Five alternative telcos including Cable & Wireless (C&W) [CW.L] and KDDI [9433.BE] are lining up a legal challenge to overturn the Japanese government’s decision to up the amount of money they pay in interconnection fees to incumbent operator NTT. The state proposes to increase the levy charged to access NTT’s fixed line network by 5% despite the country’s ongoing economic malaise and persistent deflation. KDDI and C&W are concerned that the price hike will push interconnection fees up to double that found in US and European markets and will force them to charge more to their customers, effectively undoing many of the benefits derived by market deregulation and increased competition. NTT and the regulator, the Ministry of Public Management, Home Affairs, Posts and Telecoms (MPHPT), have argued that the decision has been largely forced upon them as the rate increase was calculated automatically under a methodology agreed upon following intense pressure from the US government. As a result, interconnection fees are based on dividing infrastructure costs by volume, and prices automatically rise if traffic volumes drop. In its defence the PTO has said that even with the price increase it will struggle to cover its costs due to the upsurge in interest for wireless and IP telephony. However, KDDI says the move, which overly favours the 46% Ministry of Finance-owned NTT, is ‘a reversal of the previous policy of promoting competition through the lowering of interconnection rates and is highly regrettable’.