Path: utzoo!attcan!utgpu!jarvis.csri.toronto.edu!mailrus!uwm.edu!lll-winken!netsys!vector!telecom-gateway From: gast@cs.ucla.edu (David Gast) Newsgroups: comp.dcom.telecom Subject: Price Competition in Japan on International Calls Message-ID: Date: 4 Oct 89 05:25:24 GMT Sender: news@vector.Dallas.TX.US Lines: 75 Approved: telecom-request@vector.dallas.tx.us X-Submissions-To: telecom@eecs.nwu.edu X-Administrivia-To: telecom-request@vector.dallas.tx.us X-TELECOM-Digest: volume 9, issue 428, message 1 of 10 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