Will 2002 be the Year for Japan's IT Industry to Play "Leap Frog?"

Senior Fellow, RIETI

This is the "Year of the Horse," according to the Chinese astrological calendar. Japanese children sometimes play a game called "horse vaulting," where they jump over one another's backs. In English, this game is called "leapfrog." The English term carries an alternate meaning of "the benefit of a late start." A good example of this can be found in manufacturing, where late market entrants with the newest equipment frequently have an advantage over major firms with older equipment. It has long been said that Japan's IT industry lags behind that of other countries, but now that the bubble has burst in the U.S., which holds the lead in IT, Japan may have the chance to leapfrog ahead of the U.S.

In a symposium at RIETI last October, Stanford Professor Lawrence Lessig judged that "Silicon Valley is dead." Professor Lessig blamed its demise on telephone companies for trying to "enclose" the Internet using telephone infrastructure and on Hollywood for stamping out technological innovations such as Napster through the over protection of intellectual property rights.

Regarding the U.S. Telecommunications Act of 1996, Professor Lessig said, "(This is) a misguided law that regulates the industry as communications, broadcasting and cable television, based on a vertical division, and is incompatible with the age of the Internet." This problem would be quickly solved if the U.S. revised its telecommunications law. However, Robert Pepper, Chief of the Office of Plans and Policy at the U.S. Federal Communications Commission, said in a visit to Japan last year that the U.S. "has absolutely no thoughts of" revising the 1996 telecommunications law just five years after it drastically revised the 1934 telecommunications law, the first such change in 62 years.

In comparison, Japan's 1985 Telecommunications Business Law is quite dated and even in government circles, support is growing for significant revisions to the law or to dispose of it altogether. In comparison to the U.S. Telecommunications Act of 1996, which was enacted just before the rapid spread of the Internet, Japan has the advantage of reforming its system at a time when the Internet is replacing 21st century communications infrastructure across-the-board.

In this way, a report last December by the Research Council on IT-related Regulatory Reform, presided over by Orix Corp. Chairman Yoshihiko Miyauchi and composed of members of the Council for Regulatory Reform and the IT Strategy Headquarters, can be called the first government document to present an appropriate strategy for the Internet age. In the administration of telecommunications, Japan originally used a vertical model for each industry, but this report proposes "horizontal divisions" in infrastructure and contents that are modeled on the structure of the Internet.

Information is carried over the Internet through an IP (Internet Protocol) packet that is the same worldwide, so there is little meaning in drawing a line between communications and broadcasting. Rather, the contents of the packet are "encapsulated" and hidden from the physical network so the contents are completely cut off from the information infrastructure. Few experts doubt that the current information infrastructure will eventually merge with IP in the future. Accordingly, there should be a shift to an "Internet-type" of administration that abandons "partition administration," removes restrictions on infrastructure and completely liberalizes services.

If such a broad policy direction can be decided, the incompatibility between the overprotection of intellectual property rights and the open architecture of the Internet will be self-evident. The fact that a non-profit entity such as the Internet could give rise to such a historically unprecedented pace of technological development directly contradicts the common wisdom that technological innovations are impossible without monetary incentives. Since expression is being crushed by Hollywood, what if Japan were to leap past the U.S., so to speak, and create a special region for intellectual property rights without any copyrights or patent rights, and in turn attract companies like Napster.

The redistribution of radio waves, which are subdivided extremely inefficiently, is also an important issue. In the U.S., radio frequencies are auctioned off. This method of radio wave distribution is in line with market principles and puts the U.S. one step ahead of Japan in the cellular telephone market. However, the U.S. now faces a problem of having no more bandwidths to auction. The root of this predicament is the U.S. military's control of the largest number of frequency bands and initiatives to return these frequency bands to the private sector were sent back to square one after the 11 September terrorist attacks.

Japan also has an advantage on this point because all bandwidths at 200MHz and above are reserved for "digital broadcasts." Auctions that deal in infrastructure and make it personal property belong to the age of analog radio where specific frequencies are possessed. However, packet radio technology now allows many terminals to share broad bandwidths, so these auctions pose a serious risk of incurring an inefficient enclosure of the waves. Rather than this, it would be better to reserve UHF bands for the common use of the wireless Internet.

The U.S. now has caught itself up in capital and military logic that is incompatible with the Internet. If Japan were to create an open and flat information infrastructure that were suitable to the Internet, it would not be inconceivable that Japan could leap over the U.S. and develop a leading IT industry for the 21st century. In this New Year, given a decisive move to change its thinking, Japan could become "the lead horse that entered the race one round late."

January 8, 2002

January 13, 2002