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there is structural separation between the whole-
sale business managing bottleneck facilities and
the retail business utilising bottleneck facilities.
It is absolutely necessary to co-ordinate, in the
case of highly enhanced services like broadband,
between the access business that manages bottle-
neck facilities and the retail business that offers
network services to end-users. Structural separa-
tion makes the coordination between wholesale
and retail businesses complex and such problems
as hold-up become real. These kinds of coordina-
tion problems will accompany transaction costs.
Williamson has proposed bounded rationality,
complexity and uncertainty, opportunism, a small
number condition and information imperfectness
as causes of transaction costs and pointed out that
vertical integration might contribute to the elimi-
nation of transaction costs (Williamson (1985)
pp.15-102). He further stated that vertical integra-
tion was more favourable when the investment
involved asset specificity. Here asset specificity is
defined as durable investments that are undertaken
in support of particular transactions (Williamson
(1985) p.55). Although Cave's discussions are not
necessarily developed on Williamson's study, I
think his discussions will become more convincing
if we look at them through Williamson's works.
The investment in FTTx is a typical asset
specific investment. Williamson defined an as-
set specific investment in terms of site, physical,
human and dedicated (Williamson (1985) p.55).
FTTx belongs to three of these categories. Only
the human factor is absent. The investment in
wholesale facilities of FTTx is targeted towards
retailers of FTTx. FTTx facilities are not transfer-
rable for other uses and the investment becomes
sunk once FTTx facilities have been constructed.
When the obligation to offer dark fibres to retail
carriers is imposed on incumbent carriers and
there is no obligation to use it for a certain period,
as in Japan, the regulation is likely to induce op-
portunistic behaviours on the side of retail car-
riers. When retail customers are geographically
scattered, they offer services based on wholesale
products. However, once the density of end users
exceeds a certain level, it is possible for them to
switch to their own facilities. As a result, wholesale
carriers are obliged to keep not fully depreciated
facilities without users. This kind of problem will
become serious if the regulation to oblige whole-
sale carriers to offer on a shared branch basis of
a fibre core is imposed as new competitors are
demanding in Japan
16
.
The level of the investment by wholesale carri-
ers is likely to stay below a socially optimal level.
If these kinds of problems are to be avoided, it is
necessary to negotiate detailed dealing conditions
within the contract. This will result in big trans-
action costs. If we want to avoid big transaction
costs, it is preferable to keep vertical integration.
The fourth point regarding structural separation
is that it becomes necessary to coordinate regarding
interfaces between wholesale and retail facilities,
investments and day to day operations. As men-
tioned in the previous section, interfaces between
wholesale and retail facilities have become very
complicated with the development of broadband
and the introduction of NGN. NTT indicated
three typical interfaces with retail carriers, i.e.
UNI (User-Network Interface), NNI (Network-
Network Interface) and SNI (Application-Server
Interface). NNI is the most complicated, as NGN
is expected to interconnect with other carriers'
networks including, IP networks, Ethernets,
ISP networks and traditional fixed and mobile
networks. If NGN is regarded as a bottleneck
facility as in Japan, it becomes necessary to settle
interface conditions that vary according to the
detailed specifications of networks that NGN in-
terconnects with. The technological specifications
of NGN have not been fully settled yet. It took a
very long time to fix even temporary conditions.
Prolonged discussions are still going on over the
actual implementation of the interconnections
between NGN (IPv.6) and other IPv.4 networks.
As NTT is not structurally separated at pres-
ent, it has been able to manage the complicated
negotiations based on the information obtained
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