NTT's R&D: A platform for multimedia

Pergamon PII: S0308-5961(96)00075-4

Telecommunications Policy, Vol. 21, No. 2, pp. 143-163, 1997 © 1997 Elsevier Science Ltd

All rights reserved. Printed in Great Britain 0308-5961/97 $17.00 + (10.00

NTT's R&D: a platform for multimedia

Takahiro Kawamata

This paper describes cooperative research and development (R&D) activities in the I&CT (information and communications technology) industry in Japan historically, and also brings out the features of NTT's R&D capital as a national asset and its technological trajectory. In addition, the impacts of the telecommunications reform in Japan on R&D activities in the I&CT sector are examined, and the perspective of the cooperative R&D initiated by NTT with vendors, in the era of new multimedia is discussed. The author argues that N'I-I" is required to be a platform for every participant in cooperative R&D, in achievement of economies of scale, scope and speed in R&D activities. © 1997 Elsevier Science Ltd

Takahiro Kawamata is Associate Senior Researcher, Research Institute of Telecom-Policies and Economics, Posts and Telecommunications International, Japan 3-1-1, Kudan-Minami, Chiyoda-ku, Tokyo 102, Japan (Tel: +81 3 3237 2854; fax: +81 3 3237 2822; Email: kawamata @ ptij.or.jp).

Introduction

In the debate on the future of Japanese telecommunications industry, including a problem of restructuring NTT, the promotion of research and development (R&D) activities appears to be one of the most important issues. NTT and its Electrical Communications Laboratories (ECLs) have contributed to the development of Japan's technological progress in provision of advanced and high quality services, based on equipments embodying leading-edge technology, as well as in the conduct of its own, and cooperative, R&D with manufacturers. Since the 1980s, however, the changes of environment involving technological change, political pressure from both domestic and foreign interests, and regulatory framework under which Japan's telecommunications market was opened to competition.

This paper will describe cooperative research and development (R&D) activities in the I&CT industry in Japan historically, and also bring out the features and their backgrounds. Then it will consider the following questions; 'How NTT's R&D system has developed into a national asset', 'How NTT's R&D increasingly becomes less of a national asset in these days', and 'What is the role of NTT's R&D in the multimedia era'. Moreover, the perspective of the NTT family R&D system, which means cooperative R&D among NTT and its vendors, in the new era of multimedia will be discussed.

An earlier version of this article was presented at the International Telecom- munications Society Conference, Seville, 16-19 June 1996.

Historical overview of Japanese I&CT industry

In Japan, telecommunications started to operate in the year after the establishment of the Meiji government, and it has achieved rapid development up to the present. It is generally accepted that the process of telecommunications development in Japan is caused by the development of technology. Japanese telecommunications services and manufacturing industries have not only introduced and assimilated advanced technology from the Western world, but have also bent their energies to the development of independent technologies, and as a result Japanese telecommunications have reached the top-level in the world in information and communications technology (I&CT). The technological

143

NTT's R&D in the Japanese I&CT industry." T Kawamata

trajectory of Japanese I&CT industry, in other words, would be both a process of establishing the NTT family system in R&D to seek independent technology, and exploitation of strategic alliances with leading-edge firms to acquire their technology.

The 'modernization' and technology import: Establishment of N T T family system in R&D ( Meiji to after Worm War II)

In the inauguration of telecommunications services in Japan, Electro- Technical Laboratory (ETL, NTT Laboratory's former name) in 1891 was established under the Ministry of Communications (MOC) re- established in 1885, in order to acquire knowledge and then to catch up with Western countries. While the Ministry took the initiative in manufacturing, on an experimental basis, some of the officials launched new ventures and Japanese conglomerates embarked to manufacture telecommunication equipment; the former included Oki (established in 1896) and NEC (established in 1899) while the latter was Fujitsu (established in 1925) and Hitachi which acquired Toa Denki established in 1918 and became Totsuka factory of Hitachi. These major manufacturers can be characterized by each origin. Oki and Hitachi intended to produce without any foreign ownership. NEC and Fujitsu were established with a close relationship with foreign partners, Western Electric Co. and Siemens und Halske, respectively.

In the process of development towards domestic production in Japan, the roles of the public telecommunications operator and private manufacturers in technological development were also clearly ruled. The former took charge of the testing and inspection of newly introduced products and decided on the future direction of telecommunications technology, namely introduced a telecommunications system. The latter made an effort to assimilate the technology introduced by the former to begin home production. In an Imperial ordinance No. 219 on the establishment of the Electro-Technical Laboratory issued in 1918, the role of the public laboratory and private companies was identified as follows;

The Electro-Technical Laboratory should be engaged in testing and inspecting on electorics under the control of the Minister of Communications . . . . In the case that it would be difficult for private companies to produce on the basis of results of tests and inspection in the laboratory, the laboratory should conduct the manufacturing. 1

1NTr pc. (ed.) Denshin-Denwa Jigyo-Shi (A History of Telegraph and Telephone Business in Japan), Vo/. III, The Telecom- munications Association (TTA), Tokyo, (1960) p. 552

Further, we should note that the market for telecommunications equipment was competitive, because it made domestic manufacturers promote technological development as in the case of the development of automatic switching systems by each company.

In the period of the third telephone development plan from 1916 to 1933, the Ministry of Communications imported and tested an automatic switching system from British Automatic Telephone Manufacturing Co. Ltd (ATM Co. Ltd), and determined an adoption of the step-by-step systems. At that time, the Ministry began by assigning foreign companies as suppliers, and imported from the UK, the US and Germany. As a result, there were two systems, Strowger (A-type) and EMD (H-type) systems, in Japan. The reason to adopt two different systems was the following judgement of the policy makers; Japanese telecommunication had to be dependent on foreign suppliers of equipment, so that it was

144

Figure 1. Introduction of step-by- step switching systems and strategic alliance (1920s).


'~ Alliance / Western Electric Co. (US) j~- Supplying I . . . . facilities [

Ca ~ital J. participation

( Automatic Telephone )1 . , f . . . . " - ~ Manufactoring Co. Ltd. (UK) ~ - E q u ' p m ~ . . , ~ . _ " E C J

.__[" Standard Telephoneand ~ ,~ep~ i s / / k Cables Ltd.(UK) J ,~" "

( Automatic Electric " / ~ Patent I~ Incorporated (US) i~ li .... ing -

No Import

Affmate ,(

Supplying ~ - IGeneral # Tools Electric Co. Ltd. (UK) ~-Drawings/ '~ Oki )

l Sending e n g i n e e r s ~ to study - Eq u i p m e n t - ~ T radl n g ~

Siemens und Halske A.G. 1 (Germany) Joint venture

l Sending engineers to study - -

Legend: I Authorized Foreign Manufacturer by MOC ) ~

(Non-Authorized Foreign Manufacturer by MOC)

difficult to say how things would turn out concerning home production. If only one system was adopted, it would be likely to limit suppliers to one. There would, thereby, be a threat that the Japanese telephone system would be entirely dependent on a business strategy of the foreign supplier. Thus, it is advisable to introduce competition in the equipment market not only to ensure an autonomy of telephone utility, but also to reduce the cost of equipment.

Under these conditions, the Japanese manufacturers made an alliance with foreign suppliers to promote home production (Figure 1). NEC used their close relationship with affiliates of Western Electric Co. For instance, the company was in charge of an agency of Automatic Telephone Manufacturing Co. Ltd (UK), invited over engineers of ATM Co. Ltd, got the drawings from Standard Telephones and Cables Ltd (UK), and procured components from Automatic Electric Incorp. (US) while it sent Japanese engineers to Western Electric Co. (US) to acquire knowledge and know-how to produce automatic switching. In 1929, NEC's central office automatic switching system was certificated by the Electro-Technical Laboratory, and started to produce switching by itself. Tea Denki, the former Totsuka factory of Hitachi, agreed with Auto- matic Electric Incorp. to contract patent licensing for automatic switching. The company succeeded in developing the Strowger system in 1934, and a year later got a certification to manufacture from the Ministry. Fujitsu was established as a joint venture between Siemens und Halske A.G. (Germany) and Furukawa Electric Industry in 1923. Taking an opportunity to enter the switching market, Fujitsu sent the company's engineers to Siemens to acquire Siemens' know-how, and also hunted official engineers of the Ministry of Communications. The company organized a new telephone factory and accomplished a home production

145

NTT's R&D in the Japanese I&CT industry: T Kawamata

of EMD switching systems based on the technology of Siemens in 1933. On the other hand, Oki selected General Electric Co. Ltd (UK), as a partner, which was not initially a company authorized by the Ministry of Communications but was later assigned. Oki got the drawings and tools for the switching system from GE Co. Ltd and sent engineers to study abroad.

At the end of World War II, Japanese telecommunications infrastructure was severely damaged, for instance the number of telephone subscribers had decreased by 468 000. Under that situation it was difficult to rehabilitate due to the lack of goods and materials. Japanese telecommunications enterprises made efforts to rehabilitate, along with the implementation of organizational restructuring. In 1946, the Ministry of Communications was re-established, the Electro-Technical Laboratory divided into two laboratories which are the Electrotechnical Laboratory (ETL) and Electrical Communications Laboratory (ECL) 2 years later. The former was under the Ministry of International Trade and Industry (MITI), whilst the latter was under the Ministry of Telecommunications, which was restarted as an independent administration specified in telecommunications, by dividing the Ministry of Communications into two ministries: Telecommunications and Postal service sectors, respectively. In 1952, the Ministry of Communications restarted as a public corporation, NTT pc which had control of the ECL. The mission of ECL, subject to the one of NTT pc, was expressed as follows;

• to develop the technology mainly in order to supply the demand for telecommunications services and to contribute to the development of socioeconomic system and the improvement of livelihood for the nation;

• to facilitate the technological development for rationalization and efficiency of operations;

• and to build up own technology to deal with the progress of internationalization.2

In other words, the missions of ECL as a national laboratory were to be in charge of identification, purchase, and adaptation of leading-edge technology and to facilitate the practical research and development for operations. Before the establishment of ECL, the Japan-US Joint Committee, which was organized soon after the war, recommended a relationship between the laboratory and manufacturers as follows; • the laboratory should be well versed in the practical research and

development by manufacturers. In the case that it is expected the efforts of manufactures on development to meet requirements or that manufacturers have plants available for development, the laboratory should apply a contract on a practical development or other contract to research and development activity. Generally speaking, duplication in efforts to development should be avoided.

• While manufacturers prepare to produce a prototype subject to a specification made by the laboratory, the laboratory should watch the progress of development by manufacturers. The laboratory should test and inspect the prototype made by manufacturers before manufacturers start to produce according to the supply contract. 3

The recommendation suggested that NTT Laboratory took the main 2NTT pc (ed.)op tit, p. 560 responsibility for practical R&D and that, if manufacturers had the aN'IT pc (ed.) op cit. p. 565 capacity for practical R&D, NTT Laboratory could contract out to them

146

4NTT pc ECL (ed.) Denkitsushin Kenkyujo 15-nenshi (A 15-year History of ECL) NTT pc, ECL, Tokyo, (1965) p. 6


in order to avoid duplication. Taking the recommendation, the following major tasks of the laboratory were ruled when NTT pc was established in 1952. 4

• To develop new and improved telecommunication systems, equipments, devices and materials, and to confirm the results in the field testing.

• To research mainly aimed at supporting practical use of new and improved telecommunication systems, equipments, devices and materials, taking account of future technology.

• To prepare a draft specification, execution drawing and rule of inspection on the basis of results of research and development on new and improved telecommunication systems, equipments, devices and materials, and to deliver them to the facility section of NTT pc.

• To cooperate with the facility section in a field test and a commercial test.

• To give adequate advice to manufactures. • To research and develop with other organizations on contract basis,

and to take an out-sourcing of R&D if it is necessary and economical to do.

• To make a equipment, devise and materials on an experimental basis, and support R&D activities.

• To provide patent services concerning telecommunications. • To offer librarian service. • To issue publications to disseminate R&D activities.

The major tasks outlined above could serve as a basis for the cooperative R&D system among NTT pc and major manufacturers, as a part function of the so-called 'NTT family system', as well as the historical relationship among them since the inauguration of Japanese telecommunications. The NTT family system meant that in the first stage, there was cooperative R&D between NTT Laboratory and selected manufacturers, in the next stage NTT pc prepared specifications and selected manufacturers to produce telecommunications equipment, based on NTT's specifications, and supplied finished products.

After the World War II, each major Japanese manufacturers took actions to promote their own development based on existing switching systems, namely Strowger (A-type) and EMD (H-type) systems. NTT pc and ECL started to reconsider unified crossbar switching systems, taking advantage of the establishment of NTT pc. According to circumstances, foreign companies--Kellog Switchboard and Supply Co., Siemens and LM Ericsson--introduced their products to NTT pc, and Kellog and Siemens made contracts to supply their switching systems. On the other hand, ECL and NEC conducted cooperative R&D on Western Electric (WE) crossbar switching for practical use, from 1953, while other Japanese manufacturers were engaged in their own development (see Figure 2). Oki had work underway to develop the Ericsson module by themselves in 1953, but Oki and NTT pc could not agree on procurement of Ericsson's switching with Ericsson, which prioritized a know-how agreement on crossbar switching. After that, NTT pc finally decided to adopt the WE module. The effort of cooperative R&D with NEC were accomplished in 1957, the result of it was opened to other companies-- Fujitsu, Hitachi and Oki--in order to facilitate mass production in the domestic market, after coordination with a result of Hitachi's own development. In this process, parts, circuits and systems for the domestic

147


Export of

i Introducing switching I 1 7 - - - - I switching

I Kellog Switchboard and } Export of --- I Supply Co. (US) _ switching/1955 I NTT pc.

I ,~" International Te l ephone & ] Patent licencing I I [, Telegraph Co. (US) J switchingagreement/1955for - -

Patent licencing Acquire agreement ~ Technological Cooperative R&D

International Standard ] . , for local and i assistance _ _ Electric Co (US) J (Capltat ] trunk switching

Affiliate participation) / / Know-how d. ~ J

" , agreement for ~ NE Western Electric Co. (US) I---" Crossbar Switching'~k, _ NEC )

I ~ ' ] /1962 I I I lPatent licencing ~ __ __ __

Patent li . . . . i n ' t'"g f srC trchiS[; r

__ _.f" LM Ericsson (Sweden) k -LME s}/stems-

Siemens und Halske A.G. ~. (Germany) - EDM systems - J"

Figure 2. Adoption of crossbar switching systems and strategic alliance (1950s).

for Crossbar /1957 Switching

/1959 .Disagreement of __ r -- -- --

know-how " ~ Oki ,,,agreement f

Own ~yelo~ent on / aband . . . . . t Crossb/eJ~witching I ~ J (E"l~°n "~° ~) /

Technological @ - alliance

m ECL t I I ! R&D on Crossbar I

Switching based on | AT&T systems

Results Basic I Spacification

(instruction, maintenance,

I operation, etc)

=t [ marker /

translator ~ trunks

I

I related

[[[i facilities ]

I registor _..J sender

crossbar switching were standardized, as a result each manufacturer could produce a compatible system. NEC, Hitachi and Oki also made a licensing or know-how agreement with Western Electric Co., following the adoption of WE switching system by NTT pc. In the next stage of development on crossbar switching systems, NTT pc and the four major manufacturers jointly sought into economical system (C400 exchange) by taking their share in achieving the objective. For example, NTT pc (ECL) was engaged in making basic specifications in construction, maintenance and operation of systems, manufacturers developed some prototypes of components of the system (e.g. NEC was in framework and links, Hitachi was in marker, translator and trunks, Fujitsu was in registers and senders, and Oki was in related facilities). The first C400 exchange was installed in a central office for commercial testing in 1966.

The decades of 'technology catch-up' with major innovation (the 1960s to the 1970s)

NTT pc and its family companies started to research and develop an electronic switching system in parallel with further improvement of crossbar exchange (see Figure 3). We can go back to pre-World War II in regard to the development of electronic switching in Japan. In 1939, MOC established a working group on electronic switching in which University of TOHOKU and NEC participated. World War II stopped the group from studying. ECL had restarted preliminary investigations in 1951, although substantial research was delayed until 1954, after the establishment of NTT pc. The first semi-electronic switching system (a-switching) was manufactured, by way of trial, by ECL in 1955.

148

NTT's R&D in the Japanese I&CT industry. T Kawamata

ECL made a cooperative R&D agreement on electronic exchange and related equipments, with NEC and Hitachi in 1956. After the signing of the agreement, some meetings among ECL, NEC and Hitachi were held regularly, and then two manufacturers made a semi-electronic switching system (fl-switching) on an experimental basis in 1958. After the success of trial manufacturing, the cooperative R&D group expanded to Fujitsu and Oki, and NTT pc, and these four manufacturers jointly addressed R&D on a space-division system. In the case of electronic switching, NEC was in charge of the development of memory, line-switch, high-speed delivery systems, etc, Hitachi was in trunk circuit and ringer, Oki was in semi-permanent memory, and Hitachi was in CPU, etc. ECL, NEC and Hitachi also were engaged in development of a time-division system.

In the process of the NTT-initiated R&D project on an electronic switching system, AT&T Bell Laboratory announced No. 1 ESS exchange, which involved a stored program control system in 1963. The announcement stimulated the NTT family to greater efforts. As a result, they produced DEX-1 as an in-house trial space-division system in 1965. Next year another NTT-initiated project was brought to a conclusion by com- pletion of DEX-1T as time-division system. Furthermore, NTT pc made a technological assistant agreement on an electronic switching system with AT&T Bell Laboratory, and a patent licensing agreement with WE, in order to catch up with the technological level of AT&T and WE.

Finally, NTT pc decided to select a space-division DEX-1 and continued to develop it for practical use in partnership with NEC, Hitachi, Fujitsu and Oki. In the development of the DEX system for commercial use, each participant took their share of the work, as well as the development of DEX-1, shuffling their charges with each other, under the control of ECL. In the sequel, DEX-1 had evolved into DEX-2 in 1968, DEX-21 in 1970 for field testing, and D10/D20 systems as domestic standards in 1970/1974.

In the 1970s, I&C technology further continued to evolve toward the digital age. Arising from the development of PLATON (prototype digital switching) by CNET in 1970, CIT-Alcatel developed a digital switching system, E10A, in 1972. In the same year, AT&T Bell Laboratory also created No. 4 ESS (time-division digital system). In the mid-1970s, major telecommunications equipment manufacturers introduced their own systems to the market.

In Japan, NTT pc announced a plan of 'Nationwide Digitalization' in 1977, cooperative R&D projects on a digital system with family firms started. Prior to this announcement, NEC and Fujitsu which had already entered to the American market, had started independent projects for the overseas market (see Figure 4). Hitachi promoted independent R&D on a digital switching system by way of its close relationship between its Central Laboratory and Totsuka Factory, as NEC and Fujitsu have done. NEC took the lead in the development of a digital system, and completed the NEAX-61 system in 1979. Following NEC, Fujitsu and Hitachi put its systems--FETEX-150 and HD-10, respectively--on the overseas market in 1981. Oki produced its digital switching system, KB-270, in the 1980s. The result of the NTT-initiated R&D project was carried out with the achievement of smaller size, more economical efficiency and larger capacity of system in 1982. The system was D60 trunk system which further evolved to a D70 local system for the INS model in 1984. The establishment of this digital technology in Japan became a fundamental factor to NTT's INS initiative.

149

NTT's R&D in the Japanese I&CT industry. T Kawamata

f f l

' ~ "r. o o

i-- ,.,..-k o'J

0

'7 0 t O

. t -

O

-.~

0 (/)

ffl 0

E 0

" 0

..Q

E

r - e'-"

if)

e--

2 "6 0 0

o e..-

c-

E Q .

0

0 121

u

150

-Announcement of Nationwide I

Digitalization in 1977 I I

I NTT pc. i

Start a project on Digital System



Figure 4. Development of digital switching systems (D60/D70) by domestic resources (1970s-1980s).

Cooperative R&D started in 1977

ECL

NEC

Hitachi

Oki

Fujitsu

NTT ' s R&D in the Japanese I&CT industry: T Kawamata

I Evaluation

Standardization D60/Trunk System (Commercial service)

i D70/Local System (INS model system trial)

NEAX-61 System

FETEX-150 System

? Overseas

The NTT family system was able to satisfy NTT's requirement for high-quality and high-reliability in telecommunications equipment, an acquisition of independent technology for carriers and manufacturers, and promotion of the communications and electronics industry. For NTT pc, this system ensured a stable procurement of telecommunications equipment. The technology of suppliers was necessary for NTT pc to construct a nationwide single telecommunications network and provide high-quality and highly-reliable telecommunications services.

On the other hand, the NTT family system did not only guarantee suppliers a specified amount of their revenue by the offer of a large and stable or planned order for equipment, but also contributed to their technological upgrading through the cooperative R&D with NTT Laboratory and the competition between them. It meant that the NTT's R&D programs resulted in a sharing of knowledge among participants of joint research through competition among them. In this system, NTT pc integrated potential demands into a product concept in initial research, and manufacturers decomposed this product concept into development agendas for its individual component technologies. This system also had the function that NTT pc took over risky initial research, or the cooperative R&D reduced their share of the risk, or R&D costs, of each participant. In the decades of 'Technology Catch-up' from the 1960s to the 1970s, most large Japanese companies, including NEC, Hitachi, Fujitsu and Oki, has established and strengthened own laboratories or R&D departments to identify, acquire, and adapt leading-edge technology by themselves, while they had entered into the overseas market. Hitachi and NEC had established their own laboratory in the 1930s, but Hitachi established Product Technology Laboratory in 1971, and System

151


Development Laboratory in 1973, in order to strengthen production technology and quality control; whereas NEC adopted a new organization in 1965, which involved establishment of a central laboratory. NEC also established a new central laboratory in 1975. Fujitsu established a laboratory in 1962, and hived it off as an independent laboratory in 1968. Oki established a research department in 1971. In addition, NTT pc expanded its R&D division with the establishment of a new laboratory for data communications in Yokosuka in 1972. As a consequence, it can be said that the NTT family system has rapidly led to the advanced level of Japanese telecommunications in both aspects of I&CT technology and infrastructure, through competition among manufacturers in some cases under the control of NTT pc, which had R&D capability as a national asset.

After the telecommunications reform in Japan

Open up the Japanese telecommunications market: pressures on the N T T family system in R&D (the 1980s)

In the 1980s, some changes occurred in the cooperative R&D in which NTT pc took a leading role; the conflicts on international trade including the NTT pc's international procurement program, the liberalization of telecommunications, and technological change around telecommunications.

In the Tokyo round of GATT, which took an initial signature in 1979, NTT pc's procurement has developed into the code of government procurement. In NTT's international procurement program, NTT pc decided to adopt the 'tracks' system which consists of three tracks, into a procurement procedure for telecommunications equipment. The new procurement system has given an opportunity for entry into the cooperative R&D, with NTT Laboratory, to new potential domestic and foreign suppliers.

The liberalization of telecommunications, namely the partial privatization of NTT pc and the introduction of the competitive principles into the telecommunications services market, has forced cost reductions related to the procurement of telecommunications equipment under pressure of competitiveness. On the other hand, Nippon Telegraph and Telephone Corporation (NTT) has had an obligation to undertake R&D under Article 2 (Obligations) in the Nippon Denshin Denwa Kabushiki Kaisha ( N T T ) Law, as follows:

•.. The Company (NTT) shall endeavor, in view of the importance of the role which telecommunications will play in the future progress of society and the economy, to contribute to the creative advancement and development of telecommunications in Japan through promoting its basic research and development activities in telecommunications technology and through disseminating the results thereof, and thereby to promote the interests of the public.

Since the liberalization of Japanese telecommunications, NTT's R&D strategy has contributed to strong practical development, able to cope in a competitive era.

The liberalization in the telecommunications sector in Japan has influenced the cooperative R&D framework in the NTT family system. NTT is obliged to invite suppliers to join joint R&D projects through a

152

NTT ' s R&D in the Japanese I&CT industry." T Kawamata

NTT pc, (ECL)

I rners in cooperative R&D ] switching system J

Announcement of cooperative R&D I i

project on ATM switching system I J

NT(Nortel)

Toshiba

Startto esearch on ATM switching ATM N o d e

in 1986 System -- ...

Component)

_ _ Divide into s 2 components

Development of 1 ATMsystemLink -- ~ m A TM switching (Transmission system in 1989 Component) _

Fujitsu

' I ) I - - - t , I

~ _ _ j. _ _ _ 1 _ _

)

Mitsubishi

Ar r 1

Siemens 1

Figure 5. Development of ATM switching system under Track III Code (after the Telecommunications Reform in Japan, 1985).

Establishment of Advanced Switching

Estabfishment of ] Switching Technology Center in US

Success to manufacture A TM

Switching

Manufacturing of A TM Switching in US

5Sigurdson, J and Anderson, AM (eds) Science and Technology in Japan (2nd edn) Longman, London (1991) pp. 154-162

public notice. In the case of the joint R&D project on the ATM (asynchronous transfer mode) switching system, e.g. 'ATM node system', two new suppliers could enter the joint project and the number of suppliers increased as compared with former R&D projects on switching system (Figure 5). Therefore, it seems to be difficult for NTT to coordinate a relationship between suppliers in order to carry out the joint project efficiently. It also seems to increase the degree of competition for obtaining a market share of ATM switching in Japan. Thus, it seems to be an important strategy for telecommunications equipment manufacturers that technological knowledge and know-how acquired from joint projects with NTT are directly transferred to production for other domestic and export markets and that these markets are opened up.

Sigurdson (1991) points out that the research activities of NTT pc have served two functions. 5 One of them was embedded in the development of new services and support of existing ones. Another function of R&D by NTT pc was oriented towards raising the technological level of the Japanese telecommunication equipment manufacturers including four major suppliers--NEC, Fujitsu, Hitachi and Oki. He also argues that the latter task has been successfully accomplished, and is no longer relevant,

153

NTT's R&D in the Japanese I&CT industry." T Kawarnata

3 5 0 , 0 0 0

Telecommunications Reform in Japan

i Consolidated R&D Expenses (million Yen) 3 0 0 , 0 0 0 [-"] R&D Expenses (million Yen)

,~ 0 % of operating revenue 0 % of consolidated operating revenue

2 5 0 , 0 0 0 - - = Sou rce : N T T pc F i n a n c i a l S t a t e m e n t s

• ,- and N T T A n n u a l Repo r t s

2 0 0 , 0 0 0 -

1 5 0 , 0 0 0 - -

1 0 0 , 0 0 0

-- 7 . 0 0 %

6 . 0 0 %

5 . 0 0 %

4 . 0 0 %

3 . 0 0 %

2 . 0 0 %

1 .00%

I 0 . 0 0 %

~J

©

Figure 6. NTT's research and development expenditure, 1961-1994. Source: NTT pc financial statements and NTT annual reports.

F i s c a l y e a r

and the situation for NTT's R&D activities has shifted in the following three ways:

• Japanese telecommunication equipment companies have become increasingly competent and maintain large and independent research facilities,

• Demands from foreign makers and governments has created a situation of a more open competitive market,

• Partial privatization of NTT pc in 1985 signified a new situation in which New Common Carriers (NCCs) compete with NTT by providing cheaper, alternative or new services.

Sigurdson concluded that the R&D resources of NTT are no longer a national capital but instrumental assets for the future of NTT itself.

However, the obligation of NTT's R&D has remained after the introduction of competition, as a provision of the NTT's Law (Article 2). Thereby, NTT has gradually increased the investments in R&D since 1985 (see Figure 6), while NTT has been required to disseminate R&D results as well as disclosure of information about network operation. In March 1991, NTT announced the measures for dissemination of its R&D results which clarify the method of assessment and the procedures for the disclosure of R&D results.

The interim report on Measures to be Taken in Accordance with Article 2 of the Supplementary Provisions of the Nippon Telegraph and Telephone Corporation Law, which was published in 1992, mentioned the promotion of R&D Activities, "the government shall have NTT actively promote its R&D activities and contribute to standardization activities, fully taking into account the views and opinions of interested parties." The R&D

154

NTT's R&D in the Japanese I&CT industt2v: T Kawamata

resources of NTT, therefore, have in a sense a function as a national capital, even so NTT's R&D facilities have increasingly been oriented towards providing the underpinning for a development of new services and the required network facilities.

The present R&D organization of NTT consists of 13 laboratories which are formed into three groups--Telecommunication Network, Multimedia System, and Science and Core Technology, under Research and Development Headquarters. The activities in R&D at NTT cover a wide range from basic research to development, and the number of persons engaged in R&D activities was approximately 8500, or more than 4% of the total number of employees in 1994. According to the NTT Annual Report 1994, the fundamental approaches of NTT's R&D to support its telecommunications services are (1) R&D for multifaceted and sophisticated services; (2) R&D on networks and service-software for the supply of these services; (3) leading-edge technologies and fundamental research for future telecommunications; and (4) domestic and international technology exchange activities to promote the diffusion of R&D results, including efforts towards standardization.

NTT has also established an affiliate, NTT-AT (NTT Advanced Technology), in order to transfer technology which NTT (and its laboratories) and partners have developed. The company, formerly Nippon Telecommunication Technology, was established by a joint contribution of NTT family companies such as NEC, Fujitsu, Oki and Hitachi in 1976. When NTT pc was partially privatized, NTT invested in the company, thereby NTT increased the capital and the firm name was changed to NTT Technology Transfer. Moreover, NTT invested increasingly in the company, renamed NTT-AT, in 1990. The company has given actual performance associated with transfer of NTT's technology and know-how, and consulting services to others including foreign carriers and manufacturers of the US, Korea, the UK, Italy and Taiwan.

On the other hand, DDI, one of NCCs, adopted foreign technology as its business strategy since its entry into the telecommunications market, in order to avoid depending on NTT's technology. DDI has entered into domestic long-distance, mobile telephone and PHS markets and has competed with NTT and NTT group companies such as NTT DoCoMo and NTT Personal Communications in each market. When DDI started its long-distance communication business in 1987, the company went into partnership with DSC Communications Corp., an American manufacturer of communications equipment. In its cellular business, started in 1989, DDI made an alliance with Motorola, Inc. The relationship with Motorola has developed into the IRIDIUM plan. In the market of PHS opened in 1995, DDI has conducted a cooperative development on personal communications system with DSC, Cirrus Logic, and CTP which is an Israeli military company. The cooperative development with DSC was on intelligent network. With Cirrus Logic, DDI developed a chipset for PHS terminals, and introduced technological know-how on a 500 mW base station from CTP.

DDI's strategy means that there are different standards from NTT's in Japan's telecommunications market. Therefore, NTT has competed with NCCs in the field of technological development. Most of NCCs, however, have depended on the technology developed by NTT or NTT family manufacturers. In a sense, the results of NTT's R&D have continued to keep the status of a dominant standard in Japan.

155


The era of multimedia with 'dynamic strategic alliance' (the 1990s)

Over 10 years have passed since Japanese telecommunications reformed to a more open and competitive industry, the advancement of I&CT technology led to the convergence of telecommunications and broadcast- ing technology, and accordingly created new multimedia services which promote the diversification of telecommunications services, such as VOD and Internet. Not only the world's major vendors, but also some telecommunications carriers, have expanded their business to the global market. In the global competitive environment, various alliances among carriers, manufacturers, and software companies have been spread out.

NTT is now driving at openness of its business in the competitive environment. The strategy involves not only openness of NTT's networks but also diffusion of developed technologies and ongoing or future R&D with both domestic and overseas vendors. The company promotes synthetic R&D linked to its telecommunications business. The coverage of NTT's R&D activities have expanded to more diverse and broad fields in the era of multimedia and 'Information Highway'. In other words, it covers everything from basic research to applied research and development, and from research on materials and physical properties to development of systems. Although NTT has many researchers and has spent a huge amount on its own R&D, it is impossible to deal with all fields of I&CT. It can be applied to any carriers and manufacturers. Thus, it is significant for an I&CT firm to make a dynamic alliance with a leading-edge firm which holds advanced technology in a certain specified field to complement the firm's own technology. It is also important to spread its own technology quickly, and promote both de facto and de jure standards to cover the cost of R&D. There is no doubt that the parties should hold a high level capability for the evaluation of technology, mutually to form a dynamic alliance including cooperative R&D.

NTT's alliance with overseas partners has two business segments for its strategy. One of them is a construction of telecommunications networks in overseas countries. NTT has already participated in investment projects in the United States, Thailand and Philippines. In the United States, NTT agreed with Nextel Communications, Inc. to invest in Nextel's capital and to send NTT's staff to cooperate and assist in technical and operational matters in expansion of the mobile system. In Thailand and the Philippines, NTT has participated in the construction and operation of local networks with local partners; Thai Telephone & Telecommunication Public Co. Ltd and Smart Communications Inc.

Another strategy of NTT's overseas business is a technological alliance with leading-edge companies. NTT's major alliances are as follows 6 (announced date: day/month/year): • Capital participation in and technical alliance with General Magic,

Inc. (26/01/94). • Partnership with Microsoft, Corp. (22/06/94 and 10/05/95). • Joint Development Agreement with Silicon Graphics, Inc. (02/02/95). • Alliance with PictureTel, Inc. (09/05/95).

General Magic, Inc. was established by an alliance of several major I&CT firms including telecommunication carriers such as AT&T, C&W, France Telecom, and NTT. The present other members of the alliance are

6NTT-Public Relations Department Infor- mation on NTT 1995, NTT, Tokyo (1995) Apple Computer, Inc.; Philips Electronics, NV.; Material, Inc.; Northern pp. 55-57 (only in Japanese). Telecom Inc.; Matsushita Electric Industrial Co. Ltd; Sony Corp.; Fujitsu

156


Ltd; Toshiba Corp.; Oki Electric Industry Co., Ltd; Mitsubishi Electric Corp.; and Sanyo Electric Co. The objective of General Magic is to ensure that personal communicators will be easy to use and interoperable, regardless of manufacturer or service provider. The company has developed and will license a communications protocol, 'Telescript', and an operating system for personal communicators, 'Magic Cap'. It will be expected that General Magic's technologies will become the de facto industry standards worldwide. In the end of 1995, a technical specification 'Open Telescript Initiative' was opened to the public for dissemination of 'Telescript'. NTT not only makes a capital investment in General Magic but also forms a technical alliance with it and sends engineers to accumulate General Magic's technology. In addition, NTT, AT&T and Sony Corp. announced an establishment of a joint venture, NTT Fun Production, to offer multimedia services using PDA based on the General Magic's technology on July 31, 1995.

NTT and Microsoft Corp. announced on 23 March, 1994 that they have agreed to work together on the development of multimedia technology for an information distribution service. The alliance combining NTT's network capabilities with Microsoft's software expertise, is aimed at the creation of an advanced multimedia service. As a part of the alliance, the companies initially developed CD-ROM system software for PC users. The result of the joint development has already been adopted into "miTa KaTTa" service which is offered by NTT's subsidiary NTT Telemarketing Co., Ltd. In addition, the two companies announced a joint development on an interactive multimedia system which supports a network between multimedia servers and set-tops on June 1994. NTT plans to begin preliminary services based on interactive multimedia system platforms, in cooperation with CATV Yokosuka, after in-house trials in NTT's Yokosuka Laboratory.

The third strategic alliance of NTT is a joint development agreement with Silicon Graphics, Inc. In June 1994, NTT and Silicon Graphics signed a memorandum of understanding concerning the joint development of an interactive multimedia service system. Following technical studies, these companies announced a joint development agreement on 2 February, 1995. The alliance combines NTT's digital network technology with Silicon Graphics' multimedia server technology. It is aimed at realizing an interactive multimedia service system which will provide a wide variety of services using a digital network based on fiber optic technology, and ATM switching systems owned by NTT, and an advanced three-dimensional graphics technology owned by Silicon Graphics. The base system, 'ZOETROPE' developed by both companies, is to be tested in a cable TV image transmission trial that NTT will conduct jointly with Super Network U Inc., a cable TV operator in Urayasu, Chiba prefecture.

Fourth, NTT announced an alliance with PictureTel on 9 May, 1995. PictureTel is a top vendor in video-conference system and agreed with Microsoft to jointly develop a data-conference system for 'Microsoft Windows', in March 1995. NTT's target is to develop an enhanced desk- top video-conferencing system for N-ISDN, combined with PictureTel's technology. The efforts of both companies was successful in promoting 'Phoenix' as a multimedia conferencing system for PC98 series.

In addition to the above alliances, most recently NTT announced support of two alliances. First, NTT announced with AT&T, Lotus Development Corp., Novell, Inc., Microsoft, etc, to organize the

157


Multimedia Service Affiliate Forum (MSAF) on 5th March, 1996. MSAF is planning to establish the environment which allows multimedia services of each provider to be used interactively. The other participants of the forum are telecommunication carriers such as KDD, BT, DT, and Korea Telecom. MSAF will call for participation of other carriers, manufacturers, content providers, and system integrators.

Second, NTT announced support of the alliance for standardization of an Internet terminal, the so-called '$500 PC', which was organized by IBM, Sun Microsystems, Inc., and Ocrale Systems Corp. against t ~ 'Wintel' team of Microsoft and Intel in May 1996. After three American companies announced jointly to agree to build up a standard of network terminals on 20th May, 1996, Apple Computer and Netscape Communi- cations participated in the alliance. NTT aims at supporting the '$500 PC' as a network terminal of ISDN, by cooperation with the alliance on the interface between the terminal and network. Besides, Mitsubishi Electric, Fujitsu, NEC and Hitachi, as Japanese companies, will participate in the alliance.

As can be seen in these alliances of NTT, telecommunications business is likely to diversify towards the coming multimedia era. These strategic technological alliances also mean NTT's diversification in R&D activities towards downstream, by which telecommunications business would be affected. NTT's network capabilities, thereby combine with advanced technologies in some leading-edge software companies, and will then be able to gain from the telecommunications service. Technological alliances recently in I&CT industry are moving up the value-added chain in research into more advanced development and basic research, with great uncertainties about the affect of the dispersed R&D network on Japanese companies.

The status of N T T R&D activities in the MPTs reports

In the debate on Japanese telecommunications in the future, especially R&D capability, related to the restructuring of NTT, MPT (Ministry of Posts and Telecommunications, Japan) issued two critical reports. One of them was published in September 1995, the report on R&D systems in Japan's info-communications industry. Another one, it might well be unsaid, is the final report of MPTs Telecommunications Council, issued in February, 1996. The outline of these reports associated with R&D are as follows.

7The Report on R&D System in Japan's info-communications industry towards the Era of Multimedia issued by the com- mission organized by MPT, on 13th September, 1995 (only in Japanese).

(1) 'R&D System in Japan's info-communication industry towards the Era of Multimedia'. 7 In this report, MPT stresses it is essential to conduct R&D activities flexibly and actively, and to introduce domestic and foreign results of R&D dynamically, in order to create a dynamic R&D which meets market demand. MPT also argues that a greater number of organizations which can make decisions independently, foster dynamic competition by multiple and active alliance with domestic and foreign partners. While we should take notice of market-control forces which harm the dynamism, and conclude it is required to promote international competitiveness through more dynamic competition in the domestic marketplace.

In addition, the analysis of present conditions related to R&D shows that the share of expenditures for basic research in total R&D expenditures are comparatively smaller. Quoting from the survey of Science and

158

8The Final Report on Measures to be Taken in Accordance with Article 2 of the Supplementary Provisions of the Nippon Telegraph and Telephone Corporation Law titled on 'Status of NT-f" issued by MPT's Telecommunications Council, on 29th February, 1996. English version of the outline is available in http://www.mpt. go.jp/policyreports/english/telecouncil/N-I-l'/ CounciI-Nl-r's.html.


Technology Agency (Kagaku Gijutsu Cho), it shows that there is a tendency for most Japanese firms to place more emphasis on joint development with firms in inter-industries rather than their own development. Especially, some Japanese firms have recently undertaken strategic alliances in R&D with American ones. The report conducted a survey on market share by each info-communications products and systems, and this identifies some features of Japan's technological advantage compared with European and American ones as follows: • Computers and LANs: American firms, particularly venture capitals,

hold an advantage of position in their market. Generally speaking, Japan has an environment where it is difficult to facilitate an establishment and promotion of venture capital, hence Japan's firms are in a low position in the global market. Since rapid growing computer communication and diffusion of LANs mean an expansion of new networks for users, a possibility exists that they affect an existing telecommunication systems.

• Switching equipments: Six major companies, e.g. Alcatel, Siemens, AT&T (Lucent Technologies), LM Ericsson, Northern Telecom (Nortel), NEC, won most shares of the switching market in the world. Their businesses are mainly based on home-country's markets, but they have not been confined within the limits of each markets and have spread out respective undertakings over the world aggressively. It should be noted that there was only one Japanese manufacturer, namely NEC, which competes with other country's ones in foreign domestic markets, though there are four major suppliers in the Japanese market.

• The shares of Japanese manufacturers in European and American markets were approximately 0%, and it is a tendency for Japanese suppliers of switching equipment to decrease their market share. NEC, however, won 15% of market share in 1993 with products by own development in the world.

• On the other hand, New Common Carriers (NCCs) have introduced vendor's own developed systems for their business rather than systems developed by NTT and NTT family companies.

• Transmission Systems, Terminal equipments and Semiconductors: Japanese companies gained over 30% of share in VSAT market and over 20% in optical transmission system respectively. In the market for mobile terminal equipment, Japanese companies obtained over one-third of shares in the world. On the other hand, while they got near a half of market share in DRAM, American companies won approximately 70% of MPU market.

From the above analysis, particularly in the case of switching equipments, MPT concludes that the cooperative R&D among NTT and its family companies does not always result in competitiveness in the market. It is also pointed out that the characteristic of the relationship between one dominant carrier and four major manufacturers in cooperative R&D; whereas European and North American systems are represented by the closed relationship between carrier and one major manufacturers have expanded its business into international market. The point of argument in this report have been affected in the following final report on the status of NTT issued by the MPT's Telecommunications Council.

(2) 'The Status o f NTT'. 8 On 29th February, 1996, the MPT's Tele- communications Council issued its final report on Status of NTT

159


associated with Measures to be Taken in Accordance with Article 2 of the Supplementary Provision of the Nippon Telegraph and Telephone Corporation Law. The issues of this report included "improvement of international competitiveness" and "improvement and enhancement of R&D capability". Chapter 3 of this report addressed these two issues.

As regards international competitiveness, this report focused on two matters: (1) entering overseas markets, and (2) developing business in international telecommunications markets, from the points of view of activity of Japanese info-communications industry, public interest ben- efited from high qualitative and diversified services, and contribution to standardization and establishment of global information infrastructure through the leadership of Japanese industry. In this context, the Council stressed that NTT's overseas business is not enough, as compared with other American and European carriers. Against this, the proposal of CIAJ (Communications Industry Association of Japan, organized by Japanese telecommunications equipment manufacturers) on this matter, which was issued on November 1995, "in order to ensure the international competitiveness and development of Japanese industry, a national-flag carrier would be necessary from the point of view of national interests", the Council argued that Western carriers which have a smaller scale of operation than NTT, are aggressively developing their business in the international telecommunications markets, thus it is not necessary for a carrier to be a large scale of operation, for international competitiveness.

Concerning another issue, enhancement of R&D capability, the Council had a grasp that we should aim to enhance R&D to a higher level, considering the need to reform and improve the existing conditions, rather than taking a defensive stance simply to prevent the deterioration of the current situation or to maintain the status quo, and considered the following seven items: (1) stimulus to competition in research and development competition; (2)joint research and development between carriers and manufacturers; (3) fostering of venture business; (4) promotion and contribution to standardization; (5) enrichment of research and development resources; (6) furthering of basic and leading-edge research and development; and (7) reinforcement of links between industry, academia and government. In particular, the second item, 'joint research and development between carriers and manufacturers', was associated with the review of cooperative R&D between NTT and manufacturers, and was based on the argument in the previous report. The review was negative in terms of Japanese competitiveness in the market for switching equipments. In addition to cooperative R&D, NTT's procurement system and the power of NTT on R&D were also brought out. In the conclusion of this chapter, the Council simply expressed that joint research and development between carriers and manufacturers should lead to the contributions to diversification and activity of R&D, strengthening of competitiveness in market, and promotion of the benefit of national users, so as to come up to Japanese and industrial circles' expectations.

As a consequence of the final report, the Council recommended the structural separation of NTT which should be divided into one long-distance company and two regional companies. The reasons why NTT should be restructured were listed in Chapter 2 of the report. One of the reasons is to create strong competitors for improved international competitiveness, which is caused by the following:

160


Figure 7. Image of NTT's research institutes after restructuring of NTT. Source: MPT, Japan.

Present NTT)

R&D Division

Partially inherited

i Partially inherited

~'----~ Partially inherited

(After Restructuring)

~ Long-distance I NTT

-1-1 EastNTT I=

~ west NTT I

I Sharing R&D Cost

I

Source: MPT, Japan

• Both competition and alliances are expected to take place among NCC, CATV, and content businesses.

• Cooperative activities between the new NTT corporations and manufacturers and trading companies will be fortified, regarding the expansion of businesses into markets abroad.

• Because it will also be able to provide international communication, the long-distance telecommunications carrier (Long-distance NTT) will be able to participate in the global alliance of carriers, in a swift manner.

In this scenario, the Council mentioned "the new structure will enhance R&D in Japan by creating various R&D frameworks while also main- taining the existing R&D strengths of NTT" as one of basic principles of the restructuring of NTT, and offered an alternative to existing NTT Research Institutes, as well as NTT's main bodies (see Figure 7). The alternatives are as follows:

(a) Regional NTTs: • NTT's current R&D capability should be mainly inherited by

Regional NTT's. • Divisions that are either basic or common to all companies will be

taken over in their entirety by East NTT for instance, and the cost burden shared by all regional NTT's. However, divisions which are closely connected with service competition will be taken over by the companies concerned.

• Regional NTT's will continue to be responsible for conducting research and development stipulated in the current NTT Law.

(b) Long-distance NTT: • The research and development division related to long-distance

business will be taken over by long-distance NTT similar with NTT Mobile Communications Network Inc.

• Completely privatized long-distance NTT will have incentive to conduct research and development linking its business in order to offer efficient services through competition with NCC.

However, 'is it certain that the new structure will enhance R&D in Japan?', and 'isn't there a possibility that not only these new companies, but also vendors, will conflict over R&D budget, arrangement on cooperative R&D, and disposition of intellectual property rights which present NTT has held?' In the study report published by NIRA (National

161


Institute for Research Advancement) in March 1996, 9 the private study group expressed concern about decentralization and separation of R&D resources due to the restructuring of NTT. The study group also noted that separation and division of NTT might result in a loss of integrated R&D resources from basic and applied research, to development for practical use linked with telecommunications business, and decrease of taking resource concentrated, or risky, R&D. The study finally presented the following proposals about promotion of R&D ability; "to compete with global mega-carriers equally, personnel and physical resources should be focused on promoting comprehensive research and development", and "it is necessary to make every effort to promote and strengthen the R&D of basic technologies and to assure that these results are firmly established as de facto standards".

As can be seen from the above mention, there is a difference of opinions about NTT restructuring in terms of R&D, though they are based on the common objective which is to promote and strengthen Japanese R&D resources. The opposite opinion to the restructuring of NTT is the recognition that NTT's R&D resources should be regarded as a national asset to promote comprehensive research, including basic and risky research.

We have to reconsider the resource of Japanese competitiveness, and the technological trajectory of Japanese I&CT industry, where NTT has taken up its position in a core organization, as well as the tendency of recent technological development.

9NIRA A Study for Developing Model Telecommunication Industries for Highly Advanced Information Societies World- wide: What Policies Should Japan Adopt to Compete in Today's Global Telecommuni- cations Market?, NIRA Research Report No. 950074, NIRA, Tokyo (1996)

Concluding remarks

While NTT pc was a monopoly in the telecommunications service market, telecommunications technology was mainly for 'automatic and direct' telephone services as symbolized by the target of NTT pc, 'solution of waiting list and full introduction of direct distance dialing'. During its monopoly, NTT pc led domestic manufacturers, as a dominant carrier in the right direction consistent with the technological trends, through the cooperative R&D projects, and set up Japanese standards. In a sense, NTT's R&D was a national asset for Japanese I&CT industry. Since the 1980s, however, the trend in technological development in the telecommunications sector has covered information processing and image processing technology based on high-speed and broadband technological development towards the era of multimedia. Thus, the telecommunication market may be going to shift to a customer-driven market, as the following problems for telecommunications users have arisen: 'What kind of information should be transported over the telecommunication networks?', 'what should be the most available terminals?', and 'how should they have access to others?' On the other hand, some of the Japanese major manufacturers have realized an increase in own R&D capability equivalent or superior to NTT. This may mean that there is no leader in R&D activities in the I&CT industry. However, the development and integrated operation of the major components of the telecommunications network would be under the control and coordination of the carriers which construct and operate the telecommunications infrastructure. There is no doubt that NTT has still played an important role in R&D activities and standardization. In other words, NTT's R&D is a 'platform' for every participants in cooperative R&D in achievement of economies of scale, scope and speed in R&D activities through the

162


competition and knowledge sharing in the circle. Nevertheless the centripetal force of NTT has been declining in R&D activities, at one time due to enhancement of Japanese manufacturers' R&D capabilities. NTT will continue to play an active and crucial part as a core common carrier to embody advanced technology in its telecommunications service.

Therefore, if the recommendations by the MPT's Council were effec- tuated, namely structural separation and division into three companies, it might be the case that the centripetal force of NTT increasingly becomes less of a common asset through cooperative R&D and standard set-up. Even if present NTT divides into three companies vertically and horizon- tally, West NTT might not be willing to bear half of the cost burden for basic research or common research to all companies, because West NTT has an intention to avoid being dependent on East NTT's technology, in case West NTT really competes with East NTT, similarly with DDI's strategy. There is also likely to arise a problem on indivisibility of technology, because there is a gray zone of technology between local and long-distance services. After all, the separation and division of NTT might result in a loss of economies of scale, scope and speed in R&D activities, and might break up the NTT family system in a sense of coordinate function between carrier and manufacturers.

In these days of I&CT development towards the era of multimedia, the I&CT industry is a highly competitive industry in R&D activities, not only between manufacturers, but also including carriers. Therefore, an efficient coordination in joint R&D project would be a most important strategy for carriers and manufacturers to gain an advantage in the I&CT industry. We are now in the era of 'competition, cooperation and coordination' (CC&C) when telecommunications carriers and manufacturers 'coordinate' their complementary technology with each other while they 'compete' and 'cooperate' with rivals in their R&D activities. In the era of 'CC&C', NTT would have to facilitate the basic and advanced technology in the I&CT industry and to conduct R&D activities efficiently in coordination with manufacturers. It also would be hoped that the NTT's standards become international standards, because if so, the suppliers to NTT could realize economies of scale in the production of telecommunications equipment that could give a competitive price advantage to manufacturers, and at the same time NTT could procure telecommunications equipment at a low price. Thus, the NTT family system in cooperative R&D has to open to potential participants, and flexibly link to other leading-edge firms, in order to create and diffuse new technology based on accumulating broader and deeper knowledge in both the domestic and global markets in the coming multimedia age. As mentioned before on NTT's recent strategic alliance, it is necessary to combine comprehensive communications network technology with various application technologies in development of technology for the coming multimedia age. These alliances on R&D also mean to build up R&D network linking to other carriers, manufacturers, and content providers. Then the partners would require NTT to be a 'platform' for every participant in cooperative R&D in achievement of economies of scale, scope and speed in R&D activities, so as to benefit from NTT's comprehensive and integrated network and its technology. This pressure will facilitate real restructuring of NTT, regardless of whether a divestiture will be forced upon NTT or not.

163

Documents

NTT's R&D: A platform for multimedia