U.S. Comments on Japan's Telecommunications Draft Guidelines

July 1, 2005

Outline of Draft Guidelines Concerning the Establishment of Specified Base Stations Using 1.7 GHz or 2 GHz Band Spectrum

The Government of the United States appreciates the opportunity to submit the following comments on the draft guidelines issued by the Ministry of Internal Affairs and Communications (MIC) on technical conditions to be considered for services to be licensed in the 1.7 GHz and 2 GHz bands in Japan ("Draft Guidelines").

The United States welcomes MIC's decision to make more spectrum available for advanced wireless services, and commends its bold decision to put a priority on encouraging new entrants. However, the United States cautions that the Draft Guidelines, which limit the acceptable technologies to those already standardized by the ITU, may discourage potential new entrants who wish to deploy new and innovative technologies. As a result, MIC's Draft Guidelines could have the unintended effect of stifling competition.

In its analysis of competition in the mobile sector, published on April 26, 20051, MIC stated that the cellular market in Japan - over 92 percent of which is controlled by NTT DoCoMo, KDDI and Vodafone - is best described as an oligopoly. As the United States has noted previously in its recommendations to Japan made in October 2004 under the Regulatory Reform Initiative, this level of market concentration may have contributed to high prices and low network usage in Japan compared to more competitive markets in other countries.

Based on this finding by MIC, the United States supports MIC's intentions to establish licensing conditions in both bands that promote competition through the admission of new entrants into the market. In terms of technical conditions for licensing, the United States believes that allowing service suppliers the maximum choice of technology is a critical element of such a policy. Freedom to use innovative technology can be an effective competitive strategy for new entrants and can provide broad consumer benefits in terms of choice and price. Accordingly, in the interest of furthering competition, licensing conditions should not exclude such a strategy, and any technical conditions imposed on new entrants should be as technologically neutral as possible.

In previous discussions with U.S. officials relating to the 2 GHz band, MIC has suggested that only the ITU approved IMT-2000 standardized technologies be used in those spectrum bands identified by the ITU for IMT-2000 services. While the United States supports the standardization processes in the ITU and other global standards bodies, the U.S. suggests that Japan not limit itself to IMT-2000 technologies and instead adopt a more flexible approach to spectrum use and adopt a policy that provides suppliers of mobile wireless services the flexibility to choose the appropriate technology to implement their services. It is understandable that MIC, which does not use a neutral mechanism such as auctions to decide among competing applicants for scarce spectrum, would be tempted to reduce the number of potential applicants by reducing the technical scope of services, and thus also reduce its need to evaluate competing technologies. While bureaucratically expedient, MIC would be doing a disservice to consumers, service suppliers and equipment makers by adopting such a policy, and could run afoul of its international trade obligations.

Any licensing decisions based on MIC's preferred "beauty contest" approach run a heightened risk of being challenged as arbitrary and/or discriminatory. It is in MIC's interest to adhere strictly to the principle of technology neutrality (by not unduly promoting, mandating, or favoring specific technologies) in order to avoid being criticized for its technology decisions. This raises a dilemma: regulators cannot be expected to objectively evaluate technologies that do not have an established track record in terms of technical performance or market acceptance, and yet offering such technologies a chance to compete is the only way innovation will truly flourish.

In summary, the best way to promote competition and innovation and avoid potential complaints of regulatory arbitrariness and/or discrimination is to minimize technology as a licensing issue. The Government of the United States therefore asks MIC to revise the Draft Guidelines, focusing technical conditions of licenses on truly neutral factors such as prevention of interference and maximizing efficient use of the spectrum, rather than specific international standards.