View from Tokyo: Movable object meets an irresistible force

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Mickey Kantor, the US Trade Representative, found himself staring out from all the Japanese newspapers last week. He was pictured holding up a Motorola mobile phone at a press conference as if he were a missionary brandishing a crucifix in front of hostile savages.

The conference was held by Mr Kantor to announce that the US government was considering sanctions on Japanese telecommunications products because it had found that Motorola, the US mobile phone company, was being shut out of a key sector of the Japanese market.

Despite po-faced US denials, the Japanese press immediately interpreted this as the first shot in a US- Japan trade war, after the summit between President Bill Clinton and Prime Minister Morhiro Hosokawa a week before had failed to produce agreement on ways to reduce Japan's trade surplus.

What hurt most was that this time the US had chosen its test case carefully. Two years ago President George Bush had tried to force open the Japanese market for US car makers, which had not even bothered at that point to build cars with a right-hand drive. Motorola, by contrast, has been working hard to expand in Japan for the past 10 years. In addition, Tokyo and Washington had reached a special agreement in 1989 to allow Motorola access to Japan's highly regulated mobile phone market.

To clinch the latest case, the company produced damning data showing how it has been shut out of the most lucrative part of Japan - a corridor from Tokyo to Nagoya with 60 million people - and how its Japanese 'partner' firm had been refusing to push Motorola products.

In sum, the US case that Motorola is suffering unfair discrimination is probably valid. But the reasons for the company's predicament are instructive, and far more complex than anti-Japanese conspiracy theorists maintain. The mobile phone mess reveals the byzantine regulatory structures administered by the Japanese bureaucracy, the difficulties the government has even in its most modest attempts to take on the bureaucrats, and the invisible but almost sacrosanct relationships existing between Japanese companies that shut out foreign competitors.

Japan has fewer mobile phone users than any other developed country. Until 1987, the mammoth Nippon Telegraph and Telephone (NTT) had a monopoly on all telecommunications services, and therefore little interest in developing mobile phones - in that year there were only 97,000 mobiles in the whole country. Then the Ministry of Posts and Telecommunications announced a partial liberalisation, under which a rival to NTT would be licensed in each of nine regions.

For reasons best known to the ministry, the eight regions outside Tokyo-Nagoya were licensed to DDI, a company using the same TACS cellular format as Motorola. But the Tokyo-Nagoya region was licensed to IDO, which was instructed to use the HCMS format - the proprietary system developed by NTT and incompatible with that used by Motorola. Meanwhile, NTT was able to operate throughout the entire country.

Since 1988 mobile phone growth has been dramatic - there are now 1.8 million users out of a population of 123 million. And it is expected to grow even more rapidly from April when the ministry permits the private ownership of mobile phone handsets, which up to now have had to be leased at exorbitant cost. Line rental in Japan is four times the UK rate, calls are five times more expensive, and the joining fee is 10 times what UK subscribers pay.

To counter Motorola's complaints that it was missing out on all this potential, the ministry had originally argued there were not enough radio wavelengths available for both the NTT and Motorola formats.

When that was shown not to be the case, the US government took up the issue, finally reaching an agreement with Japan in 1989 under which IDO would also construct the TACS-format cellular system for Motorola.

But four years later, and on the eve of the opening of the cellular market to private handset ownership, Motorola has only 12,600 users, compared with the 310,000 people who use the NTT-compatible phones.

The reason is that IDO concentrated first on installing the NTT- compatible system, which now covers 94 per cent of the land area, and then continued to drag its feet on installing the Motorola system, which only works in 61 per cent of the Tokyo-Nagoya area.

On some occasions IDO even refused to accept delivery of component parts from Motorola to build up the US company's system.

From IDO's perspective, it had been put in an impossible position by the hastily drawn-up agreement between the US and Japanese governments in 1989 - which was itself the victim of bureaucratic restrictions.

Having been ordered to develop the NTT-compatible system, with all the corporate relationships and co-operation agreements that entailed, IDO was suddenly landed with a fresh directive from the government to install the Motorola system as well.

And no one criticised the real villains of the piece - the bureaucrats from the Ministry of Posts and Telecommunications who were apparently trying to rig the market so that NTT and Japanese electronic firms would be given enough breathing space to develop their own systems and hardware without competition from overseas.

So although it is demonstrably true that Motorola has been shut out of a key sector of the Japanese mobile phone market, the remedy is not so simple.

The government's last attempt to intervene failed; it cannot simply wave a wand and give Motorola a pre-ordained percentage of the market.

Meanwhile, the US company needs a substantial investment to increase the number of base stations that relay its cellular signals. At the moment it has only 110 in the Tokyo-Nagoya corridor, compared with 400 for the NTT-compatible system. These base stations cannot be wished into existence by political fiat.

In last-minute negotiations before Mr Kantor's inquisitorial press conference, Motorola had asked IDO to install 130 new relay stations in the next year, instead of in the next three years as IDO had planned.

Motorola argues that timing is crucial now that the market for private handset ownership is about to be opened. But IDO said it could not, or would not, set up the relay stations that soon.

And somewhere, way off stage, the stifled chuckles of a group of bureaucrats could just be heard.