Operators band together to protest L-mode - Company Business and Marketing

CommunicationsWeek International, April 16, 2001 by Michelle Donegan

Competitors are up in arms over NTT East and West's new multimedia phone, which bypasses regulations against them offering Internet services.

NTT's plan for a proprietary Internet-type service, described by some analysts as a fixed-line version of the i-mode mobile data service, has hit a brick wall of opposition from competitive operators in Japan.

In an unprecedented joint lobbying effort, 18 competitive operators have sent a letter of protest to the ministry of telecommunications urging the regulator to block the introduction of the L-mode service on the grounds that it is an anti-competitive service that would, in effect, circumvent existing regulatory restrictions on NTT East and NTT West that prevents them from providing long-distance and Internet services.

L-mode is a low-bandwidth (9.6 kilobits per second) data service that uses a proprietary HTML-like interface. Users will get a proprietary screen/phone device with email capability and telephony tied in. Initial services will include email, messaging and various content and e-commerce services such as weather and travel information, online trading and booking; but NTT plans to add voice services.

Some analysts say the proposed L-mode service is NTT's way of targeting a market that doesn't have a high penetration of home computers and home Internet usage remains low because of high local call rates. "L-mode is a combination of France's Minitel and AOL's walled garden, with a backdoor to the Internet," said Eric Paulak, Stockholm-based research director at Gartner Group. "It's a closed environment, but it has a gateway to the Internet for e-mail that in the long term can be fully opened for Internet access."

But operators are taking NTT's integrated network scheme more seriously, claiming it is an attempt to put a lock on the future consumer broadband access market.

"[This is] a completely proprietary Internet for Japan," said Mike McTighe, chief executive of global operations, Cable & Wireless plc, of London. "They are proposing a dedicated proprietary service... [that] cuts all the other players out...because we are all promoting open standard IP."

Ordering NIT to revise the plan, the Tokyo-based ministry has set a number of conditions that would dilute the proprietary nature of the network and open some of it to competitors.

New Jaws may facilitate L-mode

Under current Japanese telecommunications laws, NTT East and NIT West, the regional telecoms operators formed when NTT's domestic monopoly was dismantled, are prohibited from providing long-distance or international voice and Internet services. Competitive operators say L-mode would circumvent these laws.

"NTT is using its control over local access and household lines to leverage itself into content services," said Lisa Suits, vice president of public policy at Cable & Wireless IDC, based in Tokyo. "This is really a bolt out of the blue."

However, Japan is preparing two revisions to the Telecommunications Business Law that are about to be sent to the Diet, which will set the competitive landscape for the next three to five years, and which some competitive operators say could make it easier for NIT to deliver L-mode.

"This issue has become quite political," said Tony Cox, vice president of external relations at BT in Tokyo. "Depending on what these law revisions say, NIT may be able to offer this service in exchange for opening its network."

In addition, the ministry has recently decided that NIT DoCoMo should open its i-mode service to competitors two years ahead of schedule, which some analysts say indicates a regulatory leaning to open, competitive networks, even for mobile operators.

But competitors say they will continue to object to the vertical integration of NTT's service proposal. "Fixed Internet access isn't as popular here because of high local call rates," said BT's Cox. "More people access the Internet via mobile phones."

The proposed retail price for the L-mode service is about [yen]200 per month, "about the price of a Starbucks coffee," according to C&W's Suits. NTT is currently revising its L-mode service plan, but Suits said the revised proposal was not expected before summer or fall.