Japan Agrees to Cut NTT Connection Fees

TOKYO — In a deal that could spur Internet use and provide more opportunities for U.S. players in Japan’s $130-billion telecommunications market, Tokyo agreed early today to lower the fees that competitors must pay to connect to Japanese homes and offices.

The 20% fee reduction over two years was less than Washington wanted but more than Tokyo hoped to relinquish. As such, both sides appeared to blink.

“This is absolutely a positive,” said Luigi Limentani, Internet analyst with Nikko Salomon Smith Barney. “Any step that lowers fees in Japan is only good news for everyone at every level of information technology.”

Except, perhaps, for Nippon Telegraph & Telephone. The dominant Japanese carrier, 53%-owned by the Japanese government, has used these high fees to tighten its grip over the so-called last mile of network and to stifle domestic and foreign competitors. U.S. Trade Representative Charlene Barshefsky said the deal, which also includes a 50% cut in regional access charges, will save NTT rivals more than $2 billion annually.

The immediate beneficiary will probably be Japanese consumers. “Since I started using e-mail and the Internet, my phone bill has doubled to around $110 a month,” said Junichi Nakanowatari, 35, a travel writer. “It would be great if phone bills became cheaper.”

Other likely winners include U.S. companies trying to tap the lucrative Japanese business markets of Tokyo and Osaka, including AT&T; Corp. and WorldCom Inc. The deal would make it easier and cheaper for NTT’s competitors to get construction permits and build new networks required, for example, to tap high-volume corporate users.

Online portals such as Yahoo Inc. also gain as Japan’s relatively inexperienced Internet users expand their Web surfing and diversify into online stock trading companies, e-businesses and auction sites.

That said, the concessions are not huge. For all its intransigence, NTT saw the kanji on the wall and was bracing for a 5% annual reduction anyway, so 10% is not a great deal more. Furthermore, Japan’s starting point is rates that are over four times U.S. and British levels. “This is still going to keep connection charges high by international standards,” said Ron Bevacqua, senior economist with Commerz Securities Japan.

Moreover, as the rates decline, usage is expected to rise, thereby partly compensating NTT. Atsuo Takahashi, an analyst with ABN Amro, estimated that the behemoth will see its cash flow reduced by just $1.9 billion on a growing group base of $28.6 billion.

In the Japanese political context, meanwhile, the powerful and well-connected NTT can expect future favors in return for its willingness to succumb to gaiatsu, or foreign pressure. “They’ve given in with this access issue, so now it’s payback time,” said Yasuma Goda, analyst with Merrill Lynch Japan. “They can expect some sort of lollipop.”

One piece of candy might be an amendment to the NTT Law, enacted a year ago after a messy, protracted political compromise. NTT wants to make sure it won’t have to provide low-cost, uniform data service to Japan’s many islands and remote areas--a break with its current obligation to offer “universal” voice service.

The giant, which so far has avoided an ATT-style breakup, also hopes to push the envelope further by freeing its subsidiaries from government restrictions and expanding their ability to raise capital.

Although Japanese competitors welcome the deal, they remain wary of NTT’s market power and ability to influence the rules and policy debate. “What new carriers all want is for NTT to disclose information properly,” said Haruhiko Maede, an assistant manager at KDD Corp. “We can’t tell what’s really going on.”

Even as NTT drags its heels, however, the global telecom market is moving at fiber-optic speed around the cash-rich giant. Providers of hand-held device, cellular phone, video game, ADSL, cable television and wireless networks are circling, looking for cracks in NTT’s walls.

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Researcher Hisako Ueno in The Times’ Tokyo bureau contributed to this report.