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' EIDC 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.

For whatever reasons, KDD declined FLAG's invitation, so FLAG made overtures to IDC, which readily agreed to land the cable at its Miura station, where it could be cross-connected with NPC.

A similar scenario played out in Korea, by the way, where Korea Telecom, traditionally a loyal member of the AT&T family, turned FLAG down at first. FLAG approached a competitor named Dacom, and, faced with that threat, Korea Telecom changed its mind and decided to break with AT&T and land FLAG after all. But in Japan, KDD, perhaps displaying more loyalty than was good for it, held the line. Miura became FLAG's Japanese landing station by default - a huge coup for IDC, which could now route calls to virtually anywhere in the world directly from its station.

All of this happened prior to a major FLAG meeting in Singapore in 1992, which those familiar with the project regard as having been a turning point. At this meeting it became clear that FLAG was a serious endeavor, that it really was going to happen. Not long afterward, AT&T decided to adopt an "if you can't beat 'em, join 'em'' strategy toward FLAG, which eventually led to it and KDD Submarine Cable Systems getting the contract to build FLAG's cable and repeaters. (AT&T-SSI is supplying 64 percent of the cable and 59 percent of the repeaters, and KDD-SCS is supplying the rest.) This was a big piece of good news for KDD-SCS, the competitive-minded manufacturer, but it put KDD the poky long-distance company in the awkward, perhaps even absurd situation of supplying the hardware for a project that it had originally opposed and that would end up being a cash cow for its toughest competitor.

So KDD changed its mind and began trying to get in on FLAG. Since FLAG was already coming ashore at a station owned by IDC, this meant creating a second landing in Japan, at Ninomiya. In no other country would FLAG have two landings controlled by two different companies. For arcane contractual reasons, this meant that all of the other 50-odd carriers involved in FLAG would have to give unanimous consent to the arrangement, which meant in practice that IDC had veto power. At a ceremony opening a new KDD-SCS factory on Kyøushøu, executives from KDD and IDC met to discuss the idea. IDC agreed to let KDD in, in exchange for what people on both sides agree were surprisingly reasonable conditions.

At first blush it might seem as though IDC was guilty of valuing harmony and cooperation over the preservation of shareholder value - a common charge leveled against Japanese corporations by grasping and peevish American investors. Perhaps there was some element of this, but the fact is that IDC did have good reasons for wanting FLAG connected to KDD's network. KDD's Ninomiya station is scheduled to be the landing site for TPC-5, a megaproject of the same order of magnitude as FLAG: 25,000 kilometers of third-generation optical fiber cable swinging in a vast loop around the Pacific, connecting Japan with the West Coast of the US. With both FLAG and TPC-5 literally coming into the same room at Ninomiya, it would be possible to build a cross-connect between the two, effectively extending FLAG's reach across the Pacific. This would add a great deal of value to FLAG and hence would be good for IDC.