Japan-U.S. Telecom Talks Appear Near Climax

TOKYO (07/04/2000) - After years of negotiations, talks between the U.S. and Japanese governments over the contentious issue of the charges levied by Nippon Telegraph and Telephone Corp. on other carriers appear to have entered the home stretch.

Working-level talks are scheduled to be held in Tokyo next Monday, with a follow-up round of vice-ministerial talks planned for later in the same week.

The talks represent a last-ditch effort to come up with an agreement before the upcoming G8 Summit, which will be held on the Japanese island of Okinawa from July 21 to 23. Japan is keen to avoid the issue overhanging the summit and wary of a U.S. threat to file a complaint with the World Trade Organization (WTO) if the issue is not sorted out by July 28.

At the heart of the issue is the way NTT calculates the charges it levies on other carriers. The charges cover the cost of taking the call from the other carrier's network and sending it over the NTT network and into the subscriber's home.

At present, NTT calculates its charges based on the historical costs involved in building its network, costs which critics say are inflated because of a previous lack of competition in the Japanese telecommunications market that led to higher than average costs for equipment and operations at the government-run carrier.

The U.S. and some Japanese companies are pressing for a change to a system called long-run incremental cost (LRIC), in which the charges levied directly relate to the cost of completing the call and network infrastructure costs going forward. Last year the Ministry of Posts and Telecommunications agreed with the U.S. to adopt LRIC, but NTT has yet to accept the model.

NTT is offering to cut charges by 22.5 percent over a four-year period although the U.S. says that is not enough and pressure appears to be mounting on NTT from within Japan to make larger cuts.

Local media reports last week, quoting government sources, said Japan will offer a 22.5 percent cut over two years and then increase the cut to 40 percent.

With the talks appearing to be approaching a climax, the U.S. threw another variable into the equation late last week when it announced that the pending acquisition of Internet hosting provider Verio Inc. by NTT Communications Corp., a subsidiary of NTT Corp., will be investigated under legislation usually implemented because of national security concerns. [See "U.S. to Probe NTT Acquisition of Verio," July 3.]The two issues have not been linked by the U.S. government, although the move is reminiscent of a delay in the issuance of telecommunications licenses to U.S. subsidiaries of NTT and KDD Corp. in 1997 as the renewal date for a key bilateral NTT procurement agreement neared. The two carriers eventually were issued licenses -- two days after the governments agreed to renew the procurement agreement.

Talks begin Monday in Tokyo.

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