Trade issues in Telecommunications Business

January 10, 2011 Harry TakeichiExecutive Vice PresidentCommunications and Information network Association of Japan

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TRADITIONAL BUSINESS MODEL

Vertical Integration Model 　：

　

Operator A Operator B Operator C

R&DWithVendors

R&DWithVendors

R&DWithVendors

Network with Exclusive Apps

Network with Exclusive Apps

Network with Exclusive Apps

SIM Lock SIM Lock SIM Lock

IP Network

Operators lead feature provisioning

Multi-functional Mobile Phone (“Galapagos” phone)

Cam coder

Stereo speaker

Wide-VGA LCD

5M pix DSC

E-money (Felica)

Dual mode (GSM/WCDAM)

Video phone

Bluetooth

HSDPA

Media player

File viewerQR code reader

Email & web access

Digital TV

GPS navigation

Java applications

Magazines, BooksMagazines, Books

TV / RadioTV / Radio

GPS navigationGPS navigation

Wallet, Credit card, keys, Tags, etc.Wallet, Credit card, keys, Tags, etc.

Music Player, CameraMusic Player, Camera Office DocumentsOffice Documents

All in

on

e

Exclusive for a specific operator

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NEW BUSINESS MODEL

FEATURES (examples) : - Video Viewing - Books - Music - GPS - Restaurant Search, etc…..

Network ( no matter which operator)

Terminals:Not bound with an operator

- Carrier-driven vertical integration faces a barrier

- Smartphone grows with much functions

- Functions sit on the other side of network

- Terminals drive telecom business

- Terminal-driven

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FEATURE PHONE VS SMART PHONEIN JAPANESE MARKET

Feature phone

Galapagos Tied to Operator Saturated Market Go into Global Market

Smart phone

Open Market Terminal-Cloud

Linkage Overseas Market First Intrusion into Japan

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Trend Summary: A Paradigm Shift being observed in Telecommunications Business

Infra-first to Service-First

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- Carrier-based services comes up against a wall.

- Infrastructure does not drive services; what happens is reverse

- Terminals drive business, furnishing with lots of functions

Stepping out of Domestic Business

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- Japanese vendors want to go more international, while overseas vendors try to expand current business opportunities in Japan’s domestic market

- Equal-footing seems essential to assure fair trades

Trade Issue 1. Duty/Tax on multi-functional products

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1. A Mobile phone has lots of functions these days.2. It can function not only as a ‘phone’ but also as TV, radio, GPS, music player, e-money, and etc...3. Mobile phones should be duty free in WTO member countries/areas due to the Information Technology Agreement (ITA).

4. Some customs, however, tried to impose tax on mobile phones because they can function as GPS navigator or TV, being exempted from ITA.5. After long and intensive arguments, the tax committee in that region decided not to impose tax on mobile phones.

6. It can happen again. A new ITA may be necessary to realize tax-free on every electronics products.

TARIFF ON ELECTRONICS PRODUCTS (%) Country

ProductsJapan

Country (Area)

A

Country

B

Country

CMobile Phones

0 0 0 0

TV 0 14 3.9 30Video

Recorder0 13.9 0 20

Copier 0 6 0 20Camera 0 3.2 0 20

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Trade issue 2.Systems Security and Escrow of Source Codes

1. Systems Security is very important, especially in Telecommunications Infrastructure.

2. So, there are Common Criteria, International Security Assessment Standards, to deal with the security threats.

3. Some countries, however, are trying to establish their own

security regulations which demand the escrow of security codes or design information of the products.

4. Intellectual Property Rights are protected under WTO Agreement and should never be endangered.

5. Common Criteria Recognition Arrangement (CCRA) should be considered first to implement effective and internationally acceptable security regulations.

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CCRA(1)

Common Criteria Recognition Arrangement- IT products evaluated or certified by CAP

countries based on ISO/IEC Common Criteria shall be recognized by CAP + CCP countries.

CAP : Certificate Authorizing Participants CCP : Certificate Consuming Participants

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CCRA(2)CAP

CCP

Japan US Canada UK France Germany

Korea Italy Norway Spain Netherland Sweden

Australia New Zealand Turkey

Greece Finland Denmark Singapore Malaysia Pakistan

Israel Hungary Austria Czech India

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Future Network with Secured Cloud

∑ Service Apps

∑ Common / Personal / DBs

∑ Computing Power

Secured

Cloud

Note PC Smart Phone Mobile PhoneBig-Screen TV

<Mobile> <Fixed>

Free from duty/tax everywhere in the world

IP well protected