Cryptonomicon (138 page)

Such a move was not without controversy in the senior ranks of KDD, who had devoted themselves to a very different corporate mission. In 1949, when Japan was still being run by Douglas MacArthur and the country was trying to dig out from the rubble of the war, Nippon Telephone & Telegraph (NT&T) split off its international department into a new company called Kokusai Denshin Denwa Co., Ltd. (KDD), which means International Telegraph & Telephone. KDD was much smaller and more focused than NT&T, and this was for a reason: Japan’s international communications system was a shambles, and nothing was more important to the country’s economic
recovery than that it be rehabilitated as quickly as possible. The hope was that KDD would be more nimble and agile than its lumbering parent and get the job done faster.

This strategy seems to have more or less worked. Obviously, Japan has succeeded in the world of international business. It is connected to the United States by numerous transpacific cables; lines to the outside world are plentiful. Of course, since KDD enjoyed monopoly status for a long time, the fact that these lines are plentiful has never led to their being cheap. Still, the system worked. Like much else that worked in Japan’s postwar economy, it succeeded, in those early years, precisely insofar as it worked hand-in-glove with American companies and institutions. AT&T, in other words.

Unlike the United States or France or Great Britain, Japan was never much of a player in the submarine cable business back in the prewar days, and so Ohta’s and Niiro’s notion of going into head-to-head competition against AT&T, its postwar sugar daddy, might have seemed audacious. KDD had customarily been so close to AT&T that many Japanese mocked it cruelly. AT&T is the sumo champion, they said, and KDD is its
koshi-ginchaku
, its belt-holding assistant. The word literally means
waist purse
but seems to have rude connotations along the lines of
jockstrap carrier
.

Against all of that, the only thing that Ohta and Niiro had to go on was the fact that their idea was a really, really good one. Building cables is just the kind of thing that Japanese industry is good at: a highly advanced form of manufacturing that requires the very best quality control. Cables and repeaters have to work for at least 25 years under some really unpleasant conditions.

KDD Submarine Cable Systems (KDD-SCS) built its first optical fiber submarine cable system, TPC-3, in 1989 and will soon have more than 100,000 kilometers of cable in
service worldwide. It designs and holds the patents on the terminal equipment that we saw at Ninomiya, though the equipment itself is manufactured by electronics giants like Toshiba and NEC. KDD-SCS is building some of the cable and repeaters that make up FLAG, and AT&T-SSI is building the rest. A problem has already surfaced in the AT&T repeaters — they switched to a different soldering technique which turns out to be not such a good idea. Eleven of the repeaters that AT&T made for FLAG have this problem, and all of them are lying on the bottom of oceans with bits running through them — for now. FLAG and AT&T are still studying this problem and trying to decide how to resolve it. Still, everyone in the cable business knows what happened — it has to be considered a major win for KDD-SCS.

So when KDD threw some of its resources into one of those famous far-sighted long-range Japanese R&D programs, it paid off beautifully. In the field of submarine cable systems, the lowly assistant has taught the sumo champion a lesson and sent him reeling back — not quite out of the ring, but certainly enough to get his attention. How, you might ask, is the rest of KDD doing?

The answer is that, like most other PTTs, it’s showing its age. Even the tactful Japanese are willing to admit that they have performed poorly in the world of international telecommunications compared to other countries. Non-Japanese will tell you the same thing more enthusiastically.

The telco deregulation wars have begun in Japan as they have almost everywhere else, and KDD now has competitors in the form of International Digital Communications Inc. (IDC), which owns the Miura station, the other FLAG landing spot. In order to succeed in this competition, KDD needs to invest a lot of money, but the very smallness that made it such a good idea in 1949 puts it at a disadvantage when large amounts of capital are needed.

Just as Ninomiya is a generic cable landing, so KDD is something of a generic PTT, facing many of the same troubles that others do. For example: the Japanese telecommunications ministry continues to set rates at an artificially high level. At first blush, this would seem to help KDD by making it much more difficult for upstarts like IDC to compete with them. But in fact it has opened the door to an unexpected form of competition: callback.

Callback
and
Kallback
are registered trademarks of Seattle-based International Telcom Ltd. (ITL), but, like
Band-aid
and
Kleenex,
tend to be used in a generic way by people overseas. The callback concept is based on the fact that it’s much cheaper to call Japan from the US than it is to call the US from Japan. Subscribers to a callback service are given a phone number in the US. When they want to make a call, they dial that number, wait for it to ring once, and then hang up so they won’t be charged for the call. In the jargon of the callback world, this is the
trigger call
. A system in the US then calls them back, giving them a cheap international line, and once that is accomplished, it’s an easy matter to shunt the call elsewhere: to a number in the States or in any other country in the world.

Any phone call made between two countries is subject to a so-called settlement charge, which is assessed on a per-minute basis. The amount of the settlement charged is fixed by an agreement between the two countries’ PTTs and generally provides a barometer of their relative size and power. So, for example, when working out the deal with Denmark, Pakistan might say, “Hey, Danes are rich, and we don’t really care whether they call us or not, and they have no particular leverage over us — so POW!” and insist on a high settlement charge — say $4 per minute. But when negotiating against AT&T, Pakistan might agree to a lower settlement charge — say $1 per minute.

Settlement charges have long been a major source of foreign exchange for developing countries’ PTTs and hence
for their governments and any crooked officials who may be dipping into the money stream. In some underdeveloped nations, they have been the major — verging on the only — source of such income. But not for long.

Nowadays, a Dane who makes lot of international calls will subscribe to a service such as ITL’s Kallback. He makes a trigger call to Kallback’s computer in Seattle, which, since it is an incomplete call, costs him nothing. The computer phones him back within a few seconds. He then punches in the number he wants to call in Pakistan, and the computer in Seattle places the call for him and makes the connection. Since Pakistan’s PTT has no way to know that the call originates in Denmark, it assesses the lower AT&T settlement charge. The total settlement charge ends up being much less than what the Dane would have paid if he’d dialed Pakistan directly. In other words, two calls from the US, one to point A and one to point B, are cheaper than one direct call from point A to point B.

KDD, like many other PTTs around the world, has tried to crack down on callback services by compiling lists of the callback numbers and blocking calls to those numbers. When I talked to Eric Doescher, ITL’s director of marketing, I expected him to be outraged about such attacks. But it soon became evident that if he ever felt that way, he long ago got over it and now views all such efforts with jaded amusement. “In Uganda,” he said, “the PTT blocked all calls to the 206 area code. So we issued numbers from different area codes. In Saudi Arabia, they disabled touch-tones upon connection so our users were unable to place calls when the callback arrived — so we instituted a sophisticated voice recognition system — customer service reps who listened to our customers speaking the number and keyed it into the system.” In Canada, a bizarre situation developed in which calls from the Yukon and Northwest Territories to the big southeastern cities like Ottawa and Toronto were actually cheaper — by a factor
of three — when routed through Seattle than when dialed directly. In response to the flood of Kallback traffic, Canada’s Northern Telecom had human operators monitor phone calls, listening for the distinctive pattern of a trigger call: one ring followed by a hang-up. They then blocked calls to those numbers. So ITL substituted a busy signal for the ringing sound. Northern Telecom, unwilling to block calls to every phone in the US that was ever busy, was checkmated.

In most countries, callback services inhabit a gray area. Saudi Arabia and Kenya occasionally run ads reminding their people that callback is illegal, but they don’t try to enforce the law. China has better luck with enforcement because of its system of informants, but it doesn’t bother Western businesspeople, who are the primary users. Singapore has legalized them on the condition that they don’t advertise. In Italy, the market is so open that ITL is about to market a debit card that enables people to use the service from any pay phone.

So settlement charges have backfired on the telcos of many countries. Originally created to coddle these local monopolies, they’ve now become a hazard to their existence.

KDD carries all the baggage of an old monopoly: it works in conjunction with a notoriously gray and moribund government agency, it still has the bad customer-service attitude that is typical of monopolies, and it has the whole range of monopoly PR troubles too. Any competitive actions that it takes tend to be construed as part of a sinister world domination plot. So KDD has managed to get the worst of both worlds: it is viewed both as a big sinister monopoly and as a cringing sidekick to the even bigger and more sinister AT&T.

Michio Kuroda is a KDD executive who negotiates deals relating to submarine cables. He tells of a friend of his, a
KDD employee who went to the United States two decades ago to study at a university and went around proudly announcing to his new American acquaintances that he worked for a monopoly. Finally, some kind soul took him aside and gently broke the news to him that, in America, monopoly was an ugly word.

Now, 20 years later, Kuroda claims that KDD has come around; it agrees now that monopoly is an ugly word. KDD’s detractors will say that this is self-serving, but it rings true to this reporter. It seems clear that a decision has been made at the highest levels of KDD that it’s time to stop looking backward and start to compete. As KDD is demonstrating, fat payrolls can be trimmed. Capital can be raised. Customer service can be improved, prices cut, bad PR mended. The biggest challenge that KDD faces now may stem from a mistake that it made several years ago: it decided not to land FLAG.

35° 11.535’ N, 139° 36.995’ E: IDC Cable Landing Station, Miura, Japan

The Miura station of IDC, or International Digital Communications Inc., looks a good deal like KDD’s Ninomiya station on the inside, except that its equipment is made by Fujitsu instead of KDD-SCS. At first approximation, you might think of IDC as being the MCI of Japan. Originally it specialized in data transmission, but now that deregulation has arrived it is also a long-distance carrier. This, by the way, is a common pattern in Asian countries where deregulation is looming: new companies will try to kick out a niche for themselves in data or cellular markets and hold on by their toenails until the vast long-distance market opens up to them. Anyone in Japan can dial an international call over IDC’s network by dialing the prefix 0061 instead of 001 for KDD. The numerical prefixes of various competing long-distance companies
are slapped up all over Tokyo on signs and across rear windows of taxicabs in a desperate attempt to get a tiny edge in mindshare.

Miura’s outer surroundings are quite different from Ninomiya’s. Ninomiya is on a bluff in the middle of a town, and the beach below it is a narrow strip of sand chockablock with giant concrete tetrapods, looking like vastly magnified skeletons of plankton and intended to keep waves from washing up onto the busy coastal highway that runs between the beach and the station. Miura, by contrast, is a resort area with a wide beach lined with seasonal restaurants. When we were there we even saw a few surfers, hunting for puny waves under a relentless rain, looking miserable in black wetsuits. The beach gives way to intensively cultivated farmland.

Miura is the Japan end of NPC, the Northern Pacific Cable, which links it directly to Pacific City, Oregon, with 8,380 kilometers of second-generation optical fiber (it carries three fiber pairs, each of which handles 420 Mbps). Miura also lands APC, the Asia-Pacific Cable, which links it to Hong Kong and Singapore, and by means of a short cable under Tokyo Bay it is connected to KDD’s Chikura station, which is a major nexus for transpacific and East Asian cables.

When FLAG first approached KDD with its wild scheme to build a privately financed cable from England to Japan, there were plenty of reasons for KDD to turn it down. The US Commerce Department was pressuring KDD to accept FLAG, but AT&T was against it. KDD was now caught between
two
sumo wrestlers trying to push it opposite ways. Also in the crowded ring was Japan’s telecommunications ministry, which maintained that plenty of bandwidth already existed and that FLAG would somehow create a glut on the market. Again, this attitude
is probably difficult for the hacker tourist or any other Net user to comprehend, but it seems to be ubiquitous among telecrats.

Finally, KDD saw advantages in the old business model in which cables are backed, and owned, by carriers — it likes the idea of owning a cable and reaping profits from it rather than allowing a bunch of outside investors to make all the money.