Case Study (Japan) ~Abuse of Dominance~

1. OECD-Korea RCC, Regional Antitrust Workshop On Competition Cases Case Study (Japan)~Abuse of Dominance~ June 29, 2007 Ryoichi Inoshita* Investigation Bureau, Japan Fair Trade Commission (JFTC) *The views expressed here are those of the speaker, not those of the JFTC.

2. Outline of this presentation • 1. Overview of the case • 2. What is FTTH service? • 3. Companies Concerned • 4. NTT’s position • 5. Exclusionary conduct • 6. Application of the Law

3. 1. Overview of the case NTT East (dominant firm) Other companies TEPCO Market (FTTH service for detached houses in the Eastern area of Japan)

4. 2. What is FTTH service? ・ “Fiber To The Home” service: broadband Internet access service with optical fiber. ・ FTTH enables us to download movies etc.

5. 3. Companies Concerned (1) NTT East ・ A big telecommunications company providing telephone services, internet connection services etc. in the Eastern area of Japan. ・ It owns a large optical fiber network. ・ Users need to pay an Internet service provider as well as NTT for connecting the Internet.

6. 3. Companies Concerned (2) TEPCO ・ The Tokyo Electric Power Company ・ A big power company providing electricity, FTTH service, etc in part of the Eastern area of Japan. ・ It owned much smaller optical fiber network. ・ Users need to pay an Internet service provider as well as TEPCO for connecting the Internet.

7. 3. Companies Concerned (3) Other companies ・ Unable to start a FTTH service without lending NTT’s optical fiber network and paying NTT interconnection charge etc. because of very high cost and very long time to lay optical fiber network by themselves. ・ Telecommunications Business Law requires that companies owning such networks have to lend their networks if asked to. ・ Users need to pay an Internet service provider as well as the telecoms company for connecting the Internet.

8. 4. NTT’s position (1) Market Shares etc. ・ There were three companies in the market; NTT, TEPCO, and the other one. ・ NTT’s network covered 75~80% of the area. ・ NTT held more than 70% of all the optical fiber networks in the area. ・ NTT held 85~90% of all the FTTH users in the area. ・ TEPCO’s network covered much smaller area and was inconvenient to interconnect for others.

9. 4. NTT’s position (2) Dominance Therefore, • NTT’s network was an essential facility for companies trying to enter the market. • NTT’s user fee, interconnection charge and the kind of service had a strong influence on the market.

10. 5. Exclusionary conduct (1) the Entry of TEPCO • In 2001, NTT planned to provide 100Mbps FTTH service for less than 6000JPY partly because TEPCO was expected to start FTTH service for 6000 JPY from 2002. • NTT had already provided 100Mbps FTTH service for 9000JPY with “direct cable connection system” (a facility set where one optical subscriber cable is occupied by one user.), and the interconnection charge of this service was more than 5000JPY.

11. 5. Exclusionary conduct (2) NTT’s reaction to the entry • If NTT cut the price from 9000JPY to less than 6000JPY, they had to reduce the interconnection charge as well in order to secure fair competition. • Instead of cutting the price, NTT introduced a new service with “split system” (a facility set where one optical fiber of 100Mbps was split into maximum 32 users.) for 5800JPY, but the actual facility set was “direct cable connection system”, because there was not enough demand to introduce “split system”.

12. Exclusionary conduct(3) difficulties for others to enter Therefore, • Other companies could not start a FTTH service with “direct cable connection system” because they had to pay NTT around 6300JPY as the interconnection charge etc. • Other companies could not start a FTTH service with “split system” as well because there was not enough demand, just as NTT did not adopt “split system”.

13. 5. Exclusionary conduct(4) additional price reduction • In 2003, NTT cut the price of the new service from 5800 to 4500JPY by changing the nominal facility set, partly because TEPCO was expected to reduce its price from 6000 to 4500JPY. • Therefore, it got even more difficult for others to start a FTTH service. • As a result, almost no company entered the market until NTT changed the interconnection charge etc. after the recommendations issued by the JFTC.

14. 6. Application of the Law(1) provisions applicable to this case • Article 2(5) of the Antimonopoly act says that a term “private monopolization” used in this act means such business activities, by which any entrepreneur,individually or by combination or conspiracy with other entrepreneurs, or by any other manner, excludes or controls the business activities of other entrepreneurs, thereby causing, contrary to the public interest, a substantial restraintof competition in any particular field of trade. • Article 3 bans this “private monopolization”.

15. Application of the Law(2) “substantial restraint of competition” ・ “substantial restraint of competition” means “competition in a market has been reduced and an entrepreneur or a group of entrepreneurs can dominate the market by freely controlling its price, quality, quantity, and so on.” according to the settled case law.

16. End • Questions: Ryoichi_Inoshita@jftc.go.jp • Antimonopoly Act: http://www.cas.go.jp/jp/seisaku/hourei/data/pmm.pdf