Draft Recommendations
<Summary>
Facilitate Competition in Network Service Sectors
and Eliminate Impediments and Establish Suitable Rules
for e-Commerce and IT Utilization
August 2000
Information Economy Committee
of Industrial Structure Council
Table of Contents
Present Japanese Problems in the IT field
1. Japan Lags Behind in the IT Revolution
• Internet Population Diffusion Rate 1
• Scale of the e-Commerce Market 2
• e-Commerce Market Shares 3
2. Necessary Reforms of Japanese System 4
Facilitate Competition in Network Service Sectors (Part I)
3. Technological Revolution in Network Service Sectors (Paradigm Shift) 5 4. U.S. and European Strategies
(Legislation to Promote Competition in Network Service Sectors) 6
5. Market Shares of Class 1 Telecom Carriers (Data: DDI) 7
Market Shares of Class 1 Telecom Carriers (Data on NTT holding company) 8
6. Competition’s Impact on Service Prices 9
7. Draft Recommendations 10
8. Present Japanese Problems in Network Service Sectors 11
Eliminate Impediments and Establish Suitable Rules for e-Commerce and IT Utilization (Part II)
9. U.S. and European Strategies (Transition From the Stage of Private Sector Experiments to
the Stage of Rule-Making Reform, Based on the Private Sector’s Business Practices and Experiences) 12 10. Draft Recommendations
(Rule-Making Reform to Overcome the Constraints and Disadvantages of the Old Rules) 13 • Rule-Making for Establishing All Players’ Confidence in e-Commerce and IT Utilization 14-16 • Eliminate Impediments for E-Commerce and IT Utilization
and Facilitate Competition in e-Commerce-related Market 17-18 • Procedural Rules which Ensure Market Rules Responsive to Dynamic Changes in IT Era 19
Present Japanese Problems
in the IT field
1
Japan Lags Behind in the IT Revolution
• Internet Population Diffusion Rate
• Scale of the Electronic Commerce Market
• Electronic Commerce Market Shares
Australia
Singapore
Hong Kong
New
Zealand Taiwan South Korea
(%) 50 45 40 35 30 25 20 15 10 5 0
Norway United States Iceland Sweden Canada Finland
Denmark Great Britain Netherlands Germany Italy France Japan
Internet Diffusion Rate:
Japan’s diffusion rate was estimated to be 14.1 percent as of December 1999 in the Internet White Paper 2000 (based on results of a telephone survey of approximately 100,000 households conducted in February 2000), and 21.4 percent inthe Telecommunications White Paper 2000 (based on results of a questionnaire mailed to 5,000 members of the workforce in December 1999). Thus, both results are shown in the bar graphs.
Diffusion rates for other nations are based on data published in June 2000 by the NUA Company, which compiled survey results of polling organizations of these nations published from June 1998 to June 2000.
1
Japan Lags Behind in the IT Revolution
Japan already lags behind in penetration of information technology to households (Internet
population diffusion rate) as well as business (scale of the electronic commerce market).
Internet Population Diffusion Rate (Global) Internet Population Diffusion Rate (Asia)
(%) 50 45 40 35 30 25 20 15 10 5 0 Japan
Scale of the e-Commerce Market
9 12 1 9 2 9 45 6 8 20 30 5 0 79 117 1 6 5 0 20 40 60 80 100 120 140 160 180 1 9 9 8 1999 2 0 0 0 2001 2 0 0 2 2003 Japan United StatesB-to-B (Business-to-Business) Market
(Trillions of yen) 2 2 , 5 0 0 4 2 , 7 0 0 71,100 106,900 153,600 2 1 3 , 2 0 0 3 1 , 6 0 0 1 6 , 2 0 0 8 , 7 0 0 4,300 1,900 6 5 0 0 50,000 100,000 150,000 200,000 250,000 1998 1999 2000 2 0 0 1 2 0 0 2 2 0 0 3 Japan United States
B-to-C (Business-to-Consumer) Market
(Hundreds of millions of yen)
Japan 7% Canada 2% United States 21% Other 27% EU 20% Asia 23%
e-Commerce Market Shares
Western Europe 33% United States 54% Other 4% Japan 3% Asia 2% Canada 4% 2003 (Projected) 1998
Source: International Digital Communications, 1999 (electronic commerce market shares)
Western Europe 11% United States 74% Other 3% Canada 7% Asia 1% Japan 4% GDP Shares
2
Necessary Reform of Japanese System
3. Reform of socioeconomic systems
(1) Innovation (creation and development of companies to support information technology)
(2) Realization of financial and government systems geared to the Information Technology era
(3) Broadening of the base of the Information Technology revolution (utilization of educational systems and budget prioritization)
2. Formulation of rules
(1) Trading rules
• Basic trading rules
(Legislation for electronic agreements, intermediary responsibilities, and information product transactions)
• Expansion of remedial measures
(expansion of private dispute resolution systems) (2) Rules for creation and distribution of superior
content
(3) Consumer protection rules, personal data protection rules (4) Insurance of security 1. Realization of fast, inexpensive networks (6) Competitive Rules (5) Regulatory Reform
Expansion of Cyber-society Innovation of Cyber-society
The following three reforms are crucial for Japan to ride the wave of the IT Revolution and
achieve economic revitalization.
(1) Lower prices and quicker transition to broadband in network services
(2) Eliminate impediments and establish suitable rules for e-commerce and IT
utilization
Facilitate Competition in Network Service Sectors
(Part I)
3
Technological Revolution in Network Service Sectors (Paradigm Shift)
4
U.S. and European Strategies
(Legislation to Promote Competition in Network Service Sectors)
7
Draft Recommendations
8
Present Japanese Problems in Network Service Sectors
5
Market Shares of Class 1 Telecom Carriers (Data: DDI)
Market Shares of Class 1 Telecom Carriers (Data on NTT holding company)
3
Technological Revolution in Network Service Sectors (Paradigm Shift)
Telecommunications Business Law NTT Law
Telecommunications Business Law NTT Law
Conventional
Broadcast Law, Wireless Telegraphy Law
Broadcast Law, Wireless Telegraphy Law
Present → Future
Telephone (dial-up)
ISDN xDSL
Internet connection methods employing metal cables
CATV
Internet connection methods employing wireless technologies Internet connection
methods employing coaxial cables
Internet connection methods employing ground-wave and satellite technologies
2005∼？ ２００１∼ 2001 - 2002 -Telephone Telephone TV TV Internet connection methods employing optical fibers FTTH
(Fiber to the Home)
2005 ? 2000 -Infrastructure for Internet connection (transmission lines)
Computers
Broadcasting services Telecommunications services Clear delineationBroadcast satellite data broadcasting
Communications satellite
data broadcasting Ground-wave data
broadcasting
Fair competition rules are necessary FTTO (Fiber to the Ｏ ｆｆｉｃ )
Fusion of computers, telecommunications, and broadcasting
In the network service sectors, both wired and wireless, diversified competition is emerging, and competition among these diversified network services will be increasingly intense due to technical innovation in the future.
2001
-Computers
Cellular telephones and
PHS systems Next-generation
cellular telephones Wireless LAN and
4
U.S. and European Strategies
(Legislation to Promote Competition in Network Service Sectors)
1980 1985 1990 1995 2000
The United States, Europe, and some Asian nations which are advanced in the IT area have responded to technical innovation in network services (the paradigm shift), and telecommunications laws have been dramatically transformed with the air of facilitating competition.
In spite of gradual deregulation of the Japanese telecom market, the regulatory scheme of 1985 has basically been maintained.
The United States, Europe, and some Asian nations which are advanced in the IT area have responded to technical innovation in network services (the paradigm shift), and telecommunications laws have been dramatically transformed with the air of facilitating competition.
In spite of gradual deregulation of the Japanese telecom market, the regulatory scheme of 1985 has basically been maintained.
United
States
Europe
JAPAN
Õ 1984 AT&T Breakup • Long-distance: AT&T• Local: Seven Bell companies
Õ 1984
AT&T Breakup
• Long-distance: AT&T
• Local: Seven Bell companies
Õ July 1999
- Reorganization of NTT • Long-distance: NTT-C • Local: Eastern and Western region companies
Õ July 1999
- Reorganization of NTT • Long-distance: NTT-C • Local: Eastern and Western region companies
15 years behind the U,S
Õ 1985
- Privatization of Nippon Telegraph and Telephone
Public Corporation (→NTT)
Õ1984
- Great Britain: Privatization of British Telecom
¬ February 1996
- New Telecommunications Business Law enacted
¬ 1998
- Great Britain: Competition Law enacted (new law)
¬ February 1998 - WTO Free Trade Agreement effected ¬2000 - EU directive New Telecommunication s Law (competition law) introduced within the European Union 2005 Enactment of new framework? When? 1995 Õ - Germany: Privatization of DT 1996 Õ - France: Privatization of FT ¬2000 - Partial amendment of
Telecommunications Business Law (connection fees only)
• Market Shares of Class 1 Telecommunications Carriers
• Market shares of Class 1 telecommunications carriers by item and sector
Local telecommunications market (number of subscribed telephone lines)
Long-distance telecommunications market (including international)
Mobile telecommunications market (cellular telephones, car phones, and PHS)
* Shares based on number of units in operation as of July 31, 1999
¥13.8615 trillion
(FY1998)
* Based on data of the Ministry of Posts and
Telecommunications, extracts of securities companies annual securities reports, and the almanac of the
Telecommunications Industry Association
* Figures for NTT and TT-Net as of end of fiscal year 1998 (Source: Annual securities reports of companies)
* Number of telephone lines of cable TV operators not considered. * Traffic data of the Ministry of Posts and Telecommunications indicates
a share of 93.7 percent.
NTT（地域） (99.95%)
* Shares based on telephone (voice) sales for FY1998
* Prepared based on FY1998 earnings conditions by division for NTT
NTT Group (68%) Other (8%) Japan Telecom (8%) KDD (2%) DDI (14%) NTT Eastern & Westen region companies (99.95%) TT-NET (0.05%) NTT Communications (50%) DDI (14%) KDD (15%) Japan Telecom (17%) IDC (4%) NTT DoCoMo (53%) DDI Cellular (11%) DDI Pocket (7%) Tu-Ka (6%) IDO (7%) J-Phone (18%) Astel (2%)
○
Market Shares of Class 1 Telecommunications Carriers
KDD I Group (19%)
NTT Group (68%) NTT Telecom Group (7%)
Others (6%)
NTT Group KDD I Group NTT Telecom Group
Group operating profit:
¥9,384 billion
Group operating profit:
¥2,721.9 billion
Group operating profit:
¥1,048.9 billion
Others
¥835.3 billion
* Figures are from 1998 as determined from individual shareholder stock reports and the Telecommunications Carriers Yearly Conference Report (2000 ed.)
○ Breakdown of Market Shares of Class 1 Telecommunications Carriers
NTT’s Share of Regional Telecommunications
Inter-prefectural calls Intra-prefectural calls Local calls Share in '98 51% 84% 96%
Shares of Other Firms in the Long-distance/International/Mobile Markets
KDD
PHS (DDI Pocket)
Share in '98 61% 60%
* When looking at the market breakdown, carriers other than NTT have more than a 50% share of the market.
6
Competition’s Impact on Service Prices
400
90
1985 1999
(Yen)
Weekday daytime rate (3 minutes)
Domestic Calls (Long-distance)
Õ
78%
30,000
4,500
Basic Charge Cellular telephonesÕ
85%
1,530
180
To the United States (weekday daytime rate – 3 minutes)
International Calls
Õ
88%
1,550
(Residential Use) Domestic Calls (Basic Charge)13%
1,750
42,000
64kbpsDomestic Dedicated Lines (Local & With 15 km)
83%
77,000
Competitive Sectors
Monopolistic Sectors
While telecom charges are declining in competitive sectors,
charges are increasing in monopolistic sectors.
While telecom charges are declining in competitive sectors,
charges are increasing in monopolistic sectors.
1
0
Local
(weekday daytime rate – 3 minutes)
Domestic Calls (Public Telephones)
200%
30
Trends in Telecom Charges
(Yen) (Yen) (Yen) (Yen) (Yen) 1985 1999 1985 1999 1985 1999 1985 1999 1985 1999
7
Draft Recommendations
Three Basic Viewpoints
1. Starting point for consideration is a “focus on users” 2. The method for that is “competition”
3. What must be pursued for a return of competition is creation of a favorable cycle of “improvement of user services” and “realization of strong, highly competitive telecommunications carriers through greater efficiency of management and advanced business operations.”
Five Issues for a Shift to a Competitive Law System and Systemic Design
1. Extract a “network service function” from telecommunications operations and broadcasting operations.
2. Focus on this network function, and provide the four legal protections of access to essential facilities, elimination of the obstacles to market control, guarantee of regulation of transmission content, and technical safety regulation.
3. Additionally, competitive policies designed to ensure access to essential facilities (measures that allow everyone to use NTT’s local networks) and eliminate the obstacle to market control must be fully effected.
4. Regulations that do not serve to create a competitive environment should be abridged or abolished. 5. The content of specific competitive policies should include the following four points:
• Re-formulation of rules for connection to local networks and new rules for formation of local networks
• Guarantee of access to network infrastructures (response to problem of line installment rights)
• Consideration of economically rational methods of band allocation that can flexibly respond to technological trends
• Clear regulation of carriers that have power to control the market (unfair trading laws, restrictions on exclusionary behavior, and other provisions)
Three proposals for a process designed to realize systemic reform
1. Strategy of systemic design geared to the future2. Participation of the nation’s citizens in systemic design
8
Present Japanese Problems in Network Service Sectors
Switchboard
NTT Networks
Other Carrier Networks
Connection Charges M D F MDF User Charges Connection Rules Other than Connection Rules NTT Fiber to the Home NTT Subscriber Line Wired Wireless LAN/WLL * Services Non Wired Broadcasting (including digital broadcasting) (Broadcast Satellite/ Communications Satellite/Ground-wave) 1:N Relationship Network Services
Connection Rules + Line Construction Rights
Band Allocation Rules Social Content Regulation NTT Telephones/ ISDN xDSL Services Cable TV Internet Foreign Companies Fiber to the Office Line Installation Rights
Right of Way (Other than Connection Rules)
Cellular Telephones/PHS (Next-Generation Cellular Telephones) Data Broadcasting (Broadcast Satellite/ Communications Satellite/Short-wave) 1:1 Relationship
* Wireless LAN: Speednet (Tokyo Electric Power, Softbank, and Microsoft) and others
WLL: NTT-C, CWC (Sony, Toyota, and IIJ) and others
Duct Fiber (Class 0 Telecommunications Operations)
Efficient Band Allocation Rules Unbundled Connection/ Collocation Unbundled Connection/ Collocation NTT Local Networks NTT and other Telephone Poles Tunnels (Conduit) New NTT Company Telephones NTT Telephone Office
Eliminate Impediments and Establish Suitable Rules
for e-Commerce and IT Utilization (Part II)
9
U. S. and European Strategies (Transition from the Stage of Private
Sector Experiments to the Stage of Rule-Making Reform Based on the
Private Sectors’ Business Practices and Experiences)
10
Draft Recommendations (Rule-Making Reform to Overcome the Constraints
and Disadvantages of the Old Rules)
•
Rule-Making for Establishing All Players’ Confidence in e-Commerce
and IT Utilization
•
Eliminate of Impediments for e-Commerce and IT Utilization and
Facilitate Competition in E-Commerce related Market
•
Procedural Rules which Ensure Market Rules Responsive to Dynamic
9
U.S. and European Strategies (Transition from the Stage of Private Sector Experiments to the Stage ofRule-Making Reform Based on the Private Sector’s Business Practices and Experiences)Trends in Internet Population and Enactment of Major Legislation
October 1998
Digital Millennium Copyright Act
← Intermediary Responsibilities Legislation
July 1999
Uniform Computer Information Transactions Act (UCITA)
← Information Product Transactions Legislation
July 1999
Uniform Electronic Transactions Act (UETA)
← Electronic Contracts Legislation
June 2000 Federal Electronic Signature Act
December 1999
EU Electronic Signature Directive
June 2000 EU Electronic Commerce Directive
← Electronic Contracts Legislation Intermediary Responsibilities Legislation
May 2000
Electronic Signature and Authentication Law 32.9 64.5 30.0 41.2 64.7 85.0 97.0 5.1 8.8 14.3 18.3 22.6 49.5 21.4 6.0 0 20 40 60 80 100
1996 Year- end 1997 Year-end 1998 Year-end 1999 Year-end 2000 Year-end (Projected) Japan
EU
United States
Sources: 1997-2000 – Internet White Paper 2000 1996 (Japan) Access Media International 1996 (Other nations) NUA
The United States and Europe accumulated private sector experience through leadership by the private sector when information technology was in the formative stage (Phase 1) and rapidly shifted to rule-making (Phase 2) in the late 90s to shed the impediments of the old rules. Japan also must rapidly shift to Phase 2.
10
Draft Recommendations (Rule-Making Reform to Overcome the Constraints
and Disadvantages of the Old Rules)
Rule-Making Principles
1. Neutrality
- Based on the premise of an age of coexistence of transactions in real space and transactions in cyberspace, it is necessary to provide essentially the same type of legal environment for both real space and cyberspace.
2. Facilitate Competition
- It is important to eliminate the obstacles of monopolistic behavior while maintaining competition in processes to ensure a productive cycle of innovation in markets and maintain market vitality. 3. Procedural Rules
- The speed and broad applicability of information technology hamper the creation of well-defined rules at the outset. Thus, it is important to use accumulated experience to build mechanisms for resolving
disputes and promptly reflect that experience in rules.
Overall Rule -Making Reform Package
1. Rule-making for Establishing All Players’ Confidence in e-Commerce and IT Utilization
- Reform of civil codes, intellectual property rules, consumer protection rules, and security rules 2. Eliminate Impediments to e-Commerce and IT Utilization and Facilitate Competition in
e-Commerce-related Market
- Regulatory reform and strengthened enforcement of competition rules
3. Procedural Rules which Ensure Market Rules Responsive to Dynamic Changes in IT Era
- Introduction of no-action letter system (see note) and improvement of dispute resolution mechanism
Note: The procedural rule which requires government agencies answer to inquiries received from citizens regarding the interpretation of laws and regulations and to make their answers public.
• Establishment of rights that allow defendants to demand that intermediaries delete erroneous information (institution of rights prohibiting erroneous entries)
• Clarification of procedures for deletion of erroneous information used by intermediaries (erroneous information deletion procedures) • Clarification of procedures for disclosure of plaintiff information to defendants by intermediaries (disclosure of plaintiff information) • Limitation of defendant’s claims regarding intermediaries’ uniform damages
• Clarification of measures that intermediaries must take with respect to spam mail (unsolicited commercial electronic mail that consumers do not ware to receive)
Detailed Recommendations (No. 1)
1. Rule-Making for Establishing All Players’ Confidence in e-Commerce and IT Utilization (1) Reform of civil code
1) Electronic contracts → Formulation of legal rules is necessary
• Shift from transmission of refusal notices to positive indication for electronic contract effectuation (contract effectuation period)
• Clarification of requirements for invalidation of contacts for errors in electronic intent indication caused by clicking mistakes and similar errors (errors and omissions)
• Clarification of the range of invalidation of electronic contracts for impersonation (representation agency)
2) Intermediaries’ liabilities → Formulation of legal rules is necessary Victim Manage Servers and SitesIntermediaries
Illegal Information
Offender
3) Contractual laws for digital goods → Formulation of legal rules is necessary
• Clarification of the effectuation period for terms of use agreements for information products
• Ability of licensees to oppose the transfer of their licenses to third parties when intellectual property rights are transferred (bankruptcy)
• Collateral for return of information products that is difficult to confirm (existence of some contract conditions, requirements for approval of technical collateral measures)
• Clarification of compensation responsibilities for defective information products (program bugs)
4) Jurisdiction and Applicable laws
→ Formulation of international rules is necessary, as well as active participation in the deliberations of the International Private Law Conference in the Hague
Detailed Recommendations (No. 2)
1. Rule-Making for Establishing All Players’ Confidence in e-Commerce and IT Utilization (Continued) (2) Reform of intellectual property protection rules
1) Maintenance of trading order in cyberspace
a) Domain names – Regulation of unfair acquisition and use of identical or similar trademarks of other persons
→ Formulation of legal rules is necessary
b) Internet identification badges – Response to cases of trademarks improperly used as Internet identification badges
→ Consideration after study of dispute conditions
c) Response to cases in which trademark owners of other nations assest damages when trademarks are used on the Internet
→ The formulation of international rules is necessary, as well as active participation in the deliberations of the World Intellectual Property Organization (WIPO)
2) Ensure incentives for investments
a) Legal protection of databases
→ Further research of damage conditions and consideration of international trends
b) Removal of apprehension concerning the range of protection of patents related to business methods
→ Implement database with bibliography with previously published titles while maintaining international cooperation
→ Clarification of judging standards is urgently required
3) Ensure proper use
a) Response to cases asserting damages due to transmission of patented computed programs over networks
→ Clarification of the range of patents of computed programs
b) Response to myriad cases asserting that the provision for private duplication rights has damaged the interests of copyright owners in cyberspace
Detailed Recommendations (No. 3)
1. Rule-Making for Establishing All Players’ Confidence in e-Commerce and IT Utilization (Continued)
(3) Formulation of rules to ensure credibility with consumers
1) Consumer protection →Legal response is urgently required
a) Delivery of information before contract is effected (Net advertising policy to be displayed on sites to provide
information concerning price, effective period, name of business operator, contact point for questions, and other matters to consumers)
b) Prevention of mistaken applications due to operational errors of consumers (mandatory establishment of confirmation screens and other safeguards)
c) Prevention of improper advertising and solicitations (multiple commercial codes on the Net, internal and monitoring commercial codes, spam mail)
d) Mandatory digitalization of document transfers
2) Personal data protection →Legal response is urgently required
(4) Security → Further examination of whether the current criminal code is fully fit to deal with criminal activities in cyberspace
Detailed Recommendations (No. 4)
2. Elimination of Impediments to e-Commerce and IT Utilization and Facilitate Competition in e-Commerce related Market
(1) Regulatory reform
1) Recognition of electronic means →Recognition is urgently required
a) Mandatory paper document requirement
• Applications, filings, and other procedures of government agencies • Mandatory document transfers in private sector transactions
b) Mandatory face-to-face conducting requirement
c) Mandatory physical establishment requirement and mandatory person designation requirement
2) Revamping of range of regulation
→ Rather than pro forma expansion of regulation, consideration of the necessity of expansion of regulation to activities in cyberspace and original intent of regulation
3) Revamping of other socioeconomic systems (labor law, educational system, corporate law, tax system, and other systems)
Detailed Recommendations (No. 5)
2. Eliminate Impediments to e-Commerce and IT Utilization
and Facilitate Competition in e-Commerce related Market (Continuation) (2) Strengthened enforcement of competition rules
1) Response to cases in which misappropriation of intellectual property rights functioned in an anti-competitive manner
a) Prevention of misappropriation of superior position due to relaxation of participation regulations for copyright controls and copyright owners (representative examples)
→ Immediate reform is necessary. Consider measures under copyright control legislation and guidelines to the Anti-monopoly Law.
b) Response to cases in which intellectual property rights were used in an anti-competitive manner
→ Active consideration of clarification of the enforcement standards of the Anti-monopoly Law (revamping of Anti-monopoly Law guidelines concerning patents and know-how licensing contracts)
2) Response to cases in which technologies and standards not limited to intellectual property rights functioned in an anti-competitive manner
→ Active consideration of the possibility of application to general hardware facilities of the essential facilities argument and “softer” fields such as intellectual property rights, technologies, and standards → Active consideration of clarification of the enforcement standards of the Anti-monopoly Law in
cyberspace (revamping of Anti-monopoly Law guidelines concerning joint research and development) 3) Other (response to cases concerning misappropriation of superior trading position
a) Determination of the adequacy of dealings related to the production of software and digital content
→ National consideration of measures to ensure the effectiveness of Anti-monopoly Law guidelines concerning stock transactions of company officers
Detailed Recommendations (No. 6)
3. Procedural Rules which Ensure Market Rules Responsive to Dynamic Changes in IT era
1) Introduction of no-action letter system (see note) → Should be implemented immediately
Note: Procedural rule which requires government agencies to answer to inquiries received from citizens regarding interpretation of laws and regulations and to make their answers public.
