gast@cs.ucla.edu (David Gast) (10/04/89)
On October 1, 1989, KDD (Kokusai Denshin Denwa-- International
Telegraph Telephone), the only organization that had been able to
carry international telephone and telegraph communication since the
end of WWII lost its monopoly. Two new firms entered the market:
International Telecom Japan, Inc. and International Digital
Communications.
KDD had revenue of $1.95 billion last year, but the new competitors
are undercutting its prices by more than 23%. The president of KDD is
quoted as saying "We've never faced any competition before, ... it is
quite a shock."
The new rates will make calls from Japan up to 20% cheaper than calls
from the U.S. using the dominant U.S. carrier, according to the NYT.
(At least one LDC, however, however, offers significantly cheaper
calls than the prominent U.S. carrier).
The new arrangement also shows major differences from U.S. practice.
In the first place, the new companies are not startups. International
Telecom's shareholders include Mitsubishi, Sumitomo, Mitsui, Marubeni,
the Bank of Tokyo, Matsushita Electric (Panasonic), Tokyo Electric
(the Commonwealth Edison of Tokyo). International Digital's
shareholders include C. Itoh (a trading company, but also the maker of
computer terminals, the trading company involved in the Toshiba
scandal of a few years ago, etc), Toyota, Cable and Wireless of
Britain and PacBell.
C&W had been previously been involved in a major dispute with respect
to the extent that it could participate. Pacific Telesis's
participation lends credence to John Higdon's contention expressed in
a previous article that PacBell is attempting to become the old Bell
System. This arrangement should also raise eyebrows among those who
believe that foreign investment in Japan is impossible. How many
Japanese companies do you know that own American telecommunication
industries? (Of course, this this arrangement may change).
The equity contribution by these major players indicates that the new
companies are not likely to fold soon.
The second difference is that Japan decided to avoid the expensive
advertising campaigns prevalent in the U.S. The new startups will not
have to spend millions advertising on T.V. to get consumers to sign up
as "dial 1 carriers." Every phone in Japan (although contrary to
published reports, I suspect that certain coin phones are excluded) is
automatically connected to the new phone companies. Consumers only
have to prefix their international calls with a unique three digit
code to get the international telephone company of their choice. KDD
used to require prior agreements to make direct dial calls, but
presumably the new phone companies do not. Note: Because KDD was
separate entity from NTT, Japanese consumers always had to dial a
three digit code to get KDD.
Even with monopoly status, rates for KDD's international phone calls
have declined drastically in recent years. 10 years ago a 3 minute
prime time call cost $15.00. Now KDD's prime rate is $6.35. (It is
unclear from published reports whether the reductions take into
account the dramatic fall in the dollar vis a vis the yen. If it does
not, the rate reduction from a Japanese perspective has been more
substantial).
The new companies will charge $3.00 to $4.85 for a three minute call,
substantially less than AT&T on calls from the U.S. to Japan or for
U.S.A. Direct calls from Japan. AT&T charges $3.78 to $6.02 for
direct dial calls from the U.S. to the Japan.
>From a technical standpoint the new companies are expected to offer
superior quality as these calls are more likely to go through fiber
optic cables across the Pacific instead of satellites. On the other
hand the new carriers will only be going to popular destinations like
the U.S.
David Gast
gast@cs.ucla.edu
{uunet,ucbvax,rutgers}!{ucla-cs,cs.ucla.edu}!gast