Analysis of Impact about Structural Regulations (Capital Separation) to the Dominant Firm during the Formation Period of the FTTH Market

Abstract

The FTTH market for single-unit homes in eastern Japan area has allowed NTT East to maintain high market share, although there have been insufficient entries after its launch, and it has been less competitive to this day. In this paper, we use a virtual simulation to analyze and derive the impact on the competitive environment if it had implemented “structural regulations” to NTT East, that divided its corporate organization during the formative period of the FTTH market. According to the analysis, if structural regulations are implemented during the market formation period, NTT East will not be able to recover the invested costs and its business value will be negative, but potential competitor will be free riders on NTT East’s market development costs, and its business value becomes positive, so it was found that structural regulations do not contribute to “realizing a fair competitive environment”. However, if NTT East’s monopoly status is allowed to continue for a long period of time, consumer surplus will be damaged, so it was necessary to implement structural regulations, if NTT East is not able to autonomously improve its competitive environment until the deadline of completing the recovery of invested cost.