Japan and the US have reached agreement on the issue of Motorola Inc’s access to the Japanese cellular market. The deal follows an extraordinary decision by the US government to intervene on behalf of a private company, Motorola. Signed 10 days ago by Motorola and Nippon Idou Tsushin Corp, it gives the former the access […]
Japan and the US have reached agreement on the issue of Motorola Inc’s access to the Japanese cellular market. The deal follows an extraordinary decision by the US government to intervene on behalf of a private company, Motorola. Signed 10 days ago by Motorola and Nippon Idou Tsushin Corp, it gives the former the access to Japanese markets that it has been demanding. The deal comes just ahead of a deregulation of sales of cellular handsets in Japan, which comes into effect on April 1, and will allow consumers to buy cellular handsets instead of having to rent them. Under the new agreement, Nippon Idou will build 159 new base stations for the Motorola system by late 1995 – 18 months earlier than it had originally planned – to give the US company a total of 169 base stations in the heavily populated Tokyo-Nagoya corridor. It has also increased Motorola’s allocation of bandwidth from 5MHz to 6.5MHz, by transferring 1.5MHz from Motorola’s rival, state-controlled Nippon Telegraph & Telephone Corp. Both sides have declared themselves happy with the deal.
Even Nippon Idou has put a brave face on matters, despite the fact that the deal could put it into serious financial trouble the company is capitalised at $108m, and is currently labouring under short- and long-term borrowings of $2,900m. The Ministry says it estimates the cost of the changes at around $580m. Until Japan’s Telecommunications Act of 1985, Nippon Telegraph held a monopoly on all cellular service. The Act called for a new service provider to be licensed in competition with the state giant. Two companies applied, Daini Denden International Ltd and Nippon Idou, and both were awarded licences. But rather than dividing the licences by spectrum, as is common practice, the Ministry of Posts & Telecommunications chose to split them geographically. Daini Denden got the licence for Western and Northern Japan, while Nippon Idou scooped the more lucrative corridor from Tokyo to Nagoya. After a competitive tender, Daini Denden chose to install the Motorola-based TACS system; Nippon Idou went for the NTT-developed HI-CAP system. Four years later, Motorola discovered that there was still radio spectrum available and asked the Ministry if it could use it for a TACS system. The Ministry refused; the US threatened sanctions. In the end, an agreement was signed between the two countries under which 5MHz of spectrum would be allocated for a TACS system in the Tokyo-Nagoya megalopolis, the most densely populated area in the country. The Ministry insisted that this system should be operated by Nippon Idou, and the company was forced to start installing Motorola equipment and infrastructure alongside its existing NTT system. This currently gives Motorola access to around half the Japanese population. The essence of Motorola’s complaint was that the TACS system installed by Nippon Idou failed to cover the Tokyo-Nagoya corridor fully. The company claims that the reason it sold only 12,000 phones in the Tokyo-Nagoya corridor – compared with NTT’s 310,000 – was because of this lack of coverage, rather than because the company had failed in open competition. Effectively, Motorola and the US were demanding that the company should be provided with an infrastructure – paid for largely by Nippon Idou shareholders – that would give it the same coverage as NTT enjoyed after 15 years in the market.
By Emma Woollacott
Considering that some 50% of the Japanese population is covered by Motorola’s system – while exactly 0% of the US population is covered by NTT’s – it might seem a little odd, to say the least, that it’s the US rather than Japan that’s crying protectionism. But with the danger of an all-out trade war, Japan clearly felt it had little choice but to accede. Of course, Motorola and the US Government claim that it’s not that simple, and that the US market is more open than the Japanese. A Motorola spokesman complained: There has been a series of restrictions in Japan that has had the effect of damping demand. In the US, it’s been a marketplace decision. He denied that
the US market was closed to the Japanese: They do have the opportunity – the operating companies [in the US] have had the opportunity to use NTT’s system, but they didn’t choose it, he said. He added: It’s very important to understand that the NTT technology has not been accepted anywhere outside Japan. In other words, because the company’s system is popular elsewhere, any lack of demand in Japan simply must be due to market-rigging. In a letter to the Wall Street Journal, the company’s vice-president and director of corporate communications, Albert Brashear, pointed out that Motorola had won only around 1% of the market in the disputed area. He went on, plaintively: Our experience throughout the rest of the world shows that Nippon Idou should have been able to build a profitable business with as many as 450,000 cellular customers of it had fulfilled the promise to fully use the 5MHz of spectrum allocated for this purpose, as promised in the 1989 US-Japan cellular accord. This is the main plank of the US argument – that the Japanese have repeatedly made promises that have not been kept.
When in 1989 the Ministry promised to set aside the 5MHz for the TACS system, it also promised comparable market access for the successful supplier, and this is where Motorola believes it has been let down. But many observers reckon that this situation, even if unfair on Motorola, is not a suitable issue for US government involvement. And Iain Gillott, a research manager with analyst International Data Corp, reckons this involvement has less to do with the merits of the case than it has with the wider political aims of the Clinton administration. An interesting thing is that they did target the cellular business – there’s a lot of other things they could have hit on, for example cars. It’s as much political as it is commercial, he said. Al Gore and Bill Clinton have put a lot of focus on the information superhighway, and on technology generally. It’s something that’s high profile, and all this makes them look like an administration that’s on the leading edge of technology. Clinton was quick to take advantage of the agreement, discussing it in his weekly radio address to the country. In fact, some observers have suggested that the pressure over cellular represents a shot across Japan’s bows, in consideration of Japan’s huge trade surplus and in anticipation of a bigger trade dispute over cars and auto parts. Both governments, though, have been at pains to deny this. However, when the agreement was announced, the US Ambassador to Japan, former Democratic Presidential nominee Walter Mondale, said it demonstrates that the US and Japan can work together to achieve real market access in Japan. He added: We end 10 years of frustration. But Japan is now expected to put together a package of market-opening measures by the end of the month, and any failure to do so could spark a row that makes the disagreements over the cellular market look puny. The US Trade Representative, Micky Kantor, warns that the deal demonstrates this Administration’s resolve to change the status quo with respect to the US-Japan bilateral economic agreement.