Draft Recommendations <Summary> Facilitate Competition in Network Service Sectors and Eliminate Impediments and Establish Suitable Rules for e-Commerce and IT Utilization August 2000 Information Economy Committee of Industrial Structure Council Table of Contents Present Japanese Problems in the IT field 1. 2. Japan Lags Behind in the IT Revolution • Internet Population Diffusion Rate • Scale of the e-Commerce Market • e-Commerce Market Shares Necessary Reforms of Japanese System 1 2 3 4 Facilitate Competition in Network Service Sectors (Part I) 3. 4. 5. 6. 7. 8. Technological Revolution in Network Service Sectors (Paradigm Shift) U.S. and European Strategies (Legislation to Promote Competition in Network Service Sectors) Market Shares of Class 1 Telecom Carriers (Data: DDI) Market Shares of Class 1 Telecom Carriers (Data on NTT holding company) Competition’s Impact on Service Prices Draft Recommendations Present Japanese Problems in Network Service Sectors 5 6 7 8 9 10 11 Eliminate Impediments and Establish Suitable Rules for e-Commerce and IT Utilization (Part II) 9. U.S. and European Strategies (Transition From the Stage of Private Sector Experiments to the Stage of Rule-Making Reform, Based on the Private Sector’s Business Practices and Experiences) 12 10. Draft Recommendations (Rule-Making Reform to Overcome the Constraints and Disadvantages of the Old Rules) 13 • Rule-Making for Establishing All Players’ Confidence in e-Commerce and IT Utilization 14-16 • Eliminate Impediments for E-Commerce and IT Utilization and Facilitate Competition in e-Commerce-related Market 17-18 • Procedural Rules which Ensure Market Rules Responsive to Dynamic Changes in IT Era 19 Public Comments (Part III) 20 Present Japanese Problems in the IT field 1 Japan Lags Behind in the IT Revolution • Internet Population Diffusion Rate • Scale of the Electronic Commerce Market • Electronic Commerce Market Shares 2 Necessary Reform of Japanese System 1 Japan Lags Behind in the IT Revolution Japan already lags behind in penetration of information technology to households (Internet population diffusion rate) as well as business (scale of the electronic commerce market). (%) 5 5 0 0 Japan 10 South Korea 10 Taiwan 15 Hong Kong 15 New Zealand 20 Japan 20 France 25 Italy 25 Germany 30 Netherlands 30 Great Britain 35 Denmark 35 Finland 40 Canada 40 Sweden 45 Iceland 45 United States 50 Norway 50 Internet Population Diffusion Rate (Asia) Australia Internet Population Diffusion Rate (Global) Singapore (%) Internet Diffusion Rate: Japan’s diffusion rate was estimated to be 14.1 percent as of December 1999 in the Internet White Paper 2000 (based on results of a telephone survey of approximately 100,000 households conducted in February 2000), and 21.4 percent inthe Telecommunications White Paper 2000 (based on results of a questionnaire mailed to 5,000 members of the workforce in December 1999). Thus, both results are shown in the bar graphs. Diffusion rates for other nations are based on data published in June 2000 by the NUA Company, which compiled survey results of polling organizations of these nations published from June 1998 to June 2000. Scale of the e-Commerce Market (Trillions of yen) B-to-B (Business-to-Business) Market 180 (Hundreds of millions of yen) B-to-C (Business-to-Consumer) Market 250,000 165 Japan United States 160 Japan United States 213,200 200,000 140 117 120 153,600 150,000 100 79 80 106,900 68 100,000 60 71,100 50 45 40 30 20 20 9 50,000 29 31,600 19 22,500 12 0 0 1998 1999 2000 42,700 2001 2002 2003 650 1998 16,200 1,900 1999 4,300 2000 8,700 2001 2002 2003 Source: Ministry of International Trade and Industry and Andersen Consulting, 1999 e-Commerce Market Shares Other 3% Asia 1% Japan 4% Canada 7% Japan 3% Canada 4% Western Europe 11% Western Europe United States 54% 33% United States 74% 1998 Other 27% 2003 (Projected) United States 21% GDP Shares EU 20% Asia 23% Japan 7% Asia Other 2% 4% Canada 2% Source: International Monetary Fund, 1998 Source: International Digital Communications, 1999 (electronic commerce market shares) 2 Necessary Reform of Japanese System The following three reforms are crucial for Japan to ride the wave of the IT Revolution and achieve economic revitalization. (1) Lower prices and quicker transition to broadband in network services (2) Eliminate impediments and establish suitable rules for e-commerce and IT utilization (3) Transform into more flexible socio-economic system Expansion of Cyber-society (5) Regulatory Reform 1. Realization of fast, inexpensive networks Innovation of Cyber-society 2. Formulation of rules (6) Competitive Rules (1) Trading rules • Basic trading rules (Legislation for electronic agreements, intermediary responsibilities, and information product transactions) • Expansion of remedial measures (expansion of private dispute resolution systems) (2) Rules for creation and distribution of superior content (3) Consumer protection rules, personal data protection rules (4) Insurance of security 3. Reform of socioeconomic systems (1) Innovation (creation and development of companies to support information technology) (2) Realization of financial and government systems geared to the Information Technology era (3) Broadening of the base of the Information Technology revolution (utilization of educational systems and budget prioritization) Facilitate Competition in Network Service Sectors (Part I) 3 4 5 Technological Revolution in Network Service Sectors (Paradigm Shift) U.S. and European Strategies (Legislation to Promote Competition in Network Service Sectors) Market Shares of Class 1 Telecom Carriers (Data: DDI) Market Shares of Class 1 Telecom Carriers (Data on NTT holding company) 6 Competition’s Impact on Service Prices 7 Draft Recommendations 8 Present Japanese Problems in Network Service Sectors 3 Technological Revolution in Network Service Sectors (Paradigm Shift) In the network service sectors, both wired and wireless, diversified competition is emerging, and competition among these diversified network services will be increasingly intense due to technical innovation in the future. Conventional Telephone Telephone Telecommunications services Broadcasting services TV TV Clear delineation Telecommunications Telecommunications Business Business Law Law NTT Law NTT Law Broadcast Broadcast Law, Law, Wireless Telegraphy Wireless Telegraphy Law Law Fusion of computers, telecommunications, and broadcasting Present → Future Computers 2005 ? Computers 2001 - 2001∼ 2000 - 2001 - Ground-wave data broadcasting Broadcast satellite data broadcasting Internet connection methods employing ground-wave and satellite technologies Communications satellite data broadcasting 2005∼? Wireless LAN and WLL FTTO FTTH Next-generation cellular telephones CATV Internet connection methods employing wireless technologies Cellular telephones and PHS systems xDSL Internet connection methods employing optical fibers (Fiber to the Home) Fair competition rules are necessary ISDN Internet connection methods employing coaxial cables (Fiber to the Of f i c) Infrastructure for Internet connection (transmission lines) Telephone (dial-up) Internet connection methods employing metal cables 2002 - 4 U.S. and European Strategies (Legislation to Promote Competition in Network Service Sectors) The The United United States, States, Europe, Europe, and and some some Asian Asian nations nations which which are are advanced advanced in in the the IT IT area area have have responded responded to to technical technical innovation innovation in in network network services services (the (the paradigm paradigm shift), shift), and and telecommunications telecommunications laws laws have have been been dramatically dramatically transformed transformed with with the the air air of of facilitating facilitating competition. competition. In In spite spite of of gradual gradual deregulation deregulation of of the the Japanese Japanese telecom telecom market, market, the the regulatory regulatory scheme scheme of of 1985 1985 has has basically basically been been maintained. maintained. Europe JAPAN United States 1980 1985 1990 1995 2005 ¬ February 1996 Õ Õ 1984 1984 AT&T AT&T Breakup Breakup •• Long-distance: Long-distance: AT&T AT&T •• Local: Local: Seven Seven Bell Bell companies companies Õ 1985 - Privatization of Nippon Telegraph and Telephone Public Corporation (→NTT) 2000 - New Telecommunications Business Law enacted Õ Õ July July 1999 1999 -- Reorganization Reorganization of of NTT NTT •• Long-distance: Long-distance: NTT-C NTT-C •• Local: Local: Eastern Eastern and and Western Western region region companies companies 15 years behind the U,S Enactment of new framework? When? ¬ 2000 - Partial amendment of Telecommunications Business Law (connection fees only) Õ 1984 - Great Britain: Privatization of British Telecom 1995 Õ - Germany: Privatization of DT 1996 Õ - France: Privatization of FT ¬ 1998 - Great Britain: Competition Law enacted (new law) ¬ February 1998 - WTO Free Trade Agreement effected ¬ 2000 - EU directive New Telecommunication s Law (competition law) introduced within the European Union 5 Market Shares of Class 1 Telecom Carriers (Data: DDI) • Market Shares of Class 1 Telecommunications Carriers Other (8%) Japan Telecom (8%) NTT Group (68%) KDD (2%) ¥13.8615 trillion (FY1998) DDI (14%) * Based on data of the Ministry of Posts and Telecommunications, extracts of securities companies annual securities reports, and the almanac of the Telecommunications Industry Association • Market shares of Class 1 telecommunications carriers by item and sector Local telecommunications market Long-distance telecommunications market (number of subscribed telephone lines) (including international) TT-NET (0.05%) Mobile telecommunications market (cellular telephones, car phones, and PHS) Astel (2%) IDC (4%) J-Phone (18%) Japan Telecom (17%) IDO (7%) KDD (15%) NTT Eastern & NTT(地域) Westen region (99.95%) companies (99.95%) NTT Communications (50%) Tu-Ka (6%) DDI Pocket (7%) DDI (14%) * Figures for NTT and TT-Net as of end of fiscal year 1998 (Source: Annual securities reports of companies) * Number of telephone lines of cable TV operators not considered. * Traffic data of the Ministry of Posts and Telecommunications indicates a share of 93.7 percent. NTT DoCoMo (53%) * Shares based on telephone (voice) sales for FY1998 * Prepared based on FY1998 earnings conditions by division for NTT DDI Cellular (11%) * Shares based on number of units in operation as of July 31, 1999 Market Shares of Class 1 Telecom Carriers (Data on NTT holding company) ○ Market Shares of Class 1 Telecommunications Carriers Others (6%) NTT Telecom Group (7%) KDD I Group (19%) NTT Group KDD I Group NTT Telecom Group Others Group operating profit: ¥9,384 billion Group operating profit: ¥2,721.9 billion Group operating profit: ¥1,048.9 billion ¥835.3 billion NTT Group (68%) * Figures are from 1998 as determined from individual shareholder stock reports and the Telecommunications Carriers Yearly Conference Report (2000 ed.) ○ Breakdown of Market Shares of Class 1 Telecommunications Carriers NTT’s Share of Regional Telecommunications Shares of Other Firms in the Long-distance/International/Mobile Markets Share in '98 Share in '98 Inter-prefectural calls 51% KDD 61% Intra-prefectural calls 84% PHS (DDI Pocket) 60% Local calls 96% * When looking at the market breakdown, carriers other than NTT have more than a 50% share of the market. 6 Competition’s Impact on Service Prices While While telecom telecom charges charges are are declining declining in in competitive competitive sectors, sectors, charges charges are are increasing increasing in in monopolistic monopolistic sectors. sectors. Trends in Telecom Charges Monopolistic Sectors Competitive Sectors Domestic Calls (Long-distance) Cellular telephones Weekday daytime rate (3 minutes) (Yen) To the United States (weekday daytime rate – 3 minutes) Basic Charge (Yen) 400 Õ78% (Yen) 30,000 Õ85% 90 1985 1999 Domestic Calls (Basic Charge) (Yen) 13%1,750 1,550 1,530 4,500 1985 1999 Domestic Calls (Public Telephones) (Residential Use) International Calls Local (weekday daytime rate – 3 minutes) (Yen) 200% 30 Õ88% 180 1985 1999 Domestic Dedicated Lines (Local & With 15 km) 64kbps (Yen) 83% 77,000 42,000 1 0 1985 1999 1985 1999 1985 1999 7 Draft Recommendations Three Basic Viewpoints 1. Starting point for consideration is a “focus on users” 2. 3. The method for that is “competition” What must be pursued for a return of competition is creation of a favorable cycle of “improvement of user services” and “realization of strong, highly competitive telecommunications carriers through greater efficiency of management and advanced business operations.” Five Issues for a Shift to a Competitive Law System and Systemic Design 1. 2. 3. Extract a “network service function” from telecommunications operations and broadcasting operations. Focus on this network function, and provide the four legal protections of access to essential facilities, elimination of the obstacles to market control, guarantee of regulation of transmission content, and technical safety regulation. Additionally, competitive policies designed to ensure access to essential facilities (measures that allow everyone to use NTT’s local networks) and eliminate the obstacle to market control must be fully effected. 4. Regulations that do not serve to create a competitive environment should be abridged or abolished. 5. The content of specific competitive policies should include the following four points: • Re-formulation of rules for connection to local networks and new rules for formation of local networks • Guarantee of access to network infrastructures (response to problem of line installment rights) • Consideration of economically rational methods of band allocation that can flexibly respond to technological trends • Clear regulation of carriers that have power to control the market (unfair trading laws, restrictions on exclusionary behavior, and other provisions) Three proposals for a process designed to realize systemic reform 1. Strategy of systemic design geared to the future 2. Participation of the nation’s citizens in systemic design 3. Establishment of a process for rule revision after institution of the system 8 Present Japanese Problems in Network Service Sectors NTT Networks Duct Fiber (Class 0 Telecommunications Operations) Other Carrier Networks Non Wired Wired Other than Connection Rules Connection Rules Connection Charges MDF User Charges Line Installation Rights Right of Way (Other than Connection Rules) NTT Local Networks Unbundled Unbundled Connection/ Connection/ Collocation Collocation NTT and other Telephone Poles Tunnels (Conduit) Efficient Band Allocation Rules Switchboard NTT Telephone Office MDF 1:1 Relationship 1:N Relationship NTT Subscriber Line NTT Telephones/ ISDN New NTT Company Telephones xDSL Services Cable TV Internet Foreign Companies Fiber to the Office Connection Rules + Line Construction Rights Network Services NTT Fiber to the Home Cellular Telephones/PHS (Next-Generation Cellular Telephones) Wireless LAN/WLL * Services Data Broadcasting (Broadcast Satellite/ Communications Satellite/Short-wave) * Wireless LAN: Speednet (Tokyo Electric Power, Softbank, and Microsoft) and others WLL: NTT-C, CWC (Sony, Toyota, and IIJ) and others Band Allocation Rules Broadcasting (including digital broadcasting) (Broadcast Satellite/ Communications Satellite/Ground-wave) Social Content Regulation Eliminate Impediments and Establish Suitable Rules for e-Commerce and IT Utilization (Part II) 9 U. S. and European Strategies (Transition from the Stage of Private Sector Experiments to the Stage of Rule-Making Reform Based on the Private Sectors’ Business Practices and Experiences) 10 Draft Recommendations (Rule-Making Reform to Overcome the Constraints and Disadvantages of the Old Rules) • Rule-Making for Establishing All Players’ Confidence in e-Commerce and IT Utilization • Eliminate of Impediments for e-Commerce and IT Utilization and Facilitate Competition in E-Commerce related Market • Procedural Rules which Ensure Market Rules Responsive to Dynamic Changes in IT Era U.S. and European Strategies (Transition from the Stage of Private Sector Experiments to the Stage of Rule-Making Reform Based on the Private Sector’s Business Practices and Experiences) 9 The United States and Europe accumulated private sector experience through leadership by the private sector when information technology was in the formative stage (Phase 1) and rapidly shifted to rule-making (Phase 2) in the late 90s to shed the impediments of the old rules. Japan also must rapidly shift to Phase 2. Trends in Internet Population and Enactment of Major Legislation (Millions of persons) June 2000 Federal Electronic Signature Act 100 July 1999 Uniform Computer Information Transactions Act (UCITA) ← Information Product Transactions Legislation Japan EU United States 97.0 85.0 80 July 1999 Uniform Electronic Transactions Act (UETA) ← Electronic Contracts Legislation 64.7 60 October 1998 Digital Millennium Copyright Act ← Intermediary Responsibilities Legislation June 2000 EU Electronic Commerce Directive ← Electronic Contracts Legislation Intermediary Responsibilities Legislation December 1999 EU Electronic Signature Directive 64.5 49.5 41.2 40 32.9 30.0 May 2000 Electronic Signature and Authentication Law 21.4 20 22.6 18.3 14.3 6.0 0 8.8 5.1 1996 Year- end 1997 Year-end 1998 Year-end 1999 Year-end 2000 Year-end (Projected) Sources: 1997-2000 – Internet White Paper 2000 1996 (Japan) Access Media International 1996 (Other nations) NUA 10 Draft Recommendations (Rule-Making Reform to Overcome the Constraints and Disadvantages of the Old Rules) Rule-Making Principles 1. Neutrality - Based on the premise of an age of coexistence of transactions in real space and transactions in cyberspace, it is necessary to provide essentially the same type of legal environment for both real space and cyberspace. 2. Facilitate Competition - It is important to eliminate the obstacles of monopolistic behavior while maintaining competition in processes to ensure a productive cycle of innovation in markets and maintain market vitality. 3. Procedural Rules - The speed and broad applicability of information technology hamper the creation of well-defined rules at the outset. Thus, it is important to use accumulated experience to build mechanisms for resolving disputes and promptly reflect that experience in rules. Overall Rule -Making Reform Package 1. Rule-making for Establishing All Players’ Confidence in e-Commerce and IT Utilization - Reform of civil codes, intellectual property rules, consumer protection rules, and security rules 2. Eliminate Impediments to e-Commerce and IT Utilization and Facilitate Competition in e-Commercerelated Market - Regulatory reform and strengthened enforcement of competition rules 3. Procedural Rules which Ensure Market Rules Responsive to Dynamic Changes in IT Era - Introduction of no-action letter system (see note) and improvement of dispute resolution mechanism Note: The procedural rule which requires government agencies answer to inquiries received from citizens regarding the interpretation of laws and regulations and to make their answers public. Detailed Recommendations (No. 1) 1. Rule-Making for Establishing All Players’ Confidence in e-Commerce and IT Utilization (1) Reform of civil code 1) 2) Electronic contracts → Formulation of legal rules is necessary • Shift from transmission of refusal notices to positive indication for electronic contract effectuation (contract effectuation period) • Clarification of requirements for invalidation of contacts for errors in electronic intent indication caused by clicking mistakes and similar errors (errors and omissions) • Clarification of the range of invalidation of electronic contracts for impersonation (representation agency) Intermediaries’ liabilities → Formulation of legal rules is necessary Victim Intermediaries Manage Servers and Sites Offender Illegal Information 3) • Establishment of rights that allow defendants to demand that intermediaries delete erroneous information (institution of rights prohibiting erroneous entries) • Clarification of procedures for deletion of erroneous information used by intermediaries (erroneous information deletion procedures) • Clarification of procedures for disclosure of plaintiff information to defendants by intermediaries (disclosure of plaintiff information) • Limitation of defendant’s claims regarding intermediaries’ uniform damages • Clarification of measures that intermediaries must take with respect to spam mail (unsolicited commercial electronic mail that consumers do not ware to receive) Contractual laws for digital goods → Formulation of legal rules is necessary • Clarification of the effectuation period for terms of use agreements for information products 4) • Ability of licensees to oppose the transfer of their licenses to third parties when intellectual property rights are transferred (bankruptcy) • Collateral for return of information products that is difficult to confirm (existence of some contract conditions, requirements for approval of technical collateral measures) • Clarification of compensation responsibilities for defective information products (program bugs) Jurisdiction and Applicable laws → Formulation of international rules is necessary, as well as active participation in the deliberations of the International Private Law Conference in the Hague Detailed Recommendations (No. 2) 1. Rule-Making for Establishing All Players’ Confidence in e-Commerce and IT Utilization (Continued) (2) Reform of intellectual property protection rules 1) Maintenance of trading order in cyberspace a) Domain names – Regulation of unfair acquisition and use of identical or similar trademarks of other persons → Formulation of legal rules is necessary b) Internet identification badges – Response to cases of trademarks improperly used as Internet identification badges → Consideration after study of dispute conditions c) Response to cases in which trademark owners of other nations assest damages when trademarks are used on the Internet → The formulation of international rules is necessary, as well as active participation in the deliberations of the World Intellectual Property Organization (WIPO) 2) Ensure incentives for investments a) Legal protection of databases → Further research of damage conditions and consideration of international trends b) Removal of apprehension concerning the range of protection of patents related to business methods → Implement database with bibliography with previously published titles while maintaining international cooperation → Clarification of judging standards is urgently required 3) Ensure proper use a) Response to cases asserting damages due to transmission of patented computed programs over networks → Clarification of the range of patents of computed programs b) Response to myriad cases asserting that the provision for private duplication rights has damaged the interests of copyright owners in cyberspace → Consideration after researching technical trends and dispute conditions Detailed Recommendations (No. 3) 1. Rule-Making for Establishing All Players’ Confidence in e-Commerce and IT Utilization (Continued) (3) Formulation of rules to ensure credibility with consumers 1) Consumer protection → Legal response is urgently required a) Delivery of information before contract is effected (Net advertising policy to be displayed on sites to provide information concerning price, effective period, name of business operator, contact point for questions, and other matters to consumers) b) Prevention of mistaken applications due to operational errors of consumers (mandatory establishment of confirmation screens and other safeguards) c) Prevention of improper advertising and solicitations (multiple commercial codes on the Net, internal and monitoring commercial codes, spam mail) d) Mandatory digitalization of document transfers 2) Personal data protection → Legal response is urgently required (4) Security → Further examination of whether the current criminal code is fully fit to deal with criminal activities in cyberspace Detailed Recommendations (No. 4) 2. Elimination of Impediments to e-Commerce and IT Utilization and Facilitate Competition in e-Commerce related Market (1) Regulatory reform 1) Recognition of electronic means → Recognition is urgently required a) Mandatory paper document requirement • Applications, filings, and other procedures of government agencies • Mandatory document transfers in private sector transactions b) Mandatory face-to-face conducting requirement c) Mandatory physical establishment requirement and mandatory person designation requirement 2) Revamping of range of regulation → Rather than pro forma expansion of regulation, consideration of the necessity of expansion of regulation to activities in cyberspace and original intent of regulation 3) Revamping of other socioeconomic systems (labor law, educational system, corporate law, tax system, and other systems) → Revamping is necessary Detailed Recommendations (No. 5) 2. Eliminate Impediments to e-Commerce and IT Utilization and Facilitate Competition in e-Commerce related Market (Continuation) (2) Strengthened enforcement of competition rules 1) Response to cases in which misappropriation of intellectual property rights functioned in an anti-competitive manner a) Prevention of misappropriation of superior position due to relaxation of participation regulations for copyright controls and copyright owners (representative examples) → Immediate reform is necessary. Consider measures under copyright control legislation and guidelines to the Anti-monopoly Law. b) Response to cases in which intellectual property rights were used in an anti-competitive manner → Active consideration of clarification of the enforcement standards of the Anti-monopoly Law (revamping of Anti-monopoly Law guidelines concerning patents and know-how licensing contracts) 2) Response to cases in which technologies and standards not limited to intellectual property rights functioned in an anti-competitive manner → Active consideration of the possibility of application to general hardware facilities of the essential facilities argument and “softer” fields such as intellectual property rights, technologies, and standards → Active consideration of clarification of the enforcement standards of the Anti-monopoly Law in cyberspace (revamping of Anti-monopoly Law guidelines concerning joint research and development) 3) Other (response to cases concerning misappropriation of superior trading position a) Determination of the adequacy of dealings related to the production of software and digital content → National consideration of measures to ensure the effectiveness of Anti-monopoly Law guidelines concerning stock transactions of company officers Detailed Recommendations (No. 6) 3. Procedural Rules which Ensure Market Rules Responsive to Dynamic Changes in IT era 1) Introduction of no-action letter system (see note) → Should be implemented immediately Note: Procedural rule which requires government agencies to answer to inquiries received from citizens regarding interpretation of laws and regulations and to make their answers public. 2) Improvement of alternative dispute resolution systems (ADR) → Should implement effective measures Public Comments (Part III) 11 Public Comments 11 Public Comments (1) Deadline for opinions Opinions must be received by September 18, 2000. (2) Submission method Name, address, and organization (if applicable) must be indicated. Opinions may be sent to any of the addresses listed below. Replies cannot be provided to opinions or inquiries received by telephone. • Electronic Mail Electronic mail address: [email protected] Please write “Opinion Concerning Information Economy Committee of the Industrial Structure Council” in the title. • Facsimile Facsimile: 81-3-3580-6403 Address to Secretariat of the Information Economy Committee of the Industrial Structure Council • Mail Information Economy Office Machinery and Information Industries Bureau Ministry of International Trade and Industry 1-3-1 Kasumigaseki Chiyoda-ku, Tokyo 100-8931
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