NTT policies blunt foreign procurement
While foreign purchases by Nippon Telegraph & Telephone Corp., or NTT, are increasing annually, foreign suppliers still complain of difficulty in gaining entry to Japan`s telecommunications market. Their relative share remains at about 5% of Japan`s total market procurement. Procurement of foreign telecommunications equipment, including optical fiber, by NTT reached $1.35 billion in fiscal year 1994 (ended March 31, 1995)--an increase of $258 million over the previous fiscal year.
Major products that NTT bought from suppliers outside Japan last year include telecommunications network equipment and related systems, such as digital switching systems; digital transmission equipment; optical-fiber cables; satellite communications equipment; asynchronous transfer mode links; and local area networks, including routers, bridges and network management systems, operation systems, and information processing systems.
During the next 20 years, purchases of fiber-optic cables by NTT are expected to increase steadily in order to build the nation`s fiber infrastructure. According to industry analysts, the Japanese market is a strategic one for fiber optics companies worldwide.
For fiber-optic equipment coming into Japan, NTT, a government-controlled monopoly, controls about 80% of that market and controls the same share of the domestic market. The new Japanese common carriers, which are NTT`s competitors in the long- distance market, have for the most part installed their fiber networks and offer just a small market for foreign suppliers.
New Japanese cable-TV companies, on the other hand, are importing most of their equipment directly from U.S. suppliers, and, wherever possible, start-up cable-TV companies are expected to deploy fiber-optic cables. The cable industry, however, is still small, with just 3.5% coverage in urban areas. Although the cable-TV industry has the potential for high growth, favorable interconnection rates to NTT`s network, which are vital to growth, have yet to be negotiated. However, NTT states that the deployment of fiber-optic cable in residential areas will be driven by demand for cable TV.
In this process, NTT sees its role: Yutaka Wakui, executive manager of NTT`s Access Network Systems Laboratories, says, "In residential areas we could position ourselves to respond to service demands on a monthly or weekly basis by extending fiber to the feeder distribution point--essentially a gateway to a fixed distribution area."
NTT began introducing fiber-optic cable into the trunk network in 1981. In 1985, it deployed a transmission system that spanned the country with singlemode fiber. In 1990, NTT rolled out a transmission system capable of 2.4-gigabit-per-second throughput. Today, about 50,000 kilometers of fiber have been placed into the trunk network. By the end of 1997, NTT plans to have fiber deployed in all the trunks.
The company is then expected to install fiber in the local loop in areas where little has been installed. Nevertheless, it plans to install fiber to the zone nationwide by 2010, according to the Ministry of Posts and Telecommunications` estimate, or by 2015, according to NTT`s estimate. In short, the potential market for sales of fiber-optic cable and equipment to NTT appears huge.
To accelerate deployment of the optical-access network, NTT is trying to drive down costs of the fiber-delivery system. Specifically, the company is concentrating on reducing the costs of optical-transmission equipment and optical-fiber cable systems. The company is targeting cost parity with conventional copper access systems within the next decade.
Three-track procurement system
In this regard, NTT`s three-track procurement policies become increasingly important. Track I focuses on procurement of non-telecommunications products; Track II deals with first-time procurement of telecommunications products that can be used without modifications or with partial modifications; and Track III applies to first-time procurement of telecommunications products under development.
The company has proclaimed that its procurement policies are "open, fair and non-discriminatory." To seek foreign products, NTT conducts seminars worldwide. In late 1994, to counter criticism that its evaluation is not transparent, the company made some changes. For example, a "request for comments" for each Track III procurement was issued, inviting suppliers to submit materials, including draft specifications; pre-tender conferences were held for each Track III procurement to exchange views with suppliers regarding the prospects for commercialization of products and assessments of market potential; international standards, established international standards, national technical regulations and recognized national standards are being considered; and the relative importance of evaluation criteria has been clarified.
Despite these improvements, criticisms remain that some of NTT`s critical evaluations remain nonquantifiable and are based on "contributions," which include the procuring company`s position in the marketplace and the technological research the procuring company has done for NTT over the years. For fiber-related supply, it is difficult to gain NTT work without being qualified for Track III procurement.
Qualified companies involved in the development cycle can help formulate product specifications. A company in Track III, for example, can receive the specifications three years before its competitors. In a new development and procurement round, NTT recently published a "request-for-comments" document on the supply of singlemode optical-fiber water-blocking cables to be used in feeder and distribution sections installed in underground conduits. The company plans to buy about 7200 km per year of fiber-optic cables, starting in July 1996.
Not surprisingly, domestic fiber suppliers who have been working with NTT since the start of fiber installation in Japan in 1981 hold an advantage over would-be foreign suppliers. Unless foreign suppliers of fiber can increase their share rapidly, the market will be dominated by major domestic suppliers, including Sumitomo Electric Industries Corp., Furukawa Electric Co., Fujikura Corp., Hitachi Cable Corp., and Asahi Glass Corp.
Meanwhile, to promote the development of fiber-optic networks in a new telecommunications framework, a study group set up by the Ministry of Posts and Telecommunications has suggested ways to counter "bottleneck" monopolies that prevent full competition. The unnamed monopoly is, of course, NTT, and the results of this study could affect the company`s procurement policies.
The Ministry offers two proposals: Dissolve the monopoly, or target dissolution over the long term. The latter would be accomplished by introducing local competition policies and preventing a "bottleneck monopoly" from abusing its power, by administrative guidance from the Ministry.
These proposals are being deliberated by the Telecommunications Council. The Ministry is expected to make a decision by the end of March, and a bill will be submitted to the government`s ruling body, the Diet. q
Paul Mortensen writes from Tokyo.