Hughes Communications Inc. took off like a rocket April 1, when Japan opened its telecommunications monopoly to outsiders, giving a foreign company its first chance to sell a modern satellite system to the Japanese.
The California-based firm raced with its Japanese partners -- C. Itoh & Co. and Mitsui & Co., two powerful trading companies -- to be at the head of the line for permission to operate Japan's first satellite communications network.
If its proposal is approved, Hughes would sell two satellites capable of transmitting telephone traffic, video and data. Together with the ground stations and other technology, the package would cost about $350 million -- the biggest of the big-ticket items the Reagan administration pressed Japan to buy during negotiations in March and April to open the Japanese telecommunications market wider to foreign products.
"Only a year ago there was no thought of selling U.S.-made satellites for domestic use in Japan," said Donald H. White, president of Hughes Aircraft Co., the parent of Hughes Communications. Nippon Telephone and Telegraph (NTT), the government telecommunications giant, had no competitors until April 1, when its monopoly status was ended.
The satellite issue has ranked high on the list of U.S.-Japanese trade problems. Japan's refusal to buy commercial American-made communications satellites has had the effect of preserving its market for future development of homemade satellites, U.S. officials say. In time, a protected Japanese satellite market could be a launching pad to lift Japanese firms into competition with U.S. companies in international satellite sales, the U.S. officials said.
Now the window has been opened, far enough, apparently, for Hughes and its partners, who make up the Japan Communications Satellite Co.
Their fast start appears to have given Hughes the lead over two American competitors, RCA Corp. and Ford Aerospace.
Ford, with its Japanese partner, Mitsubishi Corp. has built experimental satellites for Japan and says it is in the running. Susan Fradkin of Ford Aerospace expressed scepticism about claims that Hughes has the inside track to run Japan's first major satellite network.
"They say that. It doesn't necessarily hold water. We think basically that Japan will find it in their interest to order a satellite system from us," she said. RCA teamed up with Sony Corp and two Japanese trading companies in December, but is not as far along as Hughes or Ford.
The U.S. satellite makers were all forced to take Japanese partners by Japanese law, which restricts foreign ownership of telecommunications transmission facilities to a one-third share. Hughes, owns 30 percent of JCS, C. Itoh 40 percent and Mitsui 30 percent.
While no one will say so publicly, the word is out among U.S. trade officials and industry sources that Hughes will get a license to operate a satellite network. For its part, the Hughes group is confident enough to sink $6 million in startup costs without getting official approval in an effort to make a December 1987 launch date aboard a space shuttle.
"The indications were sufficiently positive to risk that amount of money," said John Koehler, the Hughes executive vice president who conducted most of the negotiations with the Japanese.
"Work is proceeding and money is being spent, but the decision is not yet final," he added.
The total project would provide about 1,000 jobs for Hughes employes.
While it appears certain that Japan will license the purchase of at least one satellite system, American trade specialists said they are unsure how many other systems will be approved. U.S. negotiators want Japan to open its market all the way by granting satellite licenses for any applicant who can meet the government's standards, and this question will keep satellites on the trade agenda.
One high-ranking Japanese diplomat indicated that competing satellite networks will be restricted to the number of systems it appears the Japanese market can support. Japan, another diplomat said, is unlikely to allow a satellite system that might go broke.
A Japanese decision to license only one system would reinforce the view of some American officials that Japan will buy only what it is obliged to under pressure and that new systems will be licensed only when Japan has developed its own satellite and launch capability.
Clyde Prestowitz, the Commerce Department's leading expert on Japan and Commerce Secretary Malcolm Baldrige's special counselor on Japan, said Tokyo's program to build its own satellite remains in effect.
"I think it's still going to be a sticky wicket," he said.
U.S. trade officials are looking to see what Nippon Telephone and Telegraph will do since it lost its status as the government telecommunications monopoly and now faces competition from private ventures. A decision by NTT to buy an American satellite system would effectively spell the end to Japan's program to develop its own space communication capability, officials said. Conversely, if NTT stays away from satellite purchases, the Japanese government is expected to continue pushing its own development program and place limits on the number of foreign-made systems it allows.
Hughes and other satellite makers, however, see lots of room for competitors in an expanding Japanese satellite transmission market carrying computer data and cable television as well as telephone traffic and broadcast television. "There's an enormous pent-up demand for communications satellites in Japan," said Albert Wheelon, president of the Hughes Aircraft Co. space and communications group.
No one is sure how big that demand will be. The history of communications satellites elsewhere has shown that new markets are created merely by the availablity of the technology although that may be less true in a nation as compact as Japan.
Prestowitz said telecommunication ministry bureaucrats assume satellites would be used only for transmitting telephone calls around the island and have not focused on other applications.
Hughes Communications President Steven D. Dorfman, though, is betting on a large growth in the cable television programming in Japan as well as the more efficient distribution of broadcast television with the satellite system.
Japan also lags behind the United States in the use of new technology for speedy data transmission -- a field that is also expected to provide a market for satellite transmission. And private companywide communications systems are seen as yet another growth market.
The first battle Hughes had to fight was to make sure Japan allowed it to build satellites that broadcast in the "Ku" band of frequencies, which Dorfman said is more reliable than the "Ka" frequency band used for the Japanese experimental satellites.
"We would have supplied the satellite (if Japan had decided on a Ka band), but . . . it wouldn't be commercially viable," Dorfman said.
Prestowitz said there was a major debate within Japan's telecommunications ministry over which band to pick.
"The MPT bureaucrats felt it would be a great loss of face to pick a Ku band because for years they had been pushing the Ka band as a unique Japanese idea," said Prestowitz. "Finally political pressure forced them to go with the Ku band," Prestowitz added.
That pressure reportedly came directly from Prime Minister Yasuhiro Nakasone, who had promised President Reagan in January he would make sure Japan's telecommunications market, among other sectors, was open to competitive U.S. products.
The Reagan administration had made satellite sales a major point of its market opening initiative, especially since learning in 1983 that Japan was not planning to buy any from the United States. U.S. officials had understood that satellites would be included under a prior marketing agreement involving NTT, although they were not specifically mentioned.
The administration learned that Japan didn't consider satellites part of the earlier purchasing agreement when NTT executives tried to buy plans, specifications and computer software from Hughes so NTT could build it's own satellite.
Hughes officials complained to Washington and the satellite question became a test of trade policy.
"U.S. satellite technology is vastly superior to that which the Japanese have already developed. If Japan won't buy something where clearly they get the benefit of the trade (in improved technology), then what will they buy?" asked Hughes' Wheelon.