skimming in the domestic market but failed to exhibit innovative marketing and creating new services. Next we will see the difficulties of Japanese telecommunications industry brought in by “bad” business government relationship. We will focus upon some of them as follows.

## 1 ) Divestiture

Before privatizing NTT there existed discussion on the desirability of divestiture of NTT a la AT&T breakup in the U.S. But no conclusion was obtained and it was decided that discussion would be resumed in 1990. At that time MPT proposed breakup upon the receipt of Telecommunications Council report. But the Ministry of Finance, Telecommunications labor union and politicians were against that and no conclusions reached again in 1990. During this discussion the conflict between NTT and MPT became clear.

The stock market responded negatively to this situation and the NTT stock price drastically dropped. As a result, further floatation of NTT stocks became impossible. This induced a huge capital loss of NTT stockholders and gave a bad influence upon the possible flotation of other public corporation stocks like JR's (Japan National Railway was privatized and reshaped into 7 JR's). NTT refused the idea of divestiture and MPT sticked to it. This kind of confrontation between regulator and the regulated firm has inevitably created uncertainty towards the future configuration of telecommunications industry. Five years have passed since then and regulatory environment has continued uncertain.

Of course uncertainties in telecommunications industry in the U.S. or U.K. are prevalent and to that extent similarity exists. But in the U.S. decentralized decision system itself has been built as institution and associated uncertainty is rationally expected in this context. In the U.K. business government relationship is relatively matured and uncertainty based upon confrontation between regulator and the regulated firm could be avoided by political intervention. In Japan NTT and MPT are both integrated bureaucracy historically inherited. As far as this kind of confrontation cannot be dissolved, any conclusion about divestiture will give unerasable consequence on both sides. It will ultimately do harm to efficient decision making in this industry.

## 2 ) Rate rebalancing and access charge

In the U.K., BT was allowed to make rate rebalancing under the introduction of price cap regulation whereas in the U.S. access charge system was established after the AT&T divestiture. But in Japan neither rate rebalancing nor access charge was introduced. This is mainly because NTT and MPT collided on the questions of the deficit of local and access network. NTT made calculation of the size of those deficits but MPT refused to accept the result of such calculation and organization restructuring was demanded to make the cost structure seen from outside. NTT accepted this request and its management structure was divided into long distance business center and local telephony business center. This structural division is based upon artificial separation of total common cost and the divisional line of total asset is arbitrary. If there existed mutual confidence between NTT and MPT, the deficit problem would have been solved earlier. The delay