Restructuring Japan's Telecommunications Industry

International pressure helps transform domestic market

In early March, domestic long-distance carrier Japan Telecom and international carrier International Telecom Japan (ITJ) announced that they have agreed to merge in October of this year. The new company, to be named Japan Telecom, will provide both domestic and international communications services. The current Japan Telecom president, Koichi Sakata, will remain as president of the new company. Mediators of the arranged marriage between these two Type I carriers were the trading houses Sumitomo Corp., Mitsubishi Corp., and Mitsui & Co. (all shareholders of both Japan Telecom and ITJ).

The move toward restructuring throughout the entire Japanese telecommunications market seems to create a good opportunity for foreign companies to enter the market. The US Federal Communications Commission (FCC) has delayed (as of late March) its certification procedure for subsidiaries of NTT and Kokusai Denshin Denwa Co., Ltd. (KDD), to start US-based international services. NTT subsidiary NTTA Communications, Inc., hopes to offer facilities-based resale services between the US and international points except Japan. KDD subsidiary KDD America, Inc., meanwhile, expects to provide resale of public switched services between the US and international points except Japan.

The FCC's delaying tactics are reportedly meant to put pressure on the Japanese government to abolish its foreign ownership restrictions on NTT and KDD. Currently, foreign ownership of shares is limited to a maximum of 20%. A related concern of the American government is the renewal of NTT's international procurement agreement and the expansion of foreign product procurement by NTT. The FCC's action was taken in response to requests from the US Department of Commerce, US Department of State, and the Office of the United States Trade Representative (USTR), which asked the FCC to delay any action for the certification because of "trade policy concerns."

In response to the American government's action, Japan's Ministry of Posts and Telecommunications (MPT) lodged a complaint charging that the issues of NTT/KDD foreign ownership restrictions and NTT's international procurement agreement are in no way related to FCC certification of NTT and KDD international services in the US. In addition, regarding the US request for abolition of the foreign ownership restriction, the MPT claims that this goes against the agreement regarding promotion of mutual entry into another country's telecommunications market concluded at February's World Trade Organization (WTO) negotiations on basic telecommunications. In the WTO negotiation, Japan agreed to remove all foreign investment limitations on Type I carriers except for NTT and KDD, while the US continues to restrict (to 20%) direct foreign investment in telecommunications carriers that operate radio stations.

NTT's international procurement agreement with the US government, which started in 1980, has since been renewed five times. The current agreement is scheduled to terminate at the end of September 1997. In pressing for renewal of the contract, the US government is asking the Japanese government to start negotiations in May, which is earlier than the usual timetable.

In Japan, the public is anticipating further changes in the telecommunications industry. KDD has announced its intention to partner with Tokyo Telecommunication Network Co., Inc. (TTNet), which has been providing communications services utilizing the facilities of its major shareholder, Tokyo Electric Power Co. There has been speculation that this KDD-TTNet team may tie up with the new Japan Telecom.

Observers are also carefully watching DDI, the most powerful of the new common carriers for domestic communications services. In the face of global competition, Japan's carriers can no longer remain conservative entities strictly regulated by the government, as has been the case.

Satellite-Based Mobile Communications

The contract covers the design and supply of equipment, associated installation, and testing services for satellite access nodes in 12 countries, as well as network management systems. NEC is to supply the satellite access nodes, network management systems, and systems integration services. Hughes Network Systems will supply the satellite base station and channel units, while Ericsson is responsible for setting up the mobile satellite switching center. Installation of the systems will begin in September of this year, and the project is scheduled to be completed in August 2000.

ICO Global Communications was established in December 1994, and expects to start full commercial operation in 2000 with 12 satellites.

The Web Browser Grows Up

In 1996, netscape navigator enjoyed strong popularity, with over 50 million users and a market share above 75%. The focus on simple Web browsing, however, has changed. As Bob Lisbonne, vice president of client product marketing for Netscape Communications Corp., observes, browsers are "the start and not the end. Other Internet/intranet and server software started getting attention [in 1996]."

Enter Netscape Communicator, an "open e-mail, groupware, browser suite" for Internet/intranet use. Communicator is described by Netscape as "a complete set of everyday tools to easily communicate, share, and access information." Its integrated components use HTML and Java scripts, which ensure compatibility with remote users. Communicator's components include Navigator 4.0 (Web browser), Messenger (e-mail), Collabra (group discussion/information sharing), Composer (easy HTML messaging or webpage creation), Conference (real-time collaboration), and scheduling and management functions.

Another strength of Communicator is that it runs on multiple platforms: Windows 3.1/95, Mac OS, O/S 2, Unix, and others. Communicator also supports Microsoft's Office Suite programs, OLE, other major Windows applications, ActiveX documents (though not the application), and OpenDocs for Mac. These applications can be launched from within Communicator. According to Lisbonne, "We're not looking to replace Windows 95, just make it better."

Asked about special features for the Japanese version of Netscape Communicator, Lisbonne noted that the component plug-ins of Composer (used for special characters) are one place where special Japanese-specific functions may be added. By virtue of Web fonts, Messenger supports Unicode. Also, users do not need to be running a Japanese system to read kanji webpages as long as they have a Japanese font (which HTML authors could include with their pages).

In development, to eventually be incorporated into Communicator, is Netscape Constellation. Functions include "pushing" websites onto your desktop and sending network "notifications" to the user. When a user logs out, the information created that day may be easily uploaded to the network server for access from a different location next time.

The English Preview Release 2 of Netscape Communicator is available on the Netscape website (http://www.netscape.com/). The final version is to ship in May. The Japanese beta version was to be available in April or May, and the final Japanese version is expected to ship in June.

DOS/V From NEC?

NEC in the past has insisted that its proprietary PC98 series of PCs, which until recently held a 40%-plus Japan market share, is the superior solution for Japanese-language computing. In the face of steadily declining market share, however, the company has now opted to offer IBM PC/AT-compatible DOS/V computers.

NEC will target the corporate market, where the growth of office networks is creating increasing demand for world-standard IBM compatibles.

Many market observers have been predicting this move since 1995, when NEC acquired a stake in US computer maker Packard Bell. NEC was slated to begin marketing the DOS/V computer made by its Packard Bell-NEC subsidiary in April.

Iomega Zips into Japan

Global shipments of Iomega's 100MB Zip drive, the emerging standard in removable mass storage, have passed the five million mark in less than two years. The Zip drive is sold through major retailers and is available as a standard or optional feature on Apple, Compaq, Dell, Gateway 2000, Micron, NEC, and other computers. In March, Iomega announced an enhanced internal Zip drive unit based on the plug-and-play ATAPI interface.

Japan is the world's second-largest market (after the US) for removable data storage products. Iomega drives and disks are licensed to and sold through partners such as Fuji Film, Hitachi Maxell, Logitech, and Memorex Telex; establishment of the Iomega Japan marketing subsidiary is seen as a means of expanding business in Japan by demonstrating the company's commitment to its partners and OEM customers. "Our goal [in establishing the subsidiary] is to make Iomega one of the most preferred brands of portable storage drives and disks in Japan," says Yuri.

According to Timothy Hill, Iomega's vice president, worldwide marketing, "The establishment of Iomega Japan demonstrates our commitment to our Japanese partners and OEM customers."

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