KDD (Japan's Global Communications) filed the attached opinion with the Ministry of Posts and Telecommunications on NTT's request for the Ministry's approval on establishing a special type 2 telecommunications subsidiary that will provide international telecommunications services.

KDD submitted the document in response to the Ministry's acceptance of opinions for reference in its review of NTT's request.

KDD's basic assertion is that NTT's establishment of the international special type 2 telecommunications subsidiary ("new company") must not hinder fair and effective competition in the international telecommunications market. To this end, KDD suggested that appropriate measures be taken to:

(1) Separate the new company in every respect including personnel, accounting, and marketing from the parent company NTT which monopolizes the local telecommunications network in Japan,

(2) Ensure that absolutely no preferential treatment is given to the new company over other long-distance and international carriers,

and that these measures be strictly enforced, and their compliance be monitored.

Specially, KDD requested measures to ensure the fair handling of customer data maintained by NTT in the new company's marketing activities and one that would prohibit joint sales activities between the new company and NTT or NTT's overseas subsidiary. KDD also requested a measure to prevent NTT from handling customer inquiries, administrative processes, or billing services on behalf of the new company.

KDD also requested the Ministry, as the administrative actions to monitor compliance with the measures, ensure the transparency of the measures, and clarify the ministry's mechanism to handle complaints and inquiries on the new company from other carriers.

- Opinion on NTT's Request for Approval on

International Telecommunications Services -

June 25, 1997

KDD

1. Basic View

KDD desires appropriate measures to be taken to ensure that NTT's equity participation in an international special type 2 telecommunications carrier, for which NTT requested approval on June 24, does not hinder fair competition in the international telecommunications market in light of the report submitted by the Telecommunications Council in February last year saying that "Structural measures must be taken before NTT expands into international telecommunications" and the supplementary resolution by the House of Councilors on the revised bill pointing out that "If NTT expands into international telecommunications before it is restructured, sufficient attention must be paid to ensure fair competition."

More specifically, KDD thinks it is necessary for the new company (KDD's understanding is that, according to the revised NTT law, no other existing NTT subsidiary is permitted to expand into international telecommunications before restructuring) to be truly separated in all aspects from the parent company NTT which monopolizes the local telecommunications network in Japan so the new company is given no preferential treatment whatsoever over other long-distance and international telecommunications carriers. To this end, KDD thinks it is necessary for the Ministry to take appropriate measures to ensure the terms of connection on an equal footing between the new company and other carriers, clear-cut separation of accounting, personnel, and marketing activities of the new company from those of NTT, and the fair procurement of international and domestic circuits by the new company, and also for the Ministry to strictly enforce and monitor these measures.

2. Specific measures

Based on the view described above, the "measures to ensure fair competition" that NTT presented in its request for approval should be taken for granted. In addition, KDD suggests that appropriate steps need to be taken to positively ensure the following matters concerning the business of NTT, NTT group companies, and the new company.

(1) Personnel

- An individual must not hold two concurrent directorship positions at NTT and the new company and there must be no exchange of personnel between the two companies.

(2) Accounting

- To prevent internal subsidization between NTT and the new company, their accounts must be kept completely separate and the accounting information of the new company must be periodically disclosed.

(3) Marketing

- The new company must be given no preferential access whatsoever over other carriers to the subscriber data maintained by NTT. Any subscriber data that is undisclosed to other telecommunications carriers (e.g., traffic volume by customer, service subscription status, attribute information on subscribers including address, etc.) or any other inside information that would give the new company an unfair advantage must not be disclosed to the new company.

- NTT or NTT's overseas subsidiaries and the new company must not engage in joint marketing activities (e.g., preferential customer referrals to or agency for the new company, advertising for the new company's services, or representation or agency service of the new company's marketing or sales activities).

- NTT must not serve as an intermediary for inquiries, error reports, etc., from users concerning the services provided by the new company. In the same token, the new company must not outsource such tasks to NTT.

- The new company must issue invoices separately from NTT's invoices and the new company's invoices must not be enclosed with NTT's invoices. In addition, the new company must not outsource billing service to NTT.

(4) Terms of Connection

- Connection protocol must be strictly applied to ensure that the new company and other telecommunications carriers are given circuit connections and collocations under exactly the same terms.

(5) Circuit Purchasing

- Information on international and domestic circuit procurement (e.g., selection criteria) should be disclosed to prevent a particular international telecommunications carrier being preferentially treated at the discretion of the parent company NTT in the procurement of international circuits and to ensure that the new company procures domestic circuits from NTT under the exact same terms, such as the amount of fee, as the other carriers.

(6) Material Procurement and Financing

- NTT and the new company must not jointly procure materials (to prevent NTT from unfairly exercising its enormous buying power to lure users).

- The new company must disclose information on procurement from NTT group companies to ensure that its business dealings with the group companies are done under the exact same terms as those between other carriers and the NTT group companies.

- NTT or NTT group companies must not extend credit to the new company at preferential interest rates.

(7) Miscellaneous

- If the new company wishes to use NTT's facilities such as its office space, it must do so under the exact same terms as those that would be extended to other carriers.

- Such NTT group companies as NTT Data, NTT International, NTT DoCoMo, and NTT Personal must also give the new company no preferential treatment over other carriers.

- NTT must create a mechanism for the disclosure of information to give all carriers equal access to and the use of NTT's research and development results.

3. Execution

KDD requests the Ministry to execute the administrative actions as follows:

(1) Constantly monitor through appropriate means compliance with the measures.

(2) Ensure the transparency of the measures to the outside.

(3) Clarify the ministry's mechanism to handle grievances and inquiries from other carriers.

(4) Clarify in advance the actions that the Ministry will take in the event the measures are not complied with the rules.

The new company claims that it plans to offer high-performance leased circuit, frame relay, high-quality IP service, etc. Should the new company decide to add basic voice service to its product line, KDD desires to have another opportunity to express its opinion.