Understanding the Japanese Broadband Miracle April 4, 2007 Taka Ebihara Office of the Japan Chair Center for Strategic and International Studies (CSIS)
Agenda Broadband Market in Japan Market Statistics Broadband Services Competitive Landscape Broadband Policies Policies Accelerated BB Deployment Policy Implications 2
Broadband Market in Japan Market Statistics Broadband Services Competitive Landscape
Snapshot: Japanese Broadband Market Japan (US) Population: 127 mil, (290 mil) Households: 50 mil, (110 mil) Geography: 380,000 km 2 BB Subs: 25 mil*, (53 mil**) BB Penetration: 17.6%*** (16.8%***) 11 th (12 th ) Tokyo Osaka *As of Sep 2006 (MIC: Ministry of Internal affairs and Communications, Dec 2006 ) ** As of Jun 2006, Mobile Wireless excluded (FCC, Jan 2007) *** As of Dec 2005 (OECD 2006) 1,000 miles 4
BB Penetration Rate & Population Density Broadband Penetration 30.0 25.0 20.0 15.0 10.0 5.0 Broadband penetration (subscribers per 100 inhabitants, 2005) Population density (inhab/km 2, 2004) Population Density 600.0 500.0 400.0 300.0 200.0 100.0 0.0 Iceland S. Korea Netherlands Denmark Switzerland Finland Norway Canada Sweden Belgium Japan U.S. U.K. 0.0 Source: OECD 2006 5
Price for 1Mbps Bandwidth Japan S. Korea Taiwan Iceland 0.70 0.80 1.80 2.00 US Dollar / month Sweden U.S. Finland Netherlands Hong Kong Canada Belgium 2.50 4.90 7.30 7.30 8.30 10.50 12.20 U.K. 13.50 Source: ITU Internet Reports 2005 6
Growing Broadband Market in Japan In Million 20 10 Total: 25 million DSL 14.4M (58%) 5 FTTH CABLE 7.2M (29%) 3.5M (14%) 1999 2001 2002 2003 2004 2005 2006 3Q Source: Ministry of Internal affairs and Communications (MIC), Dec 2006 7
Broadband Net Increase (In Million) 3 DSL FTTH 2 1 0 2002 3Q 4Q 2003 1Q 2Q 2003 3Q 4Q 2004 1Q 2Q 2004 3Q 4Q 2005 1Q 2Q 2005 3Q 4Q Source: MIC, Mar 2006 8
Broadband Subscribers of NTT 6 DSL FTTH DSL increase/month FTTH increase/month 1400 Total (Million) 5 4 3 2 FTTH: 6.1 M DSL: 5.3 M (As of Mar 07) 1200 1000 800 600 400 200 Monthly Increase (Thousand) 1 0 0 2002 Sep 2003 Mar 2003 Sep 2004 Mar 2004 Sep 2005 Mar 2005 Sep 2006 Mar 2006 Sep 2007 Mar -200 Source: NTT EAST and NTT WEST (Apr 2007) 9
Monthly Charges of Broadband Services Indoor wiring 100M FTTH VoIP JPY500 FTTH (100Mbps) JPY4,100 Modem rental ONU rental JPY900 JPY200 ISP JPY1,000 JPY6,700 =$57 FTTB* VoIP JPY500 FTTB (100Mbps) JPY2,500 ISP JPY350 JPY600 JPY3,950 = $34 FTTB : For buildings and apartments (Optical fiber + VDSL) 47M ADSL POTS JPY1,700 ADSL (47Mbps) JPY2,500 Modem rental JPY540 ISP JPY850 JPY5,590 = $48 64k ISDN POTS JPY1,700 ISDN (64kbps) JPY2,800 ISP JPY700 JPY5,200 = $44 1USD=JPY117 Speed (bps) 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 (JPY/Month) Adapted from NTT EAST Corporate Information 10
Broadband Home Passed In case of NTT EAST (Largest incumbent) Home Passed 98%=25M households (FTTH) 75%=18M households Source: Information NTT EAST (As of Mar 2006) 11
BB Services Market Share DSL Acca Networks 8.1% eaccess 13.4% Others 3.9% Softbank (Yahoo! BB) 35.7% Incumbents (NTT East & West) 38.8% FTTH USEN 7.3% Electric utility companies 15.0% Others 11.7% 14.4M 7.2M 3G Mobile Softbank 9.4% (fmr Vodafone) KDDI 39.8% 63.2M NTT Docomo 50.8% Incumbents (NTT East & West) 66.0% Sources: -DSL & FTTH (as of Sep 2006), MIC, Dec 2006-3G Mobile: as of Jan 2006, -3G Mobile (as of Dec 2006), TCA: Telecommunications Carriers Association Mobile Total (2G+3G+PHS): 94.5M 12
Competitions in Broadband Market Price & speed competitions (2000~2005) Average monthly price down 47% in 5 years $56 /mth (1.5Mbps) $30 /mth (50Mbps) Services and content competitions (2005~) Quality IP telephony Broadcasting TV over fiber Interactive TV Free ad-supported video streaming (GyaO) Source: InfoCom Research 13
Towards Ubiquitous Net Society Next Generation Networks Initiatives Everything over FTTH & Super 3G Cellular Quad Play & Beyond Home Networking Solutions Broadcasters Internet ISPs Conventional Telephony (PSTN) Conventional TV (RF TV) Interactive TV (IP TV) Internet Access Internet Telephony (VoIP) FTTH Seamless Roaming Super 3G Cellular Home Networking 14
Advanced mobile phone applications e-payment Electronic wallet Retail shop Train ticket Vending machine ATM 15
Advanced mobile phone applications Digital mobile TV One Segment Broadcasting or One Seg based on ISDB-T Available nationwide by the end of 2006 Delivering richer content (visuals, related info, URLs) Benefits Major broadcasters: more viewership, more ad revenues Mobile operators: increasing data ARPU, e-commerce opportunities One Seg enabled devices Service availability as of Apr 2006 16
Japanese Broadband Policies ies Policies Accelerated BB Deployment Policy Implications Challenges for the Future
u-japan strategy & estimated impact Estimated economic impact in 2010 Ubiquitous networking industries: $730 billion* *1 USD = 120 JPY Source: White Papers for Information Communication 2004 18
Mitigating Digital Divide: Gov t financial supports for broadband Primary beneficiaries are municipalities For public sector Municipality intranet projects (schools, CCs, libraries) Rural FTTH projects (details in later slides) For both public and private sectors Zero- or low-interest-rate financing* For private sector Tax incentives* Deferred income tax payment Reduction of fixed asset taxes for designated network equipment *a very limited financial impact for the private sector due to a zero-interestrate policy of Bank of Japan 19
Gov t-financed rural BB deployment: Rural FTTx Projects Collaboration of municipalities and service providers 1/3 of construction costs is subsidized Municipality-owned fiber networks to be wholesaled Level playing field must be ensured Source: MIC 20
US-Japan Telecom Policy Comparison JPN US: Bell Companies US: Cable 1996 Now 96-Now Local copper loops unbundling Yes Yes Yes N/A Line sharing on copper loops Yes Yes Local fiber loops unbundling Yes Yes No new rules since 2003 No* new rules since 2003 No No Open access to incumbent carrier s Internet backbone Yes Yes No new rules since 2005 No * Some exceptions for high-capacity leased lines for enterprise use 21
Implications of Japanese BB Policies Unbundling mandates for both copper and fiber loops Line sharing requirement for primary lines Mixed results in terms of facility-based competition Fierce price competitions in DSL market forced incumbent operators to move up to FTTH market A role of national ICT strategies: e-japan and u-japan Investors comparatively better understanding on long-term investments 22
Conclusion Fastest and least expensive broadband Reasonable non-incumbent (CLEC) market share Mixed results of facility-based competition National ICT strategies played a significant role A need for a good balance between long-term and short-term development goals Maintaining incentives for innovative investment is the key to sustain broadband deployment 23