Without further entry into the long distance market, it is impossible to know whether existing entrants are efficient or not. In the U.S. there exists no entry regulation in the long distance market and in the U.K. any regulation was removed after the Duopoly Review in 1991. Japan is far behind of these countries. Although efficiency gains were substantial measured by consumers' surplus, the competitive process contrived by the Telecommunications Business Law is still very dubious from the view point of dynamic process of competition. (Table-4)

#### I I.2. Competition in the local market

At the outset of reform of telecommunications industry new entrants appeared in the local market. They are mainly subsidiaries of electric utilities. But interconnection between NTT network and local NCCs' network was not complete by the regulation of MPT. Namely the subscribers of local NCCs cannot reach NTT's subscribers. This is fatal defect of NCCs' network and accordingly they did not grow in the local market. On the other hand, the bypassers like CAPs or wireless service providers did not become a real threat to NTT. CAPs are Type I carriers in Japanese regulatory scheme and they have not been allowed to appear. Mobile telephone operators began their business but the tariffs of these carriers were too high to attract customers. This is because mobile carriers are Type I carriers and the tariff must be based upon FDC rule. As a result mobile service providers could not compete charging freely low prices to allure many customers. CATV business did not grow successfully as in the U.S. because of strict regulation upon them as broadcasters. They did not constitute a potential competitor to NTT. After all competitive threat to NTT has been totally forbidden by MPT and accordingly NTT appears like a bottleneck monopoly. This is not because NTT local network is bound to be a bottleneck in technological sense but because regulation has been an ultimate barrier to entry. Seeing that competition in the local market has been flourishing in countries where entry regulation was lifted, the frustrated Japanese local market can only be rescued by removing entry regulation into this field.

#### I I.3. Consumers Surplus in the Long Distance Market

We could successfully estimate demand function in the long distance market of long line telephone. By using this estimation we obtained estimate of consumers' surplus brought about by price competition in the long distance market. According to the estimated result, the accumulated surplus amounts to 1955 billion yen since 1980 when rate reduction started. That surplus came from the controlled competition in this market and as was noticed we must be careful to interpret these figures because dynamic process of entry was not guaranteed in our system.

#### I I.4. Conclusion

Japan introduced competition as early as in 1985 but competition between NTT and NCCs has been restricted to the extent that MPT has exerted strong power to formulate the type of competition. The competitive process in the local as well as long distance market did not work as economics expected. As a result NTT looks like a bottleneck monopoly which continuously invites