of reaching agreement between them has brought about serious deficiencies into Japanese telecommunications industry. Rate rebalancing is necessary to restore signaling function of price which used to be distorted by the cross subsidy system during monopoly era. On top of that, telecom technologies have ever been changing. If rates continue to be biased by artificial device, new technology cannot find a suitable place in the market. The delay caused by the regulatory conflict has rendered tremendous social cost to Japan.

It was not until 1994 that an agreement of access charge payment was established. NCCs were required to pay about 20 billion yen in addition to already paid local rate. This is equal to say that NCCs used to be paid this amount of subsidy from NTT subscribers. Imposition of new access charge meant that hidden subsidy will be removed. This gave negative impacts upon NCCs profitability which in turn influenced their investment strategy. If access charge arrangement was realized earlier, NCCs investment behavior will have changed. The delay of access charge decision may have given a wrong signal for NCCs to over invest in the low density district.

## 3 ) Punishing NTT policy

In the dynamic process of change from monopoly to competition, several structural amendments were necessary to abolish the old institutional restraints. The most basic regulatory framework is based upon cross subsidy system between local and long distance telephony. The local telephone rates were maintained lower than its costs and local telephone service could not stand alone without subsidy. In preparing for introducing competition in the long distance market, it was deemed necessary to reshape this cross subsidization mechanism in the U.S. and the U.K.. In this context Japan was a particular country where there existed no discussion as to the choice between access charge or rate rebalancing. Japanese government ordered new born NTT to continue to provide local as well as long distance telephone service without changing tariff structure. It was to mean that new entrants into long distance market can earn extra profit by charging slightly lower price compared with the tariff of NTT. Namely MPT officially admitted, it can be interpreted, cream skimming by the new entrants. On the other hand NTT must suffer from the loss of long distance market when it continued to provide local service in the deficit. This approach of Japanese government is quite strange from the viewpoint of economists but in Japan it was partly justified on the basis of apathy toward “monopoly” firms. NTT used to be an inefficient monopoly and excessive resources were said to be built in the organization. As a result, it was argued, NTT can survive the competition by cutting off its extra costs and suffering is a necessity to give rebirth to NTT. This discussion is valid as far as there exist extra costs to be removed but it is “once for all” remedy because extra costs must disappear in the process of competition with new comers. In that sense it must have been made clearer until when this kind of punishment approach would be removed. But the reality is that there existed no apparent signal of the time horizon of government policy which resulted in the sharp decline of NTT share price ever since the issue in 1985.

We can trace the end result of MPT punishment policy by the figures and tables below. The Figure-1 and Table-5 shows that the profit of NTT has continued to decrease in the face of