the Cabinet’s approval of
postponing the decision about the breakup. The subsequent second stage
ended on December 6, 1996 when the MPT and NTT agreed on the breakup
under certain conditions. The last stage began on December 7, 1996, and
ended on June 13, 1997 , with the ﬁnal legislative approval of the revised NTT

Corporation Law. The problem, policy, and political streams and their

75

Dates

 

 

 

Stages
4-6-95
9- 28-95
1-6-96
1 2-29-96
32996
> 9-4-96
10-20-96

2
12-6-96
7. 2-13-97
2-23-97
2-25-97

3
5-8-97
6-12-97

 

Events

Minister of Posts and Telecommunications asked the
Telecommunications Advisory Council

for review and suggestions concerning the status of NTT.
The Council formed the Special Subcommittee.

NTT announced to open its local network.

Prime Minister Murayama resigned and Hashimoto was
elected as Prime Minister of the coalition government.

The Telecommunications Advisory Council submitted the
ﬁnal report recommending the breakup of NTT.

The Cabinet decided to postpone the deliberation and
conclusion on the breakup of NTT to the next regular
session of the Diet.

MPT and NTT started direct and exclusive dialogues.

LDP regained dominant power as the result of the House of
Representative general election.

NTT and MPT reached the agreement on the proposal that
would break up NTT under a holding company.

The bill that would revise the Anti-Trust Law to allow the
formation of holding companies was disclosed.

MPT announced the draft bill of revising N'I'I‘ Corporation
Law.

The cabinet and the leading parties supported the revision
of the Anti-Trust Law.

The bill to restructure NTT was up on the decision agenda
in the Diet.

The revision of NTT Corporation Law was enacted.

Figure 5. Major events and three stages of the policy process toward
the breakup of NTT.

76

relationships in each stage of the process are discussed in the following

sections.

W

In this stage, the problem stream and the policy stream ﬂowed parallel
with each other. Some participants were directly involved in one or more
streams. Others participated indirectly, expressing their opinions and ideas
in various reports and public announcements. Almost all participants
acknowledged the history of the long-pending issue and examined whether
the breakup of NTT would be the best way to resolve the conﬂict. Some
participants tried to identify and deﬁne problems ﬁrst and then seek
solutions. However, the majority looked for beneﬁts and defects of a breakup

and tried to predict its outcome.

I] 2 . .
Inside government, the MPT was the most important participant,
initiating and managing both the problem stream and the policy stream at
this stage. In April 1995, in response to the Minister’s request, the
Telecommunications Advisory Council, headed by Chairman Nasu, Chairman
of Tokyo Electric, formed the Special Subcommittee on the Status of NTT to
study and discuss the present and future status of NTT. The 12 regular and
one ad-hoc members of the Special Subcommittee were appointed by the
MPT; they included ﬁve academics, ﬁve business executives, a chairman of a

newspaper, a vice-president of an association of labor unions, a

77

representative of a consumer group.1 In addition, fourteen faculties from
various universities were appointed as special members.2 The Special
Subcommittee held 25 meetings in total which typically meeting were
attended by the regular and special members of the Subcommittee, the
Director of the Council’s Secretariat Office, and the Director-General and
other staff of the MPT Telecommunications Bureau. A number of people
were invited to the hearings to present their views and opinions about
various issues of interest to them. They included representatives of NTT,
NCCs, content providers, cable TV and broadcasting operators, trade
associations of equipment manufacturers and service providers, and an
association of consumer groups.3

Other groups and organizations participated indirectly by submitting
their reports and recommendations. The indirect participants inside
government included the Fair Trade Commission and Gyosei Kaikaku Iinkai
(the Administrative Reform Committee) established by Prime Minister
Murayama to monitor implementation of various deregulation and reform
programs and advise the Prime Minister and other administrative organs.4
The indirect participants outside government were the NTT afﬁliates and

supporters, Keidanren (the Japan Federation of Economic Organization),

 

1 Ministry of Posts and Telecommunications, “Special Subcommittee on
the Status of NTT Members,” [Online] Available
http://www.mpt.go.jp/policyreports/english/telecouncil/NTT/info-comm-
industry/inquiry.html, November 19, 1997.

2 Ibid.
3 Ministry of Posts and Telecommunications, SummamoftheMmutes

U‘ “ouu_o ._ _.oouu

W, [Online] Available http: //www. mpt. go .jp
/policyreports/japanese/telecouncil/ntt/index. html, September 20, 1999.

4 Nippon Telegraph and Telephone, WAN.

78

Joho-Tsushin Seisaku Kenkyukai (the Information Technology and
Communications Policy Forum), Denki Tsushin Kikai-Kogyo Kai (the
Communications Industry Association), and Zendentsu (the NTT Labor

Union).

Ih2.21'91212m_512122m

In deﬁning the problem, the participants blamed NTT’s dominance of
the local network, which allowed few entries in the local market, prevented
fair interconnection with NCCs, and impeded the development of a
competitive market. These problem deﬁnitions generated controversies
between those who were on the side of the MPT and those who were on the
side of NTT.

The number of Type 1 carriers in the subscriber telephone service
category, by service territory, is shown in Table 2. NTT was the only
company that had been providing both local and long-distance services. DDI,
JT, and TWJ were allowed to enter the long-distance market in 1987. TTNet
was designated as the only local carrier. The number of mobile telephone
operators rapidly increased between 1988 to 1995.

Market shares of NTT and NCCs in local and long-distance calls are
shown in Figures 5, 6, and 7. NTT’s market share steadily declined in long-
distance calls. In particular, NTT’s share in the high-density metropolitan
market (both households and business ofﬁces) dropped to less than 50
percent in 1991 and kept declining thereafter. However, NTT maintained its

monopoly in the local market, with more than a 99 percent share.

79

TABLE 2

Number of Type 1 Carriers of Subscriber Telephone Service Categories
(Unit = companies)

 

 

 

 

 

 

 

 

 

Fiscal Year
Type of Service 85 86 87 88 89 90 91 92 93 94 95
Local + 1013119)) 1 1 1 1 1 1 l 1 1 1 1
Long-d (D) 3 3 3 3 3 3 3 3 3
Local (D) 1 1 1 1 1 1 1 1
Mobile (D) 1 5 ll 11 13 25 32 55
International 1 1 1 l 3 3 3 3 3 3 3

 

 

 

 

 

 

 

 

 

 

 

 

a. (D) = Operates within the domestic market.

b. Mobile includes cellular telephone, personal handy phone(PHS), and other
wireless telephone services.

Data from Ministry of Posts and Telecommunications, ed., Johol‘sushin
Tokei (Telecommunications Statistics) (Tokyo: Nihon Data Tsushin Kyokai,
1997) 2-3, 141-145.

80

The changes in the rates for three-minute long-distance calls between
Tokyo and Osaka on weekdays are shown in Figure 8. NTT reduced its long-
distance rate every year ﬁ'om 1987 to 1993. N CCs responded to each of
NTT’s price reductions by ﬁling rates 10 to 20 percent lower than NTT. The
price gap was 10 yen (9.5 cents) in 1995.

The local telephone rate remained low because local service had been
treated as one of the public utilities vital to people’s daily lives. Because of
the low rate and high ﬁxed costs, the provision of local telephone services had
never been proﬁtable for NTT in most regions. To compensate for the loss,
NTT had been relying on cross-subsidies in which the revenue from local
services in urban areas and ﬁ'om proﬁt-making long-distance services
subsidized unproﬁtable services. Due to the substantial reductions in long-
distance charges and the separation of the local account from the long-
distance account since 1990, NTT could no longer maintain the practice.
Consequently, in 1994, NTT had to raise access charges 10 to 20 percent for
business users and 13 to 26 percent for residential users; the local call rate
for pay phones had been increased 200 percent the year before. NTT also
started charging for directory services in 1990 and raised the rate for such

services 50 percent in 1994.”

 

5 Nippon Telegraph and Telephone, W998, 100, 104-
106, 108.

81

6O '
4O

20’"~

  
  

iNoc
aurr

 

  
 

   

 

90 91 92L 93 l 94
'INCC\3.3I4.7|5.18l6.617.2 77i
l‘DNTT 9.67 9.53 94.l2 934 92.8 I92.3I90.5\

Fiscal Year

 

 

 

Figure 6. Market shares of local and long-distance calls.
Data from Ministry of Posts and Telecommunications, Isushinﬂakusho

(Telecommunicatlons White Paper), (Tokyo: Ministry of Finance
Printing Bureau, 1993-1997).

82

 

100 rj

   

80‘
so ’
%
[- NCC‘
20:”; IENTT l

  

 

 

     

‘89l90191192193,94195 ;
‘INCC: 1o 159.22.4‘263 29.1‘31.3‘31.9w35.71
‘aNTT 90 84.177.63732’7o.9‘68.7'68.1T643

Fiscal Year

 

 

Figure 7. Market shares of long-distance calls.
Data from Ministry of Posts and Telecommunications,

(Telecommunications White Paper), (Tokyo: Ministry of Finance
Printing Bureau, 1993-1997).

83

 

 

mi]
"5.

L 4

   

 

 

    

96
. . l 1 l. . . , ,,
.INCC , 39 45.8 . 51 ‘ 54.4 ‘ 54.4 j 54.1 ‘ 55.8 ‘ 56.4
‘ ‘CINTT l 61 j 54.2 I 49 F 45.6 i 45.6 , 459 l 442 1 43.6

 

 

l
l
l
. \

 

} Fiscal Year

Figure 8. Market shares of long-distance calls between Tokyo, Osaka,
and Aichi.

Data from Ministry of Posts and Telecommunications,

(Telecommunications White Paper), (Tokyo: Ministry of Finance
Printing Bureau, 1993-1997).

84

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85

Connection to NTT’s local network was essential for any NCC to provide
services. Without standard interconnection rules, each NCC had to negotiate
individually the terms for interconnection with NTT. NTT could take
advantage of holding the bottleneck in the negotiations with NCCs for
interconnection. For example, NTT might be able to set relatively high
access charges or restrict certain types of interconnections. In fact, 49.4
percent of the NCC’s total long-distance revenue consisted of access charges
paid to NTT. NTT was reluctant to provide access for the NCC’s new services,
the Virtual Private Network (VPN)6 and the Frame Relay,7 which the NCCs
planned to start ahead of NTT. When the negotiations was delayed, NTT
started the same service ahead of the NCCs.8

The participants were divided into three groups, based on their
positions regarding the breakup of NTT: proponents, opponents, and neutrals.
The proponents and opponents presented distinct interpretations of the
market condition and the problems. The proponents, representing the MPT
and N 006, attributed the cause of the weak and unfair competition
exclusively to NTT’s integrated structure of nationwide local and long-distant
networks. NTT’s abuse of its dominant power was perceived as severe and

persistent. A drastic restructuring of N'I'I‘ was believed to be the only

 

6 The VPN service allows corporate users to use the public network as
if it were a private network.

7 Frame Relay is a switching and transmission system between Local
Area Networks (LAN) much faster than the packet switching system.

8 Telecommunications Council, WW

‘0... one; on' 0.... ‘._ on. 9 g. u u I.-
,[Online] Available http: //www. mpt. go .jp/
policyreports/japanese/telecouncil/ntt/Council- NTT—j. html, (February 29,
1996).

86

effective alternative to eliminate the problems.9 On the other hand, the
opponents, representing NTT’s position, argued that the present market
structure had emerged along the measures implemented by the MPT.
Because the MPT did not rebalance long-distance and local rates nor did it
develop rules for interconnection, new entries and competition in the local
market were not encouraged. Rigid categorization within geographical and
service boundaries, unsubstantiated control over supply, and tedious
application procedures limited entries. The condition of the local market was
expected to change with the rapid entry and growth of mobile
communications providers and cable-TV operators. Therefore, the MPT

should ﬁrst undertake deregulation.10

WW

Almost all of the participants in the problem stream were also
participants in the policy stream. The proponents emphasized how the
breakup of NTT would beneﬁt the nation’s telecommunications industry.
Conversely, the opponents asserted that the breakup could not be
rationalized and would produce an adverse outcome.

In July 1995, the Deregulation Subcommittee of the Administrative
Reform Committee identiﬁed several controversial issues associated with the
breakup. These issues pertained to the effect of the breakup on NTT, namely,
interconnection, local monopoly, performance, price and universal service,
future network development, research and development, and international

competitiveness.

 

9 Ibid.
1° Nippon Telegraph and Telephone, MAW, 124.

87

Making interconnection fair and smooth was the strongest justiﬁcation
for moving forward with the breakup of N TT. Separation of the long-distance
operation from the local operation would stop NTT from favoring its own
long-distance operation over that of the NCCs. That would also prevent NTT
from cross-subsidizing. Removing the monopoly bottleneck would give NTT
an incentive to compete by improving efﬁciency. It was also expected that
the breakup would stimulate competition among the broken NTT companies
and NCCs and consequently beneﬁt consumers with lower rates and
diversiﬁed services. Competition also would help develop better management
of resource utilization and mobilization. Being separated from the dominant
local service provider, the new NTT long-distance company would be able to
start providing international services. Accordingly, the nation’s international
competitiveness in telecommunication would be substantially reinforced.ll

Recognizing that the MPT would blame NTT for not opening its local
network and use this to justify the breakup, NTT suddenly disclosed a plan:
that it would completely open the local network and allow NCCs to connect at
any level on September 28, 1995.12 In addition, NTT convincingly refuted on
several issues in the report submitted to the Deregulation Subcommittee in
October 3, 1995. First, the breakup would result in gaps in prices and
services across regions due to the difference in proﬁtability. In a peripheral
region, NTT might have to raise prices just to breakeven. NTT had
maintained a standardized quality of services and uniﬁed introduction of new
technologies and services nationwide; however, the breakup would hinder the

established equality. Second, the breakup would hinder the competitiveness

 

“ Telecommunications Council, W.

12NihoILKazizzzliﬁhinlcmn, 29 September 1995, p. 1, 3.; Asah'LShianm,
29 September 1995, p. 1, 11; XQmim‘LShinbnn, 29 Septemberp. 1, 7.

88

of NTT by splitting its resources. The loss of NTT’s competitiveness would
mean the loss of the nation’s competitiveness against transnational operators
converging and strengthening their power in the global market. Third, the
breakup would hurt NTT’s research and development capability, which had
greatly contributed to the development of advanced telecommunications
technologies in Japan. That would also lead to a weakening of Japan’s
technological competitiveness in the global market. Fourth, the shareholders’
rights would not be secured when NTT’s assets were split and distributed,
either by equities in new companies or by cash. For those who held only one
or a few shares, the distribution of equities in case of breakup would result in
holding fractions of each new company’s stock that could not be circulated.
The distribution of equities in cash would always involve volatility. Fifth, the
breakup would jeopardize the role of public telecommunications, especially in
a crisis or a disaster, which could have been handled properly only by N'I'P’s
comprehensive control and coordination. Sixth, the breakup would entail
enormous costs. No matter who bore the costs, that would entail an
unwarranted loss.13

The study group established by the Fair Trade Commission submitted
a report on November 24, 1995. It emphasized putting priority on carrying
out extensive deregulation, including removal of demand/supply control,
partition between domestic and international or local and long-distance
services, and an approval system for prices and services. Establishing
measures to foster competition also was required, for example, setting up
rules for fair interconnection and splitting NTT’s local business into

wholesale and retail businesses. The report added that the breakup of NTT

 

’3 Nippon Telegraph and Telephone, WJZG.

89

could be an effective measure to promote competition if was carried out with
the implementation of essential deregulatory measures.”

On December 8, 1995, the Deregulation Subcommittee of the
Administrative Reform Committee submitted its ﬁnal report concerning the
deregulation, covering all areas in both the public and private sectors. It
recommended removing demand/supply control and approval of prices,
redeﬁning Type II carriers, and considering the immediate abolishment of
the KDD Corporation Law and the future abolishment of the NTT
Corporation Law. The report suggested that NTT should be transformed to a
competitive entity by the breakup and that deliberation over speciﬁc
measures should take place openly and thoroughly at the
Telecommunications Council.l5

Keidanren’s position toward the breakup swung like a pendulum,
reﬂecting the mixed membership. The members who were amliated or had
business with NTT, called “ex-NTT family companies,” strongly opposed the
breakup. On the other hand, the increased number of NCC members,
together with their investors, formed a powerful proponent group.16 The line-
up of top managerial positions suggested a ﬁerce battle between the pros and
cons. Chairman Toyota was president of Toyota, the parent company of TWJ.
Vice-Chairman Nasu, chairman of Tokyo Electric, the parent company of

TTNet, was also chairman of the Telecommunications Advisory Council.

 

1" NihanuKeizaLShinbjm, 25 November 1995, p. 7; W, 25
November 1995, p. 1, 9.

15Xomim:'LShmhun,6December 1995, Evening issue, p. 1, 2; Nihon
KaizaLShinhun, 8 December 1995, p. 1, 3.

‘GNihonKeizaLShinbnn, 29 November 1995, p 1; W31
Shmlmn, 9December 1995, p. 1; WW, 9January 1996, p. 3;
W, 9January 1996, p. 6.

9O

Vice-Chairman Sekimoto was president of NEC, the largest supplier of
equipment to NTT. Keidanren avoided taking either position in its ﬁnal
report on the future information and telecommunications market, issued on
January 8, 1996. The report urged that telecommunications policies focusing
on deregulation be reviewed as soon as possible.17

Two additional reports opposed the breakup. One was issued on
January 20,1996, by the National Institute for Research Advancement,
attached to the Economic Planning Bureau.18 The other was issued on
January 22, 1996, by Zendentsu (NTT Labor Union).19

On January 24, 1996, the MPT announced that it would deregulate
several areas of the existing regulation, including removing supply control,
removing geographical and line-of-services regulation, making
interconnection rules, and removing price control of mobile services.20 This
policy change was aimed at softening the increasing appeals for deregulation
instead of breakup.

The Telecommunications Council Special Subcommittee submitted the
ﬁnal report “Status of Nippon Telegraph and Telephone Corporation”
recommending the breakup in which NTT was to be restructured into a long-
distance communications company and two regional communications

companies on February 29. The long-distance company was to be a complete

 

”AsahLShinhnn, 9January 1996, p. 3, W 9
January 1996, p. 3, WM, 9January 1996, p. 6.

l”AsahLﬁzhinhim, 20 January 1996, p. 13; NihQILKeizaLShinhun 20
January 1996,p .;5 XQmiurLShinbnn,6Janua1-y 1996, p. 9; Xemiur'LShianm,
20 January 1996, p. 9.

’9 NitheizaLShinbun, 23 January 1996, p. 7; Xommriﬁhinbjm 23
January 1996, p. 7.

2° NihonKeizaLShinbnn 24 January 1996, p. 4.

91

private company that would be allowed to enter international market. The
regional communications companies were to be treated as special companies
for the time being. They would be privatized once sufﬁcient competition was
generated. Cross entries to each others business and entries into other
businesses outside their operational areas were also to be allowed, however,
entries into long-distance communications, international communications,
cable TV, content, and other businesses in their operational areas would be

restricted.21

T] E l' . l S

The political parties and members who held ofﬁces in the government
were signiﬁcant actors in the policy-making process. In addition to them, the
MPT’s top bureaucrats and the executives among the stakeholders
participated, visibly or invisibly, in the political stream.

The Japanese witnessed a dramatic change in the political environment
during the summer of 1993. Dissatisﬁed with the leadership, a considerable
number of the members of the Liberal Democratic Party (LDP) left the party
and formed their own parties: Shinseito (the Japan Renewal Party) and
Sakigake (the Harbinger Party). After the subsequent general election, the
LDP found that it was still the largest party but fell 33 seats short of a
majority in the Diet. The formation of a coalition of seven non-LDP parties
ended and replaced the LDP’s 38 years of stable dominance. The weak unity
among non-LDP parties resulted in instability of the succeeding Hosokawa
and Hata administrations. Furious at the coalition leadership, the Japan

Socialists Party (J SP), the second largest party after the LDP, left the then-

 

2’ Telecommunications Council, W.

92

ruling coalition and tied up with the LDP and the Sakigake on June 23,
1994.22 The LDP returned to power and stabilized the coalition government
by offering Socialists Chairman Murayama the post of prime minister. In
return, the LDP dominated the Cabinet.23

Right after the inauguration of the Murayama administration, the
coalition parties adopted a policy agreement for transparent and democratic
policy-making procedures and established inter-party decision-making bodies
consisting of representatives of the coalition parties. They were, from the top,
Seifu-yoto shuno renraku kaigi (the liaison council), Yoto sekinisha kaigi (the
ruling parties’ leaders’ committee), and Innai yoto somukai (the ruling
parties’ parliamentary executive board). The LDP Policy Affairs Research
Council brought a bill to the ruling parties’ parliamentary executive board
before it recommended to introduce it to the Diet. This procedure maintained
unity and stability of the coalition government. LDP leaders determined to
“let nothing drive a wedge” between themselves and the J SP as long as they
needed the J SP’s alliance to stay in power.”4 The J SP was cooperated with
the LDP because the party had a strong interest in holding political power as
a ruling party, which it had acquired for the ﬁrst time in the party’s history.25
The remaining parties consolidated and formed Shinshinto, the New Frontier
Party (NFP), in December 1994. The NFP was the opposition party when the

issue of breaking up NTT was reinstated on the political agenda.

 

2’ See Gerald L. Curtis, ' ' -
’ ’ ' ' , (New York: Columbia University
Press, 1999), 65-125 for details of the power shifts and the politics of coalition
formation.

2" Ibid.,196.
2" Ibid., 202.

25 Ibid., 199.

93

As of fall 1995, the J SP was the only party expressing opposition to the
breakup arguing that the breakup would neither secure universal service,
especially on remote islands and in depopulated areas, nor change NCC’s
interest only in cream skimming. Supported by Zendentsu, NTT’s labor
union, whose members counted close to 200000, the J SP naturally concurred
with the interest of Zendentsu.26 Neither the LDP, the Sakigake, nor the
NFP could commit itself to either position because the members had mixed
backgrounds and conﬂicting opinions.27

Prime Minister Murayama resigned on January 6, 1996 after one and a
half years in ofﬁce. Subsequently, Minister of the MITI Ryutaro Hashimoto,
the LDP leader since September 1995, succeeded the Prime Minister of the
coalition government. Hashimoto, who had been reluctant to break up NTT
since the early 19803, maintained that deregulation instead of breakup was
necessary to promote competition and growth of the info-communications
industry.28 The J SP requested, unofﬁcially yet strongly, avoidance of the
breakup of NTT to be included in the coalition’s agreement on Hashimoto’s
takeover of the premier position.29 The administration’s course for avoiding
the breakup seemed to have been shaped. The utterances and actions of the
ruling parties’ members revealed that the government would not pursue the

breakup of NTT.

 

2" NihQILKeizaLShianm, 24 October 1995, p. 2; NihQnKeiza'LShinblm,
3 January 1996, p. 2.

27Nihon.Keizaiﬁhinbim, 24 October 1995, p. 2; NihonKeizaLShinbuu,
20 November 1995, p. 42- 43.
28Nih$211_Ks:1°.za.i_Sh;inb_l.1n, 27 December 1995, p. 2.

2’ WM, 9 January 1996, p. 6.

94

Minister of Posts and Telecommunications Hino, who was a member of
the J SP and took ofﬁce in the Hashimoto cabinet, suggested that the
government might postpone the decision until after the deadline of the end of
March.30 The minister’s public statement shocked the MPT ofﬁcials as it
could mean again abandoning the breakup at that time.31

In response to the speculation that the coalition parties might oppose
the breakup, Telecommunications Council Special Subcommittee Chairman
Ito expressed his determination that the subcommittee would continue its
deliberations despite the shift in politics.32 Subsequently, Ito disclosed that
the Subcommittee started working on the basic plan of splitting the long-
distance division ﬁ°om the local division and breaking up the local division
into two or more regional companies on January 20, 1996.33 The MPT, on the
other hand, turned its focus on consumers and announced a deregulation
plan that would beneﬁt consumers. The change in strategy was aimed at
obtaining public support for the MPT.34

On February 2, the probability that the breakup of NTT would be up on
a decision agenda was reportedly becoming even slimmer. The members of
the LDP were rapidly shifting their preference to delay their decision another

year or so after the general election, which most likely would take place in

 

3" W. 13 January 1996, p. 1, 5; AW, 13
January 1996, p. 3.

3‘ Asah'LShinlnm, 13 January 1996, p.11.

3’ NihQnKeizaLShinbnn, 10 January 1996. P. 5:1QmiurLShianm 12
January 1996, p. 8.

33Asah'LShinhun, 20 January 1996, p. 13; NihQnKeizaLShinbnn, 20
January 1996, p. 1; XQmint'LShinhnn, 20 January 1996, p. 9.

3" NihonKeizaLShinhun 24 January 1996, p. 4.

95

the fall or, at the latest, by the end of 1996.35 They were concerned about the
negative effect of the breakup decision on the coalition’s unity, as well as on
their individual constituencies.

On March 19, 1996, the LDP decided that it would not decide on the
breakup of NTT because the discussion between the MPT and NTT had not
been sufﬁcient and not enough time remained for deliberation within the
current terms of the Diet ordinary session. The decision would be made
during the next Diet ordinary session, after January 1997.36 The LDP
announced that it would respect the ﬁnal recommendation of the
Telecommunications Advisory Council, and requested that the MPT and NTT
would continue to seek a mutual agreement.37 The other coalition parties,
the Social Democratic Party (SDP)38 and Sakigake, accepted the

postponement on March 26,39 and the cabinet approved it on March 29.40

WM
Realignment of the participants and behind-the-scene negotiation and

bargaining characterized this stage. A few focusing events took place during
this period that had a signiﬁcant inﬂuence on both the problem stream and

the policy stream.

 

35 W. 3 February 1996. p- 6-
’6 3Nihon Keizai Shinbun, 20 March 1996, p. 1.
”Asahiﬁhinhun, 20 March 1996, p. 1, 13; Komimsmmmn, 20 March
1996, p. 9.

38 The J SP changed its name to the Social Democratic Party (SDP) in
January 1996.

39 XQmianShithm, 27 March 1996, p. 8.
4° Nihon Keizai Shinbun, 29 March 1996, p. 1.

96

D] .13..

The term of NTT’s top executives was due to expire in June 1996.
President Kojima had been serving for the last three terms, since June 1990.
Kojima was one of the ﬁrst cohort of NTTPC who were originally from the
MPT; they shared the pride of the elite for being selected to establish a
growing public telecommunications corporation, and they had a strong held
sense of superiority to those ofﬁcials who stayed to take care of the national
postal services. The overweening behavior of such an elite had bred
animosity among MPT ofﬁcials until 1985, when the MPT gained strong
power over not only NTT but also the telecommunications industry as a
whole; then the relationship between the MPT and NTT was reversed. The
current conﬂict between NTT and the MPT was deeply rooted in the long-
standing emotional confrontations at the individual level."1

Kojima had demonstrated strong leadership and mental toughness.
N TT wanted him to stay and continue to serve as a leader in the battle
against the MPT. Undoubtedly the MPT strongly opposed the reappointment
of Kojima as president. Because the LDP wanted N'I”I‘ and the MPT to
resolve the breakup issue through mutual negotiation and compromise, the
line-up of each camp was critical. Kojima himself, however, did not want to
make any compromise with the MPT, and gave up his reappointment.
Instead, he recommended Vice-President Miyazu for the new president
expecting him to follow his strategies against the breakup."2

In Japanese ﬁrms, it is customary for a resigning president to be

appointed to a chairmanship. Kojima hoped to play an active role in the

 

4' Fujii, 6-10.
’2 Ibid., 162-163.

97

management as a chairman. Due to the MPT’s opposition, however, Kojima
had to step down to a post as advisory director with a minor role.43 The MPT
recommended Vice-President Sawada, ex-Vice-Minister of Posts and
Telecommunications, to the new chairman.44 The Sawada-Miyazu tie-up was
an indication that there would be some progress in reconciling NTT with the
MPT.“

At about the same time, personnel changes were made inside the MPT.
Director of Telecommunications Bureau Igarashi was promoted to Vice-
Minister of Posts and Telecommunications. Tani replaced Igarashi to become
director of the Telecommunications Bureau. Hamada was replaced by Dan
as head of Telecommunications Business Department. The Tani-Dan
combination in the MPT camp signiﬁcantly improved the relationship with
NTT."6

It seemed that the shufﬂe from extremely radical veterans to relatively
moderate rookies helped both sides sit peacefully at the negotiating table.
The strained adversarial relationship of the past was wiped away, and the

new cooperative, consensus-seeking policy community was born.

ChangeainjherhlemStream
Opponents to the breakup had been arguing that the breakup would
harm the nation’s international competitiveness as NTT would not be able to

take advantage of its strength of holding a dominant position in both the

 

‘3 Ibid., 164.

4" NihQnKeizaLShinlmn, 9 May 1996, p. 15; NihQnKeizaLShinbnn 10
May 1996, p. 11.

4’ NlthﬂlZﬂLShlnblm, 17 May 1996, p. 14.
’6 Yasuhiko Ide, interview by author, Tape recording, Tokyo, 25

January 2000.

98

domestic and long-distance markets and its comprehensive research and
development. The fact that NTT was legally categorized as a domestic
carrier and was ranked at the top of the list of the world’s largest companies
obscured the role of NTT in the nation’s competitiveness. Putting too much
focus on the breakup of NTT had diverted attention from What was
happening in telecommunications markets outside of Japan.

There were three global telecommunications consortiums in the spring
of 1996: World Partners, Concert, and Global One. World Partners was
headed by AT&T. British Telecom (ET) and MCI formed Concert. Global
One comprised Deutsche Telekom (DT), France Telecom (FT), and Sprint.
The groups were competitively and strategically expanding into foreign
countries, enclosing local carriers through partnerships.

In June 1996, Prime Minister Hashimoto was shocked at the summit
meeting when he found himself isolated from the leaders of major advanced
nations who were enthusiastically discussing how to extend global
telecommunications networks and services.47 Frustrated by being a laggard
in the global competition and threatened by the growing alliance, Hashimoto
called Vice-Minister Igarashi and asked him to take necessary deregulatory
actions to allow NTT to start overseas operations.“8 On August 1, the MPT
announced that it would set up joint conferences with NTT to discuss the

matter.49

 

’7 AsahLShianm, 7 December 1996, p.11.

’8 W11, 1 August, 1996; AsahLShinbnn, 7 December 1996,
p. 11.

’9 XQmmriShinhnn 2 August, 1996.

99

N TT had already disclosed its interest in participating in the global
market in early October 1995.50 For NTT, entering the international market
meant that it would provide international telecommunications services just
like any other international carriers, in addition to its overseas investment
and assistance activities already allowed in the developing countries for their
network construction. However, the MPT interpreted Hashimoto’s request as
reinforcing NTT’s ongoing overseas involvement as an investor.’51 Thus, the
joint conference had to bridge the gap in their expectations.

The trend in the telecommunications industry outside of Japan was
rapidly changing to an increased convergence of carriers. On November 4,
1996, BT announced that it had bought MCI. The merger indicated that BT
had captured the broader market extending the services between the third
countries, without involving the United Kingdom.52 As MCI had already
established a solid base in Asia, the new company was expected to strengthen
its operation worldwide. In fact, BT disclosed that it was interested in a
partnership with NTT to reinforce its competitive advantage in Asia.53 The
competitive threat was strong and suddenly materialized with the BT-MCI
merger. There was a sense of urgency among NTT’s top executives, who
feared that Japan would be left further behind and completely lose
opportunities to take a leading part in the global telecommunications market

if the breakup issue was not resolved in time.54 In those circumstances, the

 

5° NihQnKeizaiﬁhinhnn, 3 October 1995, p. 13.

5' NihQnKeizaiShinhun, 29 August 1996, p. 13.
’2 NihQnKeizaiﬁhianm, 4 November 1996, p. 9.
5’ WM, 4 November 1996, p. 9.
5‘ NitheizaLShinlmn, 7 January 1997, p. 3.

100

 

NTT restructuring issue was elevated ﬁ'om an industrial policy issue
concerning a solely domestic company to a policy issue critical to the national

interest.

[I] . l E l' 5
Because the Telecommunications Council had dismissed the Special
Subcommittee on the status of NTT when its ﬁnal recommendation was
submitted, the MPT’s role in the policy stream changed. In the previous
stage, the MPT had played a dual role as the toughest advocate for the
breakup and the coordinator of the Council. Now in this stage, the MPT was
supposed to take a direct part in carrying on negotiations with NTT.

On September 4, 1996, the ﬁrst dialogue between the MPT and NTT
was held. The dialogue was carried on once or twice a week thereafter.“
NTT explained its argument against a breakup, emphasizing that a breakup
would be a regression from the trend toward convergence in world
telecommunications and that it would negatively affect on shareholders’
property right as well as its research and development capability. The MPT
was tenacious about the breakup, consistent with the Council’s ﬁnal
recommendation.56

In the late fall there was a breakthrough that ﬁnally enabled the
dialogue to escape the doldrums. The collaboration generated a new
alternative: that NTT would be broken up under a holding company. For
NTT, having a holding company would cancel out all the negative effects of a

breakup. For the MPT, the alternative would accomplish the breakup and

 

’5 WW, 7 December 1996, p. 3.

’6 Ide, Interview.

101

preserve the legitimacy of the advisory council. The remaining issues
concerning the new structure of NTT, for example, how to divide the local
business and what to do about NTT’s international operation, were further
negotiated. The development and reﬁnement of new policy alternative was
carried out exclusively in the small policy community consisting of selected
MPT ofﬁcials and the highest NTT executives. Conﬁdentiality was
maintained by having very few participants.57

On December 6, 1996, the MPT and NTT announced that they had
agreed to the policy to break up NTT into one long-distance company, two
regional companies, and a holding company.58 The new long-distance
company would be able to provide both domestic and international long-
distance services. The holding company would take over all of NTT’s shares
and conduct basic research and development.59

The agreement was conditional on the revision of the Antimonopoly
Act and the special treatment of tax payment. In Japan, since 1947, the
Antimonopoly Act had prohibited “establishment of, or transformation of an
existing company into a holding company.”60 Revision of the law to remove

the ban on holding companies had been discussed as early as late 1995 as one

 

5’ Ibid.

5” See Appendix A for the agreement in Ministry of Posts and
Telecommunications, WWW, [Online]
Available http: //www. mpt.jp/whatsnew/ntt-bunkatsu-e.html, December 6,
1996.

’9 Japan: Ministry of Posts and Telecommunications, '

,[Online] Available http: //www. mpt .jp/ whatsnew/ntt-
bunkatsu- -.e html, December 6, 1996; Nippon Telegraph and Telephone, NIT
W119 (On the managerial structure of NTT), [Online]
Available http: //www. ntt. co .jp/news/news96/961206a. html, December 6,1996.

60

3C . 21.1.. EB. 11 1° . 1
Maintﬂnanmmﬂmde (Antimonopoly Act),(1947), Sec. 9(1) and (2).

102

of the measures for deregulation in the administrative reform policy. The
FTC prepared the bill, which was to be passed by the end of the 1996
ordinary session of the Diet. However, the SDP pulled it back and the
decision was postponed to the following session, just like the NTT breakup, in

April 1996.

C1 . 1 E 1' . 1 S
On October 20, 1996, the House of Representatives general election

was held, and the results had a signiﬁcant effect on the political stream. The
LDP gained 16 seats occupying a total of 239 seats. It still fell short of a
majority by itself in the House of 500 seats; however, it was almost sufﬁcient
to form a majority when the number of conservative nonpartisans was
counted. The SDP, on the other hand, lost 55 seats and held 15 seats,
including only one represented Zendentsu, the NTT labor union.61 Sakigake
lost 11 seats, barely surviving with two seats.62 The balance of power in the
Hashimoto coalition administration dramatically tilted to the LDP.
Reﬂecting the LDP’s overwhelming power, Hashimoto appointed Horinouchi,
a LDP member, to the Minster of Posts and Telecommunications. Thus, the
legislature, the cabinet, and the ministry were consolidated under the LDP.
The LDP had been constrained to accommodate the SDP in its policy
decisions because it could not have been held a ruling party with Hashimoto
as the Prime Minister without the SDP’s alliance. Because of diﬁ‘erences in
their policy orientations, the LDP’s attempts to build consensus for various

bills had ﬁequently been deadlocked by the SDP’s obstinate opposition.

 

6’ WM, 7 December 1996, p. 3.
62 See Curtis, 247-250, for the results of the 1993 and 1993 elections.

103

Neither the breakup of N'I'I‘ nor the revision of the Anti-Monopoly Act was
favored by the SDP. The new conﬁguration of the coalition government
substantially, if not entirely, eliminated the ambivalence from the coalition
government. ’

The LDP and Sakigake held that they would consider the NTT issue in
favor of breakup. However, Prime Minister Hashimoto wanted NTT to
maintain its strength as a uniﬁed company and establish a competitive
position in the international market.63 The BT-MCI merger in early
November might have encouraged Hashimoto and his supporters to seek a
solution that would allow NTT to operate overseas and develop a fair and
competitive domestic market.

Despite growing impatience with the passage of time without any fruit
from the negotiations between the MPT and NTT, the LDP leaders made
little intervention64 except to urge the MPT to try harder to reach an
agreement as soon as possible.65 When the MPT and NTT ﬁnally agreed on
the breakup with a holding company, Yamasaki, the LDP policy coordinator,
explained the agreement to the leaders of the coalition parties for their
support on December 3. The SDP opposed the breakup, no matter what form
it would take. Sakigake opposed bundling the breakup and the revision of
the Antimonopoly Act together.

Minister of Posts and Telecommunications Horinouchi accepted the

proposal, saying that it “was reasonably compatible with what the

 

63 NihonKeizaLShinlmn, 22 October 1996, p. 10.

6"NihoILKeiza'LShinlczim, 5December 1996, p. 11; NihonKeizai
Shinbun, 7 December, p. 3.

6’ AsahLShianm, 7 December 1996, p. 11.

104

Telecommunications Council’s ﬁnal recommendation aimed at.”66 Prime
Minister Hashimoto said that he had no objection to the proposal if it would
work out well for both sides. In addition, he requested that every effort be
made to strengthen Japan’s international telecommunications operation
through the new NTT long-distance company.67 The LDP also decided to

support the proposal.68

W
The policy agenda of breaking up N'IT jumped over the hurdle and

started moving upward along the policy-making institutional structure to the
ﬁnal decision when the MPT and NTT found a mutually acceptable proposal.
The proposal had to meet the criteria of feasibility, compatibility, and
acceptability before it could be placed on a decision agenda. Evaluations of
the proposal, adjustments to the existing restrictions to make the proposal
workable, and drafting the bill were the major activities at this stage before it

was placed on a decision agenda in the Diet.

C1 . 1 E . .
The MPT started drafting the bill, along with the agreement with NTT.

NTT was consulted by the MPT about the practicality associated with the
breakup and the establishment of new companies from time to time.69
The Ministry of Finance joined the discussion as it had jurisdiction

over taxation. The proposal of the breakup with a holding company was

 

6’ Nitheiza’LShinhun, 6 December 1996, evening issue, p. 1.
’7 NihQrLKeizaiShinlmn, 6 December 1996, evening issue, p. 1.
6’ NihQnKeizaLShinlmn, 6 December 1996, evening issue, p. 3.

6” Ide, Interview.

105

conditional on the preferential treatment of N'I'l‘. The MOF, therefore,
squeezed itself in the problem stream and the policy stream.

The other condition was that the breakup would be acceptable only
with the establishment of a holding company. To allow NTT to establish a
holding company, the Antimonopoly Act had to be revised. Taking charge of

the antimonopoly regulation, the FTC entered the scene.

NmEmhlemsandﬁoluﬁons

The new problems identiﬁed in this stage were both practical and
hypothetical. The respective government bodies deliberated the problems
and developed solutions to them. There were two problems associated with
the breakup of NTT with a holding company. One was the establishment of a
holding company over which the FTC would have jurisdiction. The other was
NTT’s tax payment at the time of the breakup and after the breakup, which
would be taken care of at the MOF.

More than a year earlier, the FTC had proposed revising the
Antimonopoly Act to allow a holding company as one of the deregulatory
measures to boost the sluggish economy up. The proposal had been opposed
by the SDP and shelved in spring 1996. This time, however, the revision
became essential for the breakup of NTT to be realized. Moreover, the
promulgation of the revision was necessary before the bill for restructuring
NTT was submitted to the Diet. The FTC and the LDP deliberated the
conditions under which a holding company would be allowed. By the end of
February, the ruling coalition parties agreed to the basic proposal for revision

and submission to the ongoing ordinary session of the Diet.70

 

7° Asah1 Shinbun, 25 February 1997, p. 1;NihQn_KeizaLShinbnn, 25
February 1997, p. 1, 3, 5; W, 25 February, p. 1, 2.

106

The purposes of revision were “responding to international competition,
promoting structural reform of the Japanese economy, making business
activities more active, and so forth.”71 Holding companies constituting an
excessive concentration of economic power would be prohibited and controlled
by the respective regulations. The total assets to be considered as excessive
were set at 15 trillion yen,72 which would be well above the total assets of the
new NTT holding company.73

Two areas of concern about taxation were associated with the breakup.
First, according to the tax law at that time, when a company is broken up
into two or more companies, when capital assets are transferred, the new
companies incur various taxes such as real property acquisition taxes, special
land-holding taxes, automobile acquisition taxes, and taxes on registration
and recording of the acquired assets. Having been operating a capital-
intensive business, NTT would owe about one trillion yen in taxes at the time
of the breakup.“

Second, it was estimated that NTT West, one of the regional companies,
would go into the red, whereas the other two companies would generate a

proﬁt. When each company began to pay tax individually, the total tax would

 

7' Fair Trade Commission, “Outline of the Partial Amendment of the
Antimonopoly Act Concerning the Holding Company Regulations, etc.”

[Online] Available http:l/www.jftc.admix.go.jp/e-page/press/1997/
19970611.html, June 11, 1997 .

72 Aﬁahiﬁhinhnn, 25 February 1997, p. 1; NithejzaLShinbnn, 25
February 1997, p. 3.

7’ NihQnKeizaLShinlmn, 21 February 1997, p. 5.
7‘ Xamiur'nsmnbnn, 25 February 1997, p. 2.

107

be higher than when NTT had been paying and the shareholders would lose
as a consequence of the breakup.75

The ruling coalition parties agreed to treat NTT as an exception,
exempting it from various taxes associated with transfers of assets as well as
allowing it to ﬁle a corporate income tax return based on the aggregated
income of three companies. The MOF, however, did not want to revise the
tax law, which would reduce revenue. The MOF opposed both the
introduction of tax exemptions associated with transfers of assets and the
acceptance of consolidated ﬁnancial statements for holding companies
together with the FTC’s revision of the antimonopoly law.76 What the MOF
was concerned about was that the exceptional treatment of NTT would
establish a precedence in implementing holding companies and jeopardize the
principle of fair and equal taxation.77

Putting priority on the breakup of NTT,78 the MPT and the MOF found
their way out of the tax problem with special taxation measures applicable
exclusively to NTT. The measures speciﬁed the exemption of all taxes
associated with asset transfers and the acceptance of ﬁling a consolidated
ﬁnancial statement, which allowed NTT East to reduce its tax payment by
giving part of its proﬁts to NTT West as expenses for three years after the
breakup.79 With these special measures, the total tax imposed on NTT after

the breakup would be about the same as before the breakup.

 

7’ XQmianShianm, 27 February 1997, p. 6.

76AEJihLShinhnn, 18 February 1997, p. 2; NitheizaLShianm, 18
February 1997, p. 1.

’7 Nihon_KeizaLShinb1m,18 February 1997, p. 1.
7‘ AsahLShinb11n,19 February 1997, p. 2.
7’ AsahLShinhun, 26 February 1997, evening issue, p. 1.

108

Meanwhile, on February 26, the MPT published a draft bill to revise
part of the NTT Corporation Law.80 The draft bill gave shape to the proposal
agreed to by both the MPT and NTT. It also included the special tax
provisions previously mentioned and speciﬁed that the implementation would
occur within two and a half years after promulgation. The draft bill allowed
NTT to start its international operation before the date of the actual breakup.
Based on the draft bill, the ﬁnal bill was prepared by the MPT, and the
cabinet submitted it to the Diet under the name of Prime Minister Hashimoto

on March 14, 1997.81

I] E 1' . 1 S

In stage 3, the political stream promoted the smooth processing of the
proposal agreed to by the MPT and NTT to be put on a decision agenda.
Although minor coordination within the coalition parties was necessary to
unify the different views concerning the revision of the antimonopoly law and
the special measures to provide NTT with favorable taxation, it did not take
long for the LDP to build consensus on the original proposal.

The Democratic Party (Minshuto) was one of the opposition parties,
comprised mainly of former members of the Sakigake and the SDP who did
not like their parties’ alliance with the LDP and formed a new party in
September 1996. It occupied 52 seats in the Lower House of the Diet after
the general election in October 1996.82 Although the Democratic Party

 

8° See Appendix B.

81

' , 37, 2, (Tokyo: Ministry of Finance Printing Bureau, May 22,
1997), 203-207, 209-210.
82 Curtis, 247.

109

identiﬁed itself as an opposition party, in mid-February 1997 , Kan and
Hatoyama, two leaders of the party, expressed that the party was more
interested in joining the coalition with the LDP than remaining in the
opposition alliance.83 This made the political environment more favorable
than ever before for the coalition administration to push any bill they wanted
to promulgate.

Zendentsu represented the 180,000 NTT employees who had
consistently opposed the breakup. However, Zendentsu lost its political
backing due to the SDP’s loss in the election. When NTT’s management
suddenly announced the breakup with a holding company, most union
members were stunned, confused, and worried about their future.84 Facing
the reality of the breakup for the following two months, Zendentsu ﬁnally
decided to accept the proposal and changed its direction to actively support
the introduction of a holding company in late February.85 The holding
company would be the managing company with which they would negotiate
their labor condition.

The political seedbed was ready for secure passages of the bill in both
houses of the Diet. On May 8, 1997, the bill was brought up on a decision
agenda, for the ﬁrst time, at the plenary session of the House of
Representatives in the ordinary session of the 140th Diet. On the same day,

after a brief introduction and discussion, the bill was referred to the

 

’3 Asahiﬁlﬁnblm, 14 February 1997 , p. 2.
8" NihQILKeizaiShinhnn, 8 December 1996, p. 7.
8’ AsahLShianm, 22 February 1997, p. 11.

110

Telecommunications Committee for deliberation.86 During the four-day
hearing, representatives of the parties on both sides clariﬁed the bill with
representatives from the MPT, the FTC, the MOF, and NTT. As expected,
the Committee passed the bill without amendment, supported by a sweeping
majority except from the Japan Communist Party, on May 22, 1997.87 On
that same day, the majority of the House of Representatives passed the bill88
and referred it to the House of Councilors. The bill went through the same
procedures with little objection in the House of Councilors and was ﬁnally

passed on June 12, 1997.89

 

86 0"0 °00° 0 ‘_,°000 0 0°u0,°0

,32, (Tokyo: Ministry of Finance Printing Bureau, May 8,
1997).

7 o
8 U0" 0 °0 0° 0 °° 00000.0 1 00 00000 °° 0° .0_.°

,,11 no. 9, May 14, 1997; 11, no. 10, May 15,1997;11, no.
12, May 21, 1997 (Tokyo: Ministry of Finance Printing Bureau).

88

TheEroceedingsofﬂieﬁeneralAssemhlLoﬂheHouseof
mm, 37, no. 1, May 22, 1997 (Tokyo: Ministry of Finance Printing
Bureau).

89 '0 00 0 0° °°00000_0., 00 00000 “0 v.0..-

ofﬂgmncilors, 11, no. 12, June5, 1997; 11, no. 13, June10, 1997; 11, no. 15,
June 12, 1997, (Tokyo. Ministry of Finance Printing Bureau).

111

CHAPTER VII
CONCLUSION

This study provided valuable insights into the public policy-making
process and an opportunity to examine the Kingdon’s theory of policy agenda-
setting. In this ﬁnal chapter, the researcher draws some conclusions
regarding the general pattern prevalent in public policy making.

The chapter starts with the answers to the research questions based on
the synthesis of ﬁndings discussed in the preceding chapters. Also discussed
is the pattern of coupling and merging of the problem, policy, and political
streams with regard to the applicability of the policy agenda-setting model to
the process through which the breakup of NTT was instituted. The chapter

ends with limitations of the study and recommendations for future research.

Sl'EE'i'

The ﬁrst research question asked what were the general
characteristics of the problem. Telecommunications once was considered a
natural monopoly due to the requirement of a large investment in network
construction and the inherent tendency of decreasing unit costs. This natural
monopoly justiﬁed the various governmental regulations and prevented
competition in telecommunications. Initially, therefore, the provision of
telecommunications services was under the direct control of the government
in most other countries in the world. The secured monopoly of public
telecommunications operators, however, supposedly gave way to competition
as the costs of operation substantially decreased due to the rapid
advancement of information and communications technologies. The multiple

operators were also justiﬁed to meet the increasing demand for diverse

112

services. The major policy question was how to transform the market from
monopoly to competition. Japan chose privatization of the public telephone
operator and liberalization of the market by allowing entries.

There were two major policy questions since the privatization and
liberalization had been implemented. The ﬁrst question was whether the
market was competitive and fair among competitors. The condition of the
market needed to be assessed by various indicators about the structure,
conduct, and performance of the industry. Therefore, the availability of and
the access to the indicators determined who took part in the problem stream.
The second question was that if the market had been neither satisfactorily
competitive nor fair, how alternative policies could facilitate the development
of a fair and competitive market. The development of the proposal for policy
alternatives required both economic and technical expertise. Therefore, the
characteristics of the problem determined participants in the problem and
policy streams.

The second research question was what institutions were involved in
the policy making. The issues concerning to telecommunications policies are
under the jurisdiction of the national government in Japan. The study found
that the Ministry of Posts and Telecommunications played the most
prominent roles throughout the process. The institutional structure of
telecommunication policy making allowed the MPT’s substantial involvement.
The MPT monitored and examined the telecommunications market structure
by collecting various proprietary data, preparing statistical indicators, and
reviewing information from various sources. Thus, the agenda-setting
process began with the identiﬁcation of problems by the MPT. It then
proceeded to the deﬁnition of problems and the development of alternatives

by the MPT’s advisory council. The council’s ﬁnal report authorized the MPT

113

to draft the bill following the recommendation. Subsequently the bill went
through the political institutions such as the Cabinet, the committees of
ruling political parties, and the Diet for deliberation and decision. It was
found that the established institutional structure and the eﬂ'ort to seek
consensus in each institution made the agenda-setting and decision process
move slow, halt at times, and take an extended time.

The third research question asked who were the participants in each
stream and what were their goals and incentives. The participants of the
problem and policy streams were limited to those who bad economic and
technical expertise and experience in telecommunications industry. The
participants who were directly involved in the process were the members of
the policy making institutions or those who were formally asked to
participate by one of the institutions to present their reports or express their
opinions.

The participants changed from one stage of the process to the other.
At the ﬁrst stage, the major direct participants were the MPT and the
advisory council. The MPT demonstrated the incentive to increase, maintain,
and execute authoritative power over the telecommunications operators,
especially N'I'I‘ by taking initiative in justifying the breakup. The members
of the advisory committee selected by the MPT maintained the position
consistent with that of the MPT. It is natural that the policy community was
tightly knit.

Throughout the ﬁrst stage, a number of indirect participants presented
their reports and recommendations. The proponents of the breakup were the
ﬁrms who had been competing with NTT and would be beneﬁted by the
breakup. The opponents were those who had business relationships with

NTT and would be negatively affected by the breakup.

114

In the second stage, the policy agenda-setting took place mainly in the
behind-the-scene meetings between the MPT and NTT. There was a
signiﬁcant change in the individual participants as the result of the internal
personnel changes both at the MPT and NTT. The new participants had the
common missions of resolving the conﬂict in the shortest time that facilitated
collaboration.

In the third stage, the MPT drafted the bill consulting with NTT. As
the implementation of the alternative policy involved some revisions of the
laws other than the telecommunications laws, the government agencies in
charge of such areas addressed their concerns over jurisdiction. However, the
political mediation prevented the conﬂict over jurisdiction from becoming
obstacles and guided the agencies to accept the necessary revisions of
relevant laws.

The participants in the political stream were the political parties, the
politicians who held ofﬁces in the government, and the top bureaucrats. The
participants changed as well not so much by the policy process but along the
changes in major political affairs. The coalition regime of the LDP and the
J SP were in power until the late second stage. To maintain the ruling power,
the LDP had to rely on the J SP who were supported by the NTT labor union,
therefore, were strongly against the breakup during the ﬁrst stage and the
ﬁrst half of the second stage. The J SP’s presence weakened when it lost
substantial seats in the election at the middle of the second stage. Other
opposition parties took relatively insigniﬁcant roles for the breakup during
the third stage, while the empowered LDP took initiative in the third stage.

In this study, the participants inside the government, especially the

MPT and the LDP, took substantial initiatives in all three streams.

115

Therefore, the inside access model explains who are the most signiﬁcant
participants in the policy agenda-setting and decision process.

The forth research question asked what problems the participants
identiﬁed and how they deﬁned the problems. The ﬁfth research question
asked what alternative policies the participants generated, favored, or chose.
As the problem and policy streams were closely related, this section answers
both questions.

The participants shared the common perception about the structure of
telecommunications market at the time. However, there were distinct
diﬁ‘erences between the proponents and the opponents regarding the breakup
of NTT in their problem identiﬁcations and deﬁnitions. The proponents
blamed the NTT for its dominance and abuse of its market power as the
cause of the unfair and weak competition. They argued that the breakup was
necessary to eliminate the problems. On the other hand, the opponents
blamed the government for the poor implementation of policies, therefore,
urged to develop and implement regulatory measures more effectively to
encourage new entries instead of breaking NTT up. They predicted that the
breakup would harm provision of universal service, comprehensive research
and development capability, and international competitiveness; and that the
NTT dominance in the local market would diminish before long by the rapidly
growing mobile and cable operators. The world trend of increased
convergence was recognized to justify speedy resolution by both sides later in
the process. Because the problems and the policy alternatives were generally
discussed together, the two streams were coupled.

The sixth research question asked what political environment the
movement of policy agenda is related with? The political environment was

unstable in the ﬁrst stage. Because the Liberal Democratic Party had lost its

116

position as a single majority in the Diet in 1993, it had to rely on a coalition
with the Japan Socialists Party to stay in the regime. The Prime Minister
and the Minister of Posts and Telecommunications had been members of the
J SP, who opposed the breakup in support of the NTT labor union. Later the
premiership was moved back to a member of the LDP whose interest was in
strengthening the Japan’s international competitiveness rather than
breaking NTT up. Apparently, the positions toward the breakup among the
members inside the ruling coalition parties were mixed. In order to avoid
conﬂicts within the coalition, the bill for breakup was set aside for the
participants to reach a consensus. Thus, the opportunity for the policy
agenda to be placed on a decision agenda was lost.

In the second stage, the LDP regain dominant power in the coalition as
well as in the Diet as the result of the general election, and the LDP members
occupied the major positions in the Cabinet. Thus, any bill submitted to the
Diet by the Cabinet could expect smooth passage. The political stream was
ready to merge into the problem and policy streams. Meanwhile the direct
dialogue between the MPT and NTT made a breakthrough that would satisfy
the MPT’s wish for breaking NTT up and saving the advisory council’s
recommendation as well as the N'I'l"s wish for maintaining the ability to
manage comprehensively with a holding company and entering the
international market. The breakthrough came in the stable political
environment. It was a promising sign for the policy agenda to be transformed
into a decision agenda.

The last research question asked about the applicability of the policy
agenda-setting model to the case, and the condition in which the policy
agenda transformed into the decision agenda. First, the ﬁndings conﬁrmed

that the model could explain the policy-agenda-setting and decision process.

117

Although the problem and policy streams always ﬂew together in all stages,
the historical development of the case indicated that they had separate
origins. Second, the study conﬁrmed the conditions under which a policy
agenda transformed into a decision agenda. A policy agenda is put on a
decision agenda when all three streams, problem, policy, and political, merge.
In other words, (a) problems are identiﬁed and deﬁned, (b) a feasible policy
alternative that appears to solve at least parts of the problems is available,
and (c) the political environment favors the policy alternative.

The deﬁnition of problems and the development of policy alternatives
are not necessarily in regular order. Participants, problems, policy
alternatives, and political environment change. At one point, a speciﬁc policy
alternative generated in the coupled problem and policy streams has a great
chance to be placed on a decision agenda under the favorable political

environment in which the supporters of the alternative policy are in power.

I . 'l l' 1 B 1 |°

The foregoing conclusions must be interpreted with caution because
this was a single case study; hence, the ﬁndings lack generalizability. In fact,
the case had some unique aspects. Despite the known institutional and
cultural differences between Japan and the United States, the probability of
a policy agenda’s becoming a decision agenda is determined by the joining of
the problem, policy, and political streams. To increase the probability that
this pattern prevails, more studies need to be conducted in other countries, as
well as in other areas of policy-making in Japan.

In this study, organized groups were the units of analysis for
participants because it was operationally infeasible to reach the individuals

who had taken part in the policy-making process in the remote past. Another,

118

more theoretical reason is that subjectivity of individuals rarely appears in
public arenas such as policy making due to their group orientation,‘ and the
behavior of groups was assumed to be stable. However, the behavior of the
groups participating in policy making changed during the course of the long
process. Changes in individuals who were the components of the group
affected the process. Individuals play important roles even in a group-
oriented society. Therefore, the adequate treatment of both levels, individual
and group, is necessary in selecting the method and unit of analysis.

This study included the policy institutions in order to establish the
context for the policy-making process. The function of the policy institutions
in the process was not the focus of the study. However, the institutions
constrained the process by specifying and restricting the participants and
scheduling, organizing, and structuring the deliberation of policy alternatives.
In fact, the institutions did control participation in and length of the process.
The policy alternative of breaking up NTT was legally kept as a policy agenda
to be revisited at ﬁve-year intervals, in 1990 and 1995. The process was
artiﬁcially prolonged and forced to move forward. The time of revisiting the
policy agenda was institutionally set, rather than occurring naturally. In
addition, the mechanism of coupling seemed to depend on the institutional
structure, just as two streams join to form a river depending on the landscape.
Subsequent research needs to be undertaken to explore the speciﬁc effect of
policy institutions on the policy agenda-setting and decision process.

Now it has been discovered how the consensus was built and the
decision was made in the policy making process with particular terms and

arrangements. But does the process matter? Certainly, because it provides

 

' Reischauer, 127-137.

119

opportunities to identify the areas in which future policy making can be
improved, resulting in better policies and their smooth adoption and
implementation. Channels may be found for academics to effectively
communicate with policy communities and decision-makers and contribute to
policy making by providing them with the latest theories and applications.
Policy institutions also can be improved for faster and smoother policy
development and implementation. This is especially important as more
dynamic and complex issues exist and may arise than ever before. Scholars
in communications should remove their disciplinary bias and contribute not
only to the development of theories but to the improvement of
telecommunications policy making.

Some may say that the outcome is all that matters. The outcome of a
policy decision is, of course, as important as the process. The chosen policy
should be examined carefully and thoroughly as evaluation involves
normative standards that depend considerably on the priorities set by the
people who claims them. It may take a long time before the outcomes of some
policies can be analyzed and evaluated. In particular, a policy such as the
breakup of NTT, which is intended to accomplish many purposes, may take
even longer before a decent evaluation can be made. Moreover, frequent
incremental policy adjustments make it difﬁcult to delineate a causal
relationship between a speciﬁc policy choice and industry performance. Still
constant investigation on the policy and its implementation and examination
of their outcomes in terms of the policy goals are warranted.

On July 1, 1999, NTT was broken up into NTT, a holding company, NTT
Communications, NTT East, and NTT West. The performance of these
companies in the domestic and international telecommunications markets is

yet to be seen.

120

APPENDICES

121

APPENDIX A

POLICY ON THE RESTRUCTURING OF NTT

6 December, 1996
Ministry of Posts and Telecommunications

NTT will be restructured into one long-distance communications
company and two regional communications companies, under a purely
holding company which is not involved in communications business
operations.

The long-distance company will be a private company to provide
basically inter-prefectural communications services. This company will
also be able to go into the business of international communications
services.

The regional communications companies will be special corporations to
provide basically intra-prefectural communications services, and will be
obliged to provide universal service of telephony in each business area.
The business areas of the two regional communications companies will
be within East Japan (Hokkaido, Tohoku, Kanto, Tokyo and Shinetsu)
and West Japan (Tokai, Hokuriku, Kansai, Chugoku, Shikoku, Kyushu
and Okinawa).

The holding company will hold all the shares of the regional companies
and will be a special corporation to promote fundamental research and
development (R&D). This holding company will also hold all the shares
of the long-distance communications company.

Regarding R&D, the holding company will conduct whole fundamental
R&D, while the long-distance company and the two regional companies
will each conduct applied R&D closely relevant to their business.

N TT will actively tackle the issues, with a view to entering the markets
abroad, such as entry and investment in communications business
abroad and respond to the demand for global information interchange.
Necessary conditions between the long-distance company and the
regional companies will be assured in order to ensure fair and effective
competition.

MPT will make necessary arrangements within the government
regarding the issues on related laws such as the anti-monopoly law
(“the act concerning prohibition of private monopolization and
maintenance of fair trade”) and the commercial law, and on special tax
considerations such as concessions for capital gains tax and
consolidated tax payment system.

MPT will make necessary coordination, seeking the opinions of
interested parties, on the restructuring-related issues not mentioned
above, and will prepare the necessary draft Bill for submission to the
next ordinary session of the Diet.

Japan: Ministry of Posts and Telecommunications,

The—2911919111116
, [Online] Available http://www.mpt.jp/whatsnew/ntt-

bunkatsu-e.html,December 6, 1996.

122

APPENDIX B

DRAFI‘ BILL TO REVISE PART OF THE NIPPON TELEGRAPH AND
TELEPHONE CORPORATION LAW

March, 1997
Ministry of Posts and Telecommunications

1. Purpose of the bill

To implement restructuring of Nippon Telegraph and Telephone Corporation
(NTT) and allow it to enter the business of international communications
services, aiming to promote fair and effective competition in Japan’s
telecommunications market and to actively respond to the globalization of the
info-communications business.

2. Outline of the draft

(1) Restructuring of N'I'I‘

l. NTT will be restructured into one long-distance communications
company and two regional communications companies, under a purely
holding company which will not be involved in communications business
operations.

2. The holding company (Nippon Telegraph and Telephone Corporation)
will be a special corporation to hold all the shares of the two regional
companies, and it will use its voting right as a shareholder to ensure the
continuing provision of regional telecommunications services by the
regional communications companies. The holding company will also
promote fundamental research and development (R&D).

3. The regional communications companies (NTT East and NTT West) will
be special corporations to provide regional communications services, and
each will be obliged to provide a universal service of telephony in its
business area.

4. The long-distance company will be a private company and will be able to
enter the business of international communications services. For the
time being, all the shares of the long-distance communications company
will be held by the holding company.

5. The holding company and the regional communications companies will
be basically regulated as special corporations like the present NTT, but
will be less regulated regarding the following points:

a. The regional communications companies will not be regulated
concerning the appointment and discharging of their executives or
concerning the distribution of their proﬁts;

123

b. The holding company and the regional communications companies
will not be regulated concerning their incidental businesses.
(Currently NTT must submit a notiﬁcation in advance of starting
such businesses.)

(2) NTT’s entry into the business of international communications services
Even before the implementation of the reform of NTT, the company will be
able to enter the business of international communications services through
its afﬁliates.

(3)The fundamental principles of the reform

The Minister of Posts and Telecommunications will determine the
fundamental principles of the reform concerning the transfer of each business
and their necessary rights and duties.

(4)The reform plan

According to the fundamental principles of the reform mentioned above, NTT
will compile a plan for the transfer of each business and the undertaking of
necessary rights and duties which incorporates the fundamental principles
mentioned in (3) above, and submit it to the Minister of Posts and
Telecommunications for approval.

(5)Special tax concessions
Special tax concessions will be made as follows

a. NTT East will be permitted to transfer money to N'I'I‘ West, and
such money will be regarded as an expense of NTT East.
b. Concessions for capital gain tax, etc. will be provided.

(6)The holding company system

The establishment of holding companies in Japan is permitted under the
revised Anti-Monopoly Law, which was already submitted to the ordinary
session of the Diet now taking place.

3. Date of implementation

This law will be implemented within two and a half years from the date of
promulgation. (The date will be provided by the government ordinance.)
However, the provisions concerning procedures to establish new companies
will be implemented as soon as the law is promulgated.

Japan: Ministry of Posts and Telecommunications, '
° , [Online]
Available www.mpt.go.jp/whatsnew/N'.["I‘law-e.html, March, 1997.

 

124

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