Silviase/jgov_v1.4_full_ann huggingface dataset:
is always incumbent, business is a newcomer, and the Government often thinks the company as a child. The government also takes some kind of responsibility towards their children and it's also a most important preventive factor to develop competition in Japan.

3. I agree to some extent to the third point on the number of employees in NTT, but, to be exact, certain percentage of people really went out of NTT. I think the percentage is not so small. At the same time, from the other aspect, such kind of re-employment makes some sense, because telecommunication industry is now encountering a very dramatic change, and new subsidiaries and new products are often produced. I completely agree to the point that NTT is lacking dynamism. It comes partly from institutional stalemate. Always MPT and NTT are discussing to develop new things and it takes so much time.

4. As for the breaking up of NTT, I think it takes so much time. But we don’t need any divestiture of NTT. The first reason and most important reason is that in telecommunications new technologies are emerging, especially in the long distance market. NTT network is the bottleneck, but now new technology is appearing, and they can provide us another local telephone network, like wireless or like cable TV. If we go to Sweden, cordless phones or wireless phones are a dominant factor. As for the long distance market, there exists a kind of irony. If long distance market is separated from NTT, three newcomers will be completely destroyed, because there exists huge economies of scale.

### 3. FLOOR DISCUSSIONS

## MARSHALL:

1. In many respects, the re-regulation of telecoms is taking a very different approach this year from the ones that have gone before. There has been a big move by the new Director-General to try to promote arrangements that will encourage more competition. Because BT stood in a very dominant position in many of the services, he has tried, first of all, to introduce perhaps even a new license condition, that would ban anti-competitive practices. The regulators in the U.K. are very much hampered by the fact that there isn't effective general competition legislation and one is often trying to overcome the weaknesses of competition legislation through the individual utility regulations.

2. The other thing that the Director-General is trying to do is to move away from what I call the accounting based regulation to more economic regulation. That is a fairly difficult thing for them to do.

3. The point where I do rather disagree with Bob is about break-up, because one of the things that the Director-General is, saying at the moment is that if his new policies don't work, then he is suggesting some sort of restructuring as a last resort. I am slightly inclined towards break-up, and then, perhaps a reintegration along market lines rather than having the integration associated with a government-created monopoly in the first place.

4. One of the other things that I agree with him about is making small changes.
It's even more important to try to make big changes but make them look as if they are small changes. Because as soon as anybody thinks there is a big change, then you get all the pressure groups lining up to make sure you don't do it.

5. The other point that really I would like to agree with is on access pricing. In terms of the efficient level of access pricing there is still quite a lot to do. But in terms of promoting competition, the most important thing is to introduce nondiscriminatory charges so that the incumbent pays exactly the same as everybody else.

6. Bob spoke about the dynamic gains from competition. There is sort of economics which, at least in England, sees the imperative as actively promoting competition. It is also behind “RPI minus X” where, in a sense, one is trying to harness the profit motive to customers’ benefit in the end.

7. One of the issues that keeps coming up is the idea of cream-skimming, and the idea of uneconomic services. When people talk about cream-skimming, what I tend to say to them is that it seems to me that those people who have been most over-charged in the past really rather deserve to have their prices aligned with costs first in the future. A related activity is about uneconomic customers and uneconomic services. This is something that we have had to face very recently in the gas industry. The idea is that you can't open the domestic market to competition, because there are customers such as the elderly and disabled who have special services, and perhaps also other people who don't take much gas. The argument is that it's not at all clear that they are genuinely uneconomic when you take into account the fact that competition will lower the overall cost base. Therefore, there is no particular reason to think they will face price increases.

8. There was some idea about protecting entrants that has particularly happened in telecoms in Great Britain, for instance, there was the very early protection of Mercury. But it isn't true that there has been protection and indeed will be protection in other industries. Again, this is something that we have faced with getting new legislation for the opening-up of gas market. What we have done is to say that we won't actually protect entrants, but that we will protect customers, so that there are arrangements in place that if somebody goes after the market or goes out of business, there will be a bond which they have to put up in the first place, which can be used to make sure that someone else takes over his customers and another arrangement is put in place to actually transfer customers.

## TOKUNAGA (EPA):

It seems to me that the most serious issue on the deregulation of telecommunications in Japan is the rationality or validity of the division of NTT. Having heard the arguments about the NTT issue taken in the Councils concerned, the government sectors and political parties, I have gotten an impression that the opinions insisting the division of NTT are based mainly on anti-monopoly policy, but dynamic changes appearing in these ten years have to be taken into account. NTT is now facing strong pressure of
potential competition. On the other hand, NTT is not allowed to enter the international telecommunications business. I am not saying that the division of NTT should be avoided, but I am saying that it is necessary to take telecommunications business more competitive, and that reliable and persuasive theoretical or analytical framework is really needed in order to deal with deregulation policy for telecommunications in Japan.

## YARROW:

1. The failure of the first round of liberalization in the U.K. arose because the legislation removed the statutory to entry into industries like gas, electricity and telecommunications. But there remained a very formidable monstertutory barriers to entry. The firms were dominant, and U.K. domestic competition law is very weak. The U.K. approach was to create regulatory bodies which to some extent compensated for the lack of a strong general competition law.

2. But if you compare the U.K. and the U.S., a similar thing is going on through a different institutional mechanism. In both cases what we have is a set of institutions which give a new entrant somewhere to go to get relief from potentially abusive behavior by a dominant firm. In the United States case, it's the general anti-trust laws. Very crudely, it's leveling the playing field to some extent.

3. One of the problems that arises at this point is that we say entry is good. There is a potential problem in doing it the U.K. way, the regulatory way, in that the entrant can be seen too easily as an end in itself. What happens is you get a subtle move across from a policy which is leveling the playing field and creating the opportunities for entrepreneurs to one where in effect the policy becomes protectionist. You allow a few entrants in, and then you nurture them. In order to protect the new entrants, what you classically do is to make the market less competitive, in effect. You have some of the same problem in Japan, that if you allow three or four firms in to compete with NTT in long distance, but say no more, the entry barriers then go up. What we know about that is that the results of that type of deconcentration, which don't get rid of the entry barriers, are disappointing.

4. Let me come to NTT in that case. If NTT is broken up but the institutional structure within Japan remains the same, it will continue to be the case that the new entrant has nowhere to go. My prediction would be that if you break NTT up in those conditions, you would be very disappointed with the results. If, on the other hand, within Japan new structures are created, which allow the entrants access to a policy which will level the playing field and prevent abusive dominance, my prediction would be that the break-up of NTT would again be disappointing in its effects, because it will be relatively unnecessary.

## HARRIS:

1. The break-up is likely to make it much less likely of changing the entry conditions. But putting aside that question, if that were to happen, how many local monopolies should we have in Japan? Should we have one, as we have now, or should we
have seven or nine or whatever? Having done that, you are going to have a regulator feeling a great need to protect each of these seven or nine newly created monopolies precisely because we just created that condition.

2. When we talk about dynamics, the dynamics has two dimensions to it with respect to these discussions. One is, as a potential set of benefits you get from change. The other is that the changes themselves should be dynamically based, that is, not based upon current conditions, especially with respect to technology. One does not have to look into the distant future. One can look at what's happening right now in certain countries.

## CHAIRMAN:

Looking back at the experience in the U.S., it seems to me that the break-up was the key factor in promoting the competition that we've got. I mean that in a more dynamic political sense than in a strict economic sense. There is in all regulatory circumstances the tendency towards capture and an alliance to be formed between the regulator and the incumbent. But the break-up meant that there was not just an incumbent with a point of view but that there were several strong incumbents with diametrically opposed points of view, particularly as it goes to the issue of access. There is a second sense which goes beyond that particular controversy, and goes to the whole nature of the regulatory dynamic itself. Again, without the kind of break-up a political alliance between the regulator and the incumbents is inevitable. It becomes very difficult on those terms for even dynamic entrants to enter into capture, and that by breaking up the incumbents you change that dynamic and make it impossible for the alliance.

## ROBINSON:

I agree basically with the Chairman. In the case of the U.K. we have two quite good examples -- one a success and one a failure -- resulting from either break-up or not break-up. In the case of electricity, we have managed to promote access by separating out the transmission system. That's one of the most important things. In the case of gas, we did not. About ten years ago Eileen and I wrote an article, before gas was privatized, saying the most important thing that could be done was to have a separate pipeline system, so people could get access. The government was not willing to go along with that. It has taken years and years to get competition going in the gas industry, and people who have wanted to enter the industry have just not been able to get access to consumers.

## (END OF SESSION 3)
12:00 - 13:10

Session 4: Comparison among the U.S.A., the U.K. and Japan

Chair: George YARROW

Paper: Akira FURUKAWA

## PERL (LEAD-OFF):

1. I do think the contrast between the U.K., in which top-down is clearly what's happened, and the U.S. where bottoms-up is what's happened, is important to think about. There is a fundamental reason both why that occurred in that way and why one should be careful about generalizing from bottoms-up. I don't believe in the U.S. we ever had very great faith in regulation in the first place. That has led to two things. First, we have many systems of checks and balances that limit the power of the regulator, and that provided many opportunities for competitors to successfully challenge the regulator and really destroy the fundamental nature of the regulatory system. Secondly, the burden of proof was on the regulator to show that he had a place in the world, and that he had performed a function.

2. The situation in the U.K. was really quite different. There was perhaps no more faith in regulation in the U.K. than in the U.S. at the start of the process. You don’t need regulation in a world where industries are nationalized. The top-down part of this in the U.K. was the lack of faith in government controlled industries and the decision to privatize. It was clear at the outset that once you turned it into private hands, the forces of competition would take care of the regulatory problems.

3. What is remarkable about the U.K. innovation is that the commitment to privatize was so great that there was a willingness to privatize even in those industries in which elsewhere around the world there was a profound belief that regulation was necessary; telephones and electricity. The great innovation, and what the U.K. has taught the rest of the world, is that maybe regulation was rather less necessary than we thought.

4. What does all this say for Japan? It seems to me to suggest that this is a bottoms-up process and you should simply stimulate it. It's trying to impose a U.S. environment in a place where it doesn't exist. But the history of regulation in Japan is profoundly different. If Japan can learn from the U.S. and U.K., experience, it is not to specifically emulate, but rather to learn why it has worked there in ways that perhaps it won't work with the same mechanism here, and instead, to institute rather more draconian top-down mechanisms to get rid of what are rather stronger regulatory barriers that exist here.

5. There have been several themes throughout the Conference. 1) To detach the regulator from the government, in particular, to detach the role of the regulator as the promoter of the industry from the role of the regulator as the governor of the industry. This
mixture of regulation and privatization works nowhere. If the government is involved in economic promotion of industry, there should be a separate entity that's engaged in the regulation of the same entity. 2) The regulator detaches him from the government so that he doesn't have the broad force of government as his disposal, but rather has a narrow and limited set of functions, which one can at least conceive of disappearing over time. 3) Instituting the British scheme, not the American scheme, that the regulator has a dual function to regulate where regulation is necessary, but to get out of the regulatory business where it is unnecessary, would be a good principle to be emulated here.

## NAKAKITA:

1. How could deregulation proceed with the bottom-up method is the standing challenge for Japan. Presently, focuses are on domestic service industry. So far, those areas are regarded as a sanctity, but people are now feeling that market mechanism and forces need to be introduced in this area; otherwise the Japanese economy would its dynamism shortly. Over a long term, because the society is aging, the implications will be serious. Why is it that not much progress has been noted for deregulation? Because regulators, the ministerial authorities, are not saying “yes” to deregulation. With regard to the deregulation, people are all for it in general sense of the word. However, when it comes to the specifics, all the people related oppose to the specific deregulation.

2. There are so many problems found in the financial industry in Japan. In the late 1980's in the United States, financial market was looked at as one of the pillars for promoting deregulation. Also in the U.K., with the hope to reconstruct British economy, the drastic deregulation was performed for the financial market. In case of Japan, financial market still remains to be a sanctuary, and an unperforming loan is held by many of the financial institutions, and moral hazard is occurring in a great magnitude, but not much of effective measures have been taken so far. The authorities are claiming that no banks would ever fail or go bankrupt, but for the past several months we had seen a few cases of actual bankruptcy of the financial institutions.

3. With regard to the litigation at the court, there is administrative litigation law related matters and also administrative procedures law related matters, which used to pose a problem, but reviewing is now going on so that institutional-wise contents are strengthened. The problem from now on is how to invoke this available system, and how to initiate the system.

## JASINSKI:

1. In Central and Eastern Europe the desire to harmonise their legislation with that of the European Union competes with the necessity to do everything at the same time. What is more, although all these countries move from Marx to market, the road and its determinants differ. For example in Poland it was the Antimonopoly Office that managed to establish itself as a relatively independent institution, committed to creation, promotion
and protection of competition. That is why we suggested that it's Department of Consumer Protection on Monopolised Markets to be expanded and given the role of economic regulator. Interestingly enough, in the U.K., at the beginning of the process of creating its regulatory system, it was the Office of Fair Trading, the antitrust agency, that turned down the offer of performing the roles later given to OFTEL and OFGAS.

2. Since planning is going out of fashion, could perhaps a renamed Economic Planning Agency become the economic regulator, and then follow the planning itself and prepare the ground for effective implementation of antitrust legislation in network industries? Together with the entry conditions, the existence of an independent and committed regulator is absolutely crucial for deregulation to gain and preserve momentum.

## NAMBU:

1. I am very fearful if American people or English people clearly understand the meaning of “top-down.” If we take up the process for consensus-making between regulators and regulated industries, we can identify two types: One is electricity, where nine electricity or now ten electricity companies can join in the Shingikai or Research Council to discuss their own fate, whether they should introduce competition or not. It’s not exactly the bottom-up, but at least, the business is involved in making very important decisions. But in case of telecommunications, NTT is not involved in making decisions, especially the most important decision in breaking up. AT&T had the choice when they faced whether it is broken up in what form. The AT&T Chairman could for a long time discuss with DOJ.

2. If the Council is very capable of dealing with problems exactly, there may exist another reason why NTT is divided from the top-down approach. But if you look at the list of the participants in the Council, 50 percent of the people are non-experts in telecommunications. The Ministry itself takes care of all dealings in the Council.

3. The last thing is the transparency. If the break-up of NTT is accompanied by full deregulation, it makes sense. But there exists a very high possibility that NTT is broken up into pieces with very strict regulation upon them. That's maybe the worst result, and we are well prepared to be disappointed in the future.

## HARRIS:

What I am struck by is that I am asked the same question every time I come. Should we break up NTT? A lot of energy that has been spent debating whether we should break up NTT would have been much better spent trying to do some of the other things that will introduce just a little bit more competition than you now have in telecommunications.

## ROBINSON:

I have been surprised in a way about the measure of agreement from people outside Japan. There are at least four points. 1) Most people have been very clear that competition is a process, not a state. 2) Regulation should be confined to what appear to be genuine monopoly areas, but one ought to change one's view as markets and technology
progress as to what those natural monopoly areas are, and so you don't freeze things in stone. 3) It is important to have regulators who are independent of government, and to also have the right kind of incentive structure. The British system does have something to offer in this case. The duty to facilitate competition helps to avoid capture and also the tendency of regulators to want to hand out favours to particular interest groups. 4) When you get down to price regulation, one does need to try to provide the correct incentives for those who are regulated. There is something in the RPI minus X price cap system. I do have some doubts about it, but on the whole it is better than the alternatives.

A very simple change in the name of your Agency would be useful. How about the Economic Liberalization Agency?

## KOJIMA (EPA):

1. The subjects of telecommunications, electricity, transportation are difficult areas worth thorough discussions here before taking up the subjects of agriculture and finance. This symposium can be regarded as one of the attempts in Japan, or Japanese bureaucracy, to push through the movement of reform. In that sense, this symposium gave us a great contribution.

2. At the end of this symposium, I have two very deep-seated feelings. The first is the underlying forces of the reform: In the Japanese decision-making system, bureaucrats are required to make consensus of the Council even when we need a change, which is impossible because eventually somebody would get business and somebody would lose business after the change. That reflects something is missing in Japanese society, and that is these individual opinions and individual actions by businessmen and consumers. Those voices are usually hidden underneath the feeling, and the buck is passed to the government bureaucracy, and stops there. I thought that the Economic Planning Agency should be renamed as “Economic Reform and Forecasting Agency”, but the momentum for reform is still not so strong. I would be very glad if we get that momentum and eventually are able to rename it that way.

3. Secondly, based on that more lively, more individualistic, more democratic society, then we can discuss about how to carry out regulatory reform. We have more task to do than you have, because we have more fundamental task of changing people's attitude and the behaviour in the society.

4. Concluding I have learned three key words. First is that reform should be “procompetitive.” Secondly, the regulatory system or process, should be “decentralized”, or bottom-up. Thirdly, the reform should be a “continuous” process, and it would be a piecemeal change in the continuous process. “Toward a pro-competitive, decentralized, continuous regulatory reform” might be a suitable summary of the symposium.

## (END OF SESSION 4)