Assessing the gains from deregulation in Japan's international telecommunications industry

The Japanese government terminated the monopoly of international telecommunications service by Kokusai Denshin Denwa (KDD) as part of the regulatory reform in telecommunications in 1985. Two new carriers entered the market in 1989. In defending its market share, KDD intensified cost reduction efforts and accepted lower profitability in order to carry out a series of sharp rate reductions. I have assessed the size of the net welfare gain associated with the deregulation. Deregulation brought about a 22.2% fall in KDD's unit cost for the eight-year period ending in 1992. Because this efficiency gain was fully passed along to telephone users in the form of lower rates, the corresponding increment of consumer surplus was of significant size, equivalent to 25.6% of total international telephone call revenues in 1992. (JEL L95, O53)