Competition and Regulation in Telecommunications: Japan's Reform Experience Since 1985

Abstract

Using Joskow's framework of regulatory reforms in network infrastructure industries with economies of vertical integration between natural monopoly segments and potentially competitive segments, we examine Japan's experience of telecommunications reform since 1985. Its background and contents is explained, and the post-1985 regime and industry performance is examined. The implementation of Japan's reform does not fall within Joskow's polar cases of the big bang approach, where all steps are taken at one stroke, and the piecemeal approach, which allows transition period during which the industrial organization and regulations evolve according to a preplanned program. Japan's experience is rather the unstructured gradualist approach, where the initial model is monitored and reoriented in view of the spontaneous evolution through competition in the liberalized segments. This approach presupposes the intangible infrastructure reform of regulatory framework and decision-making mechanism. Japan's rocky reform experienee is partly due to the lack of such an intangible infrastructure reform.