Japan, U.S. Reach Key Telecom Agreement

TOKYO (07/19/2000) - Government trade officials from the U.S. and Japan reached agreement late Tuesday night on the contentious issue of telecommunications interconnection rates, capping four years of talks on the issue, the U.S. government announced in Tokyo on Wednesday.

The rate cuts, which will be applied retroactively from April 1, 2000, stand to benefit competitive carriers by at least US$2 billion over the next two years alone, U.S. Trade Representative Charlene Barshefsky said at a briefing in Tokyo Wednesday morning.

The deal specifies two sets of reductions in the interconnection rates, which are the charges that Nippon Telegraph and Telephone Corp. (NTT) levies on other carriers for use of its lines to reach business and domestic consumers.

For carriers that connect to NTT at the regional level, which incudes the vast majority of non-Japanese telecommunications companies, the two sides agreed on a 50 percent rate reduction over the next two years followed by a further reduction of at least 16 percent in the third year.

In the latter year, NTT will adopt the long-run incremental cost (LRIC) model for calculating the rate, which could mean much deeper cuts than the minimum 16 percent, said U.S. officials.

The second set of cuts concerns carriers, mainly Japanese, that interconnect at NTT's local switches. These companies will see a 20 percent cut in interconnection rates over the next two years and further cuts in the third year.

In addition, Japan also agreed to study the following issues: allowing competitive carriers fairer and freer access to NTT's lines, particularly for high-speed Internet services; removing regulations concerning the way new carriers are required to construct their access networks; and whether NTT DoCoMo Inc., the mobile telephone carrier of the NTT group, should also be regulated over interconnection charges in the same way as NTT's local carrier units are regulated under the agreement.

The latter question is significant because analysts predict the volume of cellular telephone calls in Japan will surpass that of fixed-line calls in 2004, making the cellular industry potentially more important than the fixed-line market. At present there are no restrictions on the rates NTT DoCoMo charges. The Ministry of Posts and Telecommunications agreed to come up with a decision on the issue by March 2001.

In a statement, U.S. President Bill Clinton said the deal stands to increase the number of Japanese consumers connected to the Internet and represents a win-win situation for both nations.

The deal caps more than a week of intense talks in Tokyo which began with working-level talks and progressed to the vice-ministerial level. The talks, which sources describe as often drudgingly slow, were working towards a deal before this weekend's Group of Eight summit in Okinawa, Japan.

The U.S. had threatened not only to dominate the talks with the telecommunications issue if it were not solved but also to make a formal complaint to the World Trade Organization if an agreement were not reached by July 28.

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