Transcript e-Japan Strategy

Evolution of IP Network and Convergence
in Japan
– Impact of Hard law and Soft law
2006.06.13
ITS Conference in Beijing
Ema Tanaka, Minoru Sugaya, Sayaka Shiotani
Research Institute of Telecommunications and Economics (RITE),
Keio University,
Obirin University
1
Contents


Theme and Approach of this study

I. Characteristics of Broadband (BB) Development in Japan
- Focusing on Access Technological Shift

II. Impact of Policy and Regulation on BB in Japan
- Analysis of Hard Law (Governmental Aspect)

III. Impact of Carriers Strategies on Convergence
- Analysis of Soft Law (Carriers’ Aspect)
Conclusion
2
Theme and Approach of this study

Theme



Extract Characteristics of Broadband Development in
Japan
Analyze factors of Broadband Development in Japan
Approach:
Analysis of Path Dependency of Network Evolution


Investment Incentives
- Impact of Historical Factors
Market competition
- Impact of competition in BB Market
Both of them reinforce Fiber BB in Japan?
3
Path Dependency: Evolving Process
Two aspects
 Historical factors
Regulatory Decisions
Carriers Strategies

Institutional / Architectural factors
Government-Business Relationship
Market environment
4
I. Characteristics of BB Development in Japan
1. BB Access Technology Shift
2. Competitive Environment in BB Market
3. Accessibility and Affordability of BB
5
1 BB Access Technology Shift
(1) Three characteristics of BB from 1999 to 2006
DSL
FTTH
Cable(including dial-up)
16
Growth of DSL
almost hit its peak
at the end of 2005
14
12
million
10
8
6
4
DSL BB exceeded
Cable modem Access
at the end of 2001
FTTH exceeded Cable
modem Access at the
beginning of 2005
2
19
9
19 9.3
9
19 9.6
19 99.
99 9
20 .12
0
20 0.3
0
20 0.6
20 00.
00 9
20 .12
0
20 1.3
0
20 1.6
20 01.
01 9
20 .12
0
20 2.3
0
20 2.6
20 02.
02 9
20 .12
0
20 3.3
0
20 3.6
20 03.
03 9
20 .12
0
20 4.3
0
20 4.6
20 04.
04 9
20 .12
0
20 5.3
0
20 5.6
20 05.
05 9
20 .12
06
.3
0
Data Source：Ministry of Internal Affairs and Communications (MIC), Japan.
6
Cf. Broadband Development in US
Subscribers (million)
ADSL、SDSL、Fiber etc.
Cable Modem
23
Including 83,000 of Fiber Broadband
Access on June-05.
21
19
Cable modem Access
has always been
exceeded DSL Access.
14
14
15
11
9
7
5
2
1
June-00
5
3
June-01
June-02
June-03
June-04
December04
June-05
Data Source：FCC（2006 April）High-Speed Service for Internet Access, States as of June 30, 2005.
7
1. BB Access Technology Shift
(2) Comparison of Japan and US from 2000 to 2005
BB subscribers on June-00
Cable Modem
ADSL、SDSL etc.
2.5
25
2
20
Subscribers (million)
Subscribers (million)
ADSL、SDSL、Fiber etc.
BB subscribers on June-05
1.5
1
Cable Modem
Fiber
15
10
5
0.5
0
0
ADSL、SDSL、
Fiber etc.
Cable Modem
US
Japan
884087
1235
2215259
329000
ADSL、SDSL
etc.
Cable Modem
Fiber
US
14492151
Japan
14082268
23499498
86000
3061881
3410440
Data Source：MIC, Japan.
FCC（2006 April）High-Speed Service for Internet Access, States as of June 30, 2005.
8
2. Competitive Environment in BB Market
(1) DSL
DSL Market Share (subscribers) in Japan
East/West ＮＴＴ
NCC(New Common Carriers
100%
90%
80%
70%
61.1
54.5
59.1
63.5
62.6
63.6
62.9
61.0
45.5
40.9
36.5
37.4
36.4
37.1
39.0
2002.3
2002.9
2003.3
2003.9
2004.3
2004.9
2005.9
60%
50%
40%
30%
20%
38.9
10%
0%
2001.3
Data Source：MIC, Japan.
“WHITE PAPER Information and Communications in Japan, 2005”, etc.
9
2. Competitive Environment in BB Market
(2) FTTH
FTTH Market Share (subscribers)
East/West ＮＴＴ
NCC(New Common Carriers*
100%
80%
60%
62.8
52.7
42.3
42.1
40.2
40.8
47.3
57.7
57.9
59.8
59.2
2003.3
2003.9
2004.3
2004.9
2005.9
40%
20%
37.2
0%
2002.9
Data Source：MIC, Japan.
“WHITE PAPER Information and Communications in Japan, 2005”, etc.
10
2. Competitive Environment in BB Market
(3) Number of Cable Internet operators
Basically, Cable Network is operated in the unit of municipality
and supported locally and nationally.
Monopolistic service offering by a carrier in each area.
450
383
400
352
campanies
350
300
247
250
277
305
188
200
150
100
84
50
0
1999.12
2000.12 2001.12
Data Source：MIC, Japan.
2002.12
2003.12 2004.12
2005.12
11
3. Accessibility and Affordability of BB
(1) Penetration Rate of BB (Household)

As of December 2005
National Average 44.4%
Lowest Penetration Rate: 21.8% (Kagoshima)
Highest Penetration Rate: 60.8% (Tokyo)
number of prefectures
20.0-29.9%
9
30.0-39.9%
19
40.0-49.9%
17
more than 50%
2
Data Source：MIC, Japan.
12
(2006 May) “Draft of Competition Assessment of Telecommunications Industry in 2005"
3. Accessibility and Affordability of BB
(2) Accessibility – Aiming Universal Access of BB
Broadband Network Deployment Status of Each
Prefectures (Coverage of Household)
FTTH Coverage
Data Source：MIC, Japan.
Other BB Access Coverage
No BB Access
13
3. Accessibility and Affordability of BB
(3) Price of BB and “bps”

Internet Reports 2005: “The Internet of Things”
The Cheapest BB in the World, 0.07US$ of 100kbps(Japan)
On March, 2006.
 NTT East (FTTH for House:100M) 5885 Yen
 NTT East (FTTH for Apartment:100M) 3570 Yen
 Usen (FTTH for Apartment:100M) 2980 Yen
 NTT East (ADSL:47M) 4032 Yen
 SoftBank BB (ADSL:50M) 4206 Yen
 KDDI (ADSL:47M) 3969 Yen
Data Source：MIC, Japan.
14
I.
Characteristics of BB Development
Summary: Three Characteristics

Rapid growth of DSL and swift shift to FTTH;
in 5 years and 3 years respectively.

Sound Competitive market environment;
High Market share of NCC.

Affordability and Accessibility of BB;
Consumer’s BB Choice in urban and rural area,
Low Price, High speed BB.
15
Cf. US Experience on BB regulation
and a question to answer
“US Unbundling Policy Depressed DSL Penetration Because
Bell Companies Had Diminished Incentives to Invest in
Broadband”
“Unbundling of New Facilities is Not Required in US
- It should not be required in Japan”
(Crandall (2006 April 19) “ Regulation and Competition Policy in the U.S.
Telecom Sector: Lessons for Japan”, Presentation in Tokyo )
Did unbundling Policy Diminish Investment in Japan ??
16
II. Impact of Policy and Regulation on BB in Japan
- Analysis of Hard Law
1. FTTH promotion policy (1990’s - 2006)
2. Governmental IT Strategy (2001-2006)
3. Competition Policy and Market Analysis
(2001-2006)
17
1. FTTH promotion policy
(1) BB Promotion Policy and Financial Support
Financial and Tax benefits to promote Fiber deployment
“Provisional Measures Law for Telecommunications
Infrastructure Improvement”
(電気通信基盤充実臨時措置法)
1991－2006 (amended in 1995, 2001, 2006).
Provision of Reduction of Local taxes, corporation tax etc.
to investment on Advanced Network Facilities
for cable carriers, Telecommunications carriers and local
municipal entities those who build Fiber network, DSL
network etc especially for network development in rural
area.
18
1. FTTH promotion policy
(2) Upgrading of Telecom Network to Fiber network
Backbone Fiber Network（km）
Percentage of Fiber in Access Network
700,000
Access Fiber Network (km)
80%
600,000
72%
90%
84%
80%
619,528
70%
492,312
500,000
60%
59%
395,690
400,000
km
50%
300,000
200,000 160,709175,776
100,000
0
43%
298,340
10%
212,969
191,871
13%
51,920 72,955
1994
1995
16%
107,139
290,153292,673
291,493
36%241,639
236,945
27%
288,252
40%
30%
243,997253,890
20%
19%
220,189
186,097
153,897
10%
0%
1996
1997
1998
1999
2000
2001
2002
2003
2004
19
2. Governmental IT Strategy
(1) e-Japan Strategy and Infrastructure building
e-Japan Strategy (2001-2004)(Office of Prime
Minister)
Strategy to Promote affordable and accessible high
speed access Internet access to at least 30 million
(always-on high speed Internet) and 10 million (access
to 30-100Mbps) in 5 Years.
In 2004, ADSL Accessible to 380 million household,
FTTH 180 million household.
Price of ADSL became 1/3.
20
2. Governmental IT Strategy
(2) u-Japan Strategy and Expanding use of ICT
u-Japan Initiative(2004 Decembe)(MIC, Japan)
the aim of leading the way as the world's most advanced IT
nation through 2010 following the e-Japan Strategy



Development of ubiquitous networks: 100% of the population to
connect to high-speed or ultrahigh-speed internet access.
Enhancement of ICT applications: To create a society in which
80% of the population can appreciate the role of ICT in resolving
issues.
Preparation of usage environment : To create a society in which
80% of the population feel comfortable with ICT.
21
2. Governmental IT Strategy
(3) Promotion of ICT use (Office of Prime Minister)
IT Policy Package (2005 Feb.)
Policy Package to Expand the use of ICT to public
services, medical services, and education etc.
IT New Reform Strategy(2006 Jun.)
Strategy of ICT use for structural reform and of
Ubiquitous network development.
On May 17, 2006, Cabinet decided to prolong the
applied period of “Provisional Measures Law for
Telecommunications Infrastructure Improvement”
to May 31, 2011.
22
3. Competition Policy and Market Analysis
(1) Interconnection Rules and Investment Incentive
2000 May, MIC
Adoption of Forward Looking Cost for Connection Fee.
Unbundling Fee
NTT East 158 Yen (120 Yen From 2004 April)
NTT West 165 Yen (113 Yen From 2004 April)
23
3. Competition Policy and Market Analysis
(1) Unbundling Obligation of Fiber network
2001 April.
Unbundling Obligation of Fiber network to carriers whose market
share is over 50%.
1 Fiber Access Line Fee per month 5074 Yen.
(Nationally flat fee )
2003 December 4,
Japan Fair Trade Commission
Demanded removal of NTT Fiber price because NTT price (4500
Yen) was lower than 5074 Yen.
NTT rejected the demand on 15 December 2003.
24
3. Competition Policy and Market Analysis
(3) Analysis of HHI on Each BB Market
From FY 2003 Regulatory Framework shift
ex-ante regulations to ex-post regulations
MIC introduced competition assessment
To monitor carriers’ market power to control each
market.
Assessment of Each BB market:
DSL, FTTH, Cable in FY 2005
→ There are tendency to shift FTTH network and growth
of NTT market share in FTTH market.
25
II. Impact of Policy and Regulation on BB in Japan
Summary: Two Aspect of BB policy in Japan
Investment
 Continuous FTTH investment for Affordable and
Accessible IP network by both government and
carriers.
Competition
 Regulatory competitive pressure works in Japan.
 Market competitive pressure also works in Japan.
 Market competition assessment from FY2003.
26
III. Impact of Carriers Strategies on Convergence
1. Strategies of Network Providers
2. Strategies of Competitive Carriers
3. Strategies of Cable network operators
27
1. Strategies of Network Providers
（1）Corporate strategy on Fiber network Development
NTT
2002 Nov.
“Vision for a New Optical Generation- Broadband
leading to the world of resonant communication."
2004 Nov.
“NTT Group's Medium-Term Management Strategy ”
Plan to shift to fiber NGN subscribers to 30 million by 2010
2005 Nov.
“Promoting NTT Group's Medium-Term Management
Strategy ”
Vision to build Fiber and Wireless seamless network
28
1. Strategies of Network Providers
（2）Continuous Investment on Fiber Network
Investment on Fiber Network and Percentage of Fiber
Access Network of NTT East
billion Yen
Total Investment on Facilities
Investment on Fiber Access Network
Percentage of Fiber Network in Access Network
450
400
350
300
250
200
150
100
50
0
422.2
399.1
377.8
334.2
410
90%
88%
86%
85%
84%
81%
76%
86
125
143
190
175
80%
75%
70%
FY 2002
FY 2003
FY 2004
FY 2005
FY 2006(plan)
Cf. NTT West FY 2005 Percentage of Fiber Network in Access Network is 87%
Data Source：MIC, Japan.
29
1. Strategies of Network Providers
（3）Cooperation with Governmental Policy
NTT
Group's Medium-Term Management Strategy (2004)
“help achievement of the e-Japan Strategy
and the u-Japan Initiative.“
Harmonized Governmental Policy
and Management Strategy
30
2. Strategies of Competitive Carriers
(1) Use of Unbundled Network - ADSL
Fiber Network Access Providers
Unbundled Network Users
NTT, Electronic Companies
vs.
Softbank BB, KDDI
Service Competition to differentiate ADSL service
Softbank BB speeded up of ADSL service
2001 September Start ADSL Service, Downstream 8Mpbs
2002 December Start Downstream 12Mbps + Wi-Fi Service
2003 June
Start Downstream 26Mbps ADSL service
2004 July
Downstream 45Mbps → 50Mbps
by software upgrade
31
2. Strategies of Competitive Carriers
(2) M&A and Strategic Coalition

Softbank BB
2004 May, Acquired Nihon Telecom
(with 12,000km Fiber network)

KDDI and TEPCO(Tokyo Electronic Power Company)
2005
Establishment of Broad coalition
2006 Jan. KDDI acquired Powered Com and FTTH
Network of TEPCO (127.4 billion yen).
As the price of Dark Fiber Network of NTT is fixed,
acquisition of access network is indispensable for access
price competition against NTT.
32
3. Strategies of Cable companies
(1) Upgrading to Fiber Network
(1000km)
Backbone Network（km）
Percentage of Fiber in Backbone
180
160
140
120
100
80
60
40
20
0
Fiber Backbone Network（km）
156
146
110 24.2%
128 26.7%
28.0%
35.0%
165
29.2%
30.1% 30.0%
25.0%
96
20.0%
17.7%
17
15.0%
27
34
41
46
50
10.0%
5.0%
0.0%
1999
2000
2001
2002
2003
2004
33
3. Strategies of Cable companies
(2) MSO (Multiple System Operators)
Cable industry in 2002 Total revenue: 506.1 billion yen
Recurring profit: 44.2 billion yen
Lack of Scalability
Development of MSO



Jupiter Telecom: 20 companies
Cable West: 6 companies
Japan Cable net: 14 companies (2006 Feb.)
(Deregulation of local carrier requirement in 1993.)
Cooperation among cable companies beyond service area

Shared use of cable facilities etc.
(1US$=114 yen)
34
3. Strategies of Cable companies
(3) Triple Play and Service Competition
Carrier
Internet
Multi-Channel
Video
Delivery
Bundled Fee
100Mbps
○
9765 Yen (House)
7297 Yen (Apartment)
Softbank 7.99 Yen
BB
100Mbps
○
7087 Yen (House)
4766 Yen (Apartment)
NTT East 8.3 Yen
100Mbps
○
9849 Yen
30Mbpes
○
10815 Yen
KDDI
J-Com
Telephone
(per 3 minute)
8.4 Yen
7.77 Yen
35
Summary of Factors on BB Development
DSL
FTTH
Cable(including dial-up)
16
14
12
8
6
4
2
Cable BB stumbles
because of lack of
scalability because of
investment on rural
area by small carriers
and municipalities
Rapid shift to FTTH
because of continuousl
investment and Carriers’
strategies
0
19
9
19 9.3
9
19 9.6
19 99.
99 9
20 .12
0
20 0.3
0
20 0.6
20 00.
00 9
20 .12
0
20 1.3
0
20 1.6
20 01.
01 9
20 .12
0
20 2.3
0
20 2.6
20 02.
02 9
20 .12
0
20 3.3
0
20 3.6
20 03.
03 9
20 .12
0
20 4.3
0
20 4.6
20 04.
04 9
20 .12
0
20 5.3
0
20 5.6
20 05.
05 9
20 .12
06
.3
million
10
Unbundling Policy of
Existing network and
DSL development
Since 2001
36
Conclusion
The Reason of BB Development in Japan
 Historical investment by governmental policy and
carrier’s strategy on Fiber network brought path
dependency
→ works as inducement of further fiber network investment

Unbundling obligation of DSL introduced competition in
BB Market by new entrance of carriers.
→ works as competitive pressure for both service
providers and facilities providers
37
Path Dependency: Experience in Japan
Decision Path
Continuous Promotion Network Investment
(Future Oriented Decision)
Establishment Strategic Policy
(Future Oriented Decision)
Promotion of Competition with Market Analysis
38