Broadband Situation in Japan Past, Present, and Future

June 6, 2011

Tatsuo Takita

Chief Consultant

InfoCom Research, Inc.

About Myself

1

Academic Career: 1988.3 Graduated from Keio Gijyuku University, Bachelor in Law 1999.12 Graduated from Oregon State University, College of Business, Master in Business Administration

Business Career: 1988.4 Joined Nippon Telegraph and Telephone Corporation (NTT) 1994.5 International Affairs Department, NTT 1996.3 Assistant Manager, Tokyo Chuo Branch, Corporate Sales Division, NTT 2000.3 Chief Consultant, InfoCom Research, Inc. 2005.7 Strategic Manager, International Office, NTT East 2009.4 Chief Consultant, InfoCom Research, Inc. Research/study regulation, Internet applications/Services, Venture business

Content of Today’s Presentation

2

Trend of Broadband Penetration <Past to Present>

Aggressive Price Reduction <Past>

Broadband Service Status - International Comparison <Present>

Broadband User Demographics <Present>

Broadband Usage <Present>

Popular Sites <Present>

An Interesting Case <Present>

What We learnt (Hypothesis) <Present>

ICT Utilization - International Comparison <Present>

To the Future <Present to Future>

Conclusion

Trend of Broadband Penetration <Past to Present>

3

Past to Present: Trend of Broadband Development

4

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

CATV 216 784 1456 2069 2578 2964 3310 3607 3782 4111 5315

DSL 0,2 71 2379 7023 11197 13676 14518 14013 12711 11184 9735

FTTH 0 0 26 305 1142 2890 5449 8795 12155 15020 17802

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

CATV

DSL

FTTH

‘000 subscribers

Broadband difusion started from DSL ,and changed to FTTH.

Currently, FTTH is the most popular broadband service in Japan.

Source: MIC (Ministry of Internal Affairs and Communications) As of March of each year

<Year to Year the Number of the Broadband users>

Past: Trend of DSL Increase Dramatic Change

5

0

1000

2000

3000

4000

5000

6000

DSL

FTTH

‘000 subscribers

Source: MIC (Ministry of Internal Affairs and Communications)

The increasing trend changed August / September 2001. New entrant(s) to the market with price destruction drove the penetration.

<The Monthly Number of the DSL / FTTH users From 2001 to 2002>

Aggressive Price Reduction <Past>

6

Past: Trend of ADSL Price Reduction

7

New entrants with low price drove the others’ prices down.

Source: MIC “Trends of ICT Charges and Competition Policy” March 1, 2010

yen NTT East E Access Softbank BB

Past: Trend of FTTH Price Reduction

8

Price reduction started from ADSL. That led to the price reduction of FTTH.

Source: MIC “Trends of ICT Charges and Competition Policy” March 1, 2010

yen

KDDI

NTT West

NTT East

K-Opti.com

Broadband Service Status International Comparison

<Present>

9

Present: Status of Households Broadband Penetration

10

00

20

40

60

80

100

120

Ko

rea

Icel

and

Swe

de

n

No

rway

Net

her

lan

ds

Den

mar

k

Fin

lan

d

Luxe

mb

ou

rg

Un

ited

Kin

gdo

m

Can

ada

(20

08

)

Ger

man

y

Un

ited

Sta

tes

Bel

giu

m

Swit

zerl

and

(2

00

7)

New

Ze

alan

d

Au

stra

lia (

200

8)

Esto

nia

Jap

an

Au

stri

a

Fran

ce

Slo

ven

ia

EU2

7

Irel

and

Spai

n

Po

lan

d

Hu

nga

ry

Cze

ch R

epu

blic

Po

rtu

gal

Slo

vak

Rep

ub

lic

Ital

y

Gre

ece

Turk

ey (

200

7)

Ch

ile (

200

6)

Mex

ico

<Households with broadband access, 2009 or latest available year>

Source: OECD Broadband Statistics 2010

%

Households broadband penetration is not significantly high in Japan

Present: Status of xDSL Coverage

11

0

20

40

60

80

100

120

Luxe

mb

ou

rg

Net

her

lan

ds

Po

rtu

gal

Un

ited

Kin

gdo

m

Bel

giu

m

Ko

rea

Den

mar

k

Jap

an

Fran

ce

Swit

zerl

and

Swed

en

Cze

ch R

epu

blic

Spai

n

Fin

lan

d

Ital

y

Au

stri

a

Ger

man

y

Gre

ece

Icel

and

New

Ze

alan

d

Mex

ico

Au

stra

lia

Hu

nga

ry

Irel

and

No

rway

Can

ada

OEC

D a

vera

ge

Un

ited

Sta

tes

Slo

vak

Rep

ub

lic

Po

lan

d

Turk

ey

<Coverage of xDSL networks (% population or % households or % lines)>

Source: OECD Broadband Statistics 2010

Coverage of xDSL network in Japan is in the highest range.

Present: Status of 3G Coverage

12

0

20

40

60

80

100

120

< 3G Population Coverage>

Source: OECD Broadband Statistics 2010

%

3G population coverage is very high in Japan.

Present: Status of FTTH/B Availability

13

0

10

20

30

40

50

60

70

80

90

100

<FTTH/B Household Availability>

Source: OECD Broadband Statistics 2010

%

FTTH/B Household availability in Japan is extremely high.

Present: Status of Broadband Download Speed

14

20 000

40 000

60 000

80 000

100 000

120 000

Mex

ico

Ch

ile

Irel

and

Luxe

mb

ou

rg

Spai

n

Un

ited

Sta

tes

Isra

el

Gre

ece

Turk

ey

Ger

man

y

Hu

nga

ry

Swit

zerl

and

Can

ada

New

Ze

alan

d

Esto

nia

Po

lan

d

Bel

giu

m

Den

mar

k

Cze

ch R

epu

blic

Un

ited

Kin

gdo

m

Icel

and

Au

stri

a

Ital

y

Fin

lan

d

Au

stra

lia

OEC

D

Net

her

lan

ds

No

rway

Slo

vak

Rep

ub

lic

Ko

rea

Slo

ven

ia

Fran

ce

Jap

an

Po

rtu

gal

Swe

de

n

Average advertised broadband downloadspeed, kbit/s*

Median

Source: OECD Broadband Statistics 2010

Kbps

<Average advertised broadband download speed, by country, kbit/s, September 20>

Average broadband download speed is in the highest range.

Median download speed is the highest.

Present: Status of Fiber Connection

15

0% 10% 20% 30% 40% 50% 60%

Ireland

Germany

Finland

Switzerland

Turkey

Poland

Italy

Netherlands

Portugal

United States

Iceland

Hungary

Czech Republic

OECD

Denmark

Norway

Sweden

Slovak Republic

Korea

Japan

Source: OECD Broadband Statistics 2010

<Percentage of Fiber Connections in Total Broadband Subscribers, June 2010>

The percentage of the Fiber Connections is extremely high among the countries.

Broadband User Demographics <Present>

16

Present: BB User Demographics - Gender

17

Source: MIC “Trend in Info-Communications Usage 2010”

40,6

45,1

36,3

47

52

42,3

49,3

54,7

44,2

0

10

20

30

40

50

60

Total Men Women

2007

2008

2009

<Broadband Users as a % of Total Men and Women>

60% 80% 100%

Total

Men

Women

85,8

86,3

85,2

14,2

13,7

14,8

BB NB

<Broadband Users as a % of the Internet Users> %

Among the internet users, there is no significant difference in terms of gender.

Among the consumers as a whole, men have higher percentage as broadband users.

Present: : BB User Demographics – Living Area Types

18

Source: MIC “Trend in Info-Communications Usage 2010”

0

10

20

30

40

50

60

Metropolitan Areas Cities Towns/Vilagges

2007

2008

2009

<Broadband Users as a % of Living Area Types> %

As usually presumed, metropolitan areas have the highest percentage for the broadband users.

Towns/villages have comparatively lower percentage, which may lead to digital divide.

Present: Influential Factors for Broadband Usage

19

Source: MIC “Trend in Info-Communications Usage 2010”

000

000 000

001 001 001

001

000

-001

-001

000

000

000 000 000

000 000

000 000

000 000

000 000

000 000 000

000

000

000

-002

-001

-001

000

001

001

Men Women 6-12 13-19 20-29 30-39

40-49 50-59 60< 20,000> 20,000-40,000 40,000-60,000

60,000-80,000 80,000-100,000 100,000< Hokkaido Tohoku Kitakanto

Minamikanto Hokuriku Koushinetsu Tokai Kinki Chugoku

Shikoku Kyusyu Metro Areas Cities Towns/Villages

<Factors for Broadband Use with Multivariable Analysis>

“Age” is the most influential factor for the broadband usage, but this may need further study.

Gender Age Annual Income Location Area Type

Metro Near Tokyo Over 6 mil. yen

13 yr to 59 yr

Broadband Usage <Present>

20

Present: Comparison of Internet Usage by the User type

21

00 10 20 30 40 50 60 70

Coporate/Government Web

Email

E-Commerce

Personal Web

Map/Navigation Services

Digital Contents (Free)

Motion picture sites

Mail Magazines

Net Auction

Digital Contents

Banking/Trading

BBS/Chat

Questionnaire

Quize/Prize

File Sharing

Broadband

Narrowband

<Internet Usage for Broadband / Narrowband Users>

Source: MIC “Trend in Info-Communications Usage 2010”

%

Internet Activities are not significantly different between broadband users and narrowband users in Japan.

Present: Difference of usage by the user type

22

21

16

15

15

14

13

13

11

09

09

07

07

07

06

06

00 05 10 15 20 25

Personal Web

E-Commerce

Email

Motion picture sites

Coporate/Government Web

Mail Magazines

Digital Contents (Free)

Map/Navigation Services

BBS/Chat

Net Auction

Banking/Trading

Questionnaire

Digital Contents

Quize/Prize

File Sharing

Source: MIC “Trend in Info-Communications Usage 2010”

<Internet Usage Difference between BB and NB Users > %

The largest difference is “personal web” surfing.

Not so bandwidth-consuming applications.

Popular Sites <Present>

23

Present: Most Popular Sites top 15

24

Source: Alexa “Top Sites in Japan”

<1>

<2>

<3>

<4>

<5>

<6>

<7>

<8>

<9>

<10>

<11>

<12>

<13>

<14>

<15>

An Interesting Case <Present>

25

Present: An Interesting Example “Nico Nico Douga”

26

Source: http://www.nicovideo.jp/

Japanese original motion picture site.

Launched in 2007

Live streaming started in 2008

“Nico Nico Channel” started in 2008

The number of premium members is more than 1.2 million.

Premium membership fee: approx. USD6.00/month

Premium members can enjoy “fast lane service” to see motion pictures.

Present: “Nico Nico Douga” Business Model

27

Source: Financial report of dwango 2011 2nd quarter

Premium Membership

Advertising

Million Yen Revenue

Affiliate Point Program, Others Operating Loss/Profit

Approx. 80% of revenue

From Red to Black

The largest portion of the revenue comes from premium membership. Advertising accounts for rather small percentage (13%).

In 2010, it moved into the “black.”

Present: “Nico Nico Douga” Competitive Advantages

28

1. Unique Community

1. Nico Nico Nama Hoso (Live Streaming)

Unique comment feature makes users have sharing experience.

If this is live streaming, it is like twitter and motion pictures at the same time and overlapping.

Comments uploaded by users showing up in the pictures

E-commerce products uploaded by premium members. These are merely links to Amazon or other e-commerce sites. Premium members do not get any fee.

Since this service is live, general user sometimes could not enjoy the live streaming due to system constraints.

This led to the increase of the number of the premium users.

Source: http://www.nicovideo.jp/

What We learnt (Hypothesis) <Present>

29

Past to Present: 3G and FTTH

30

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

3G 0 0 0 7186 16830 30353 48329 69909 88097 99631 109057

CATV 216 784 1456 2069 2578 2964 3310 3607 3782 4111 5315

DSL 0,2 71 2379 7023 11197 13676 14518 14013 12711 11184 9735

FTTH 0 0 26 305 1142 2890 5449 8795 12155 15020 17802

0

20000

40000

60000

80000

100000

120000

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

3G

CATV

DSL

FTTH

‘000 subscribers

The increasing trend of FTTH and 3G is almost same.

Source: MIC (Ministry of Internal Affairs and Communications) , TCA(Telecommunications Carriers Association), As of March of each year

<Year to Year the Number of the Broadband users (3G Included)>

Present: Why Choose FTTH

31

65,1

53,1

43,4

34,4

31,1

0 10 20 30 40 50 60 70

Speed

Always-On

Cheaper

Advertisment

Already Equiped

Source: MIC “The result of questionnaire for ICT service monitors 2009 ”

The latest research shows that top 3 reasons for choosing FTTH is: “Speed,” “Always-on,” and “Cheaper than other broadband services”. “

Present: Why FTTH is Cheaper

32

DSL service needs basic line charge, but FTTH doesn’t.

Call charge of VoIP over FTTH doesn’t have “distance concept.”

Total Cost of DSL

Total Cost of FTTH

Basic Line Charge DSL Charge

FTTH Charge

=

=

+ Total Cost

Call Charge of “Hikari Telephone” (VoIP over FTTH)

Hikari Telephone to Hikari Telephone/PSTN : Y8.4/3 min. Hikari Telephone to Mobile Phone : Y16.88, Y18.375/60 sec., Y11.34/3 min.

•”Y” stands for Japanese Yen. •The total cost diagram is simplified for the explanation purpose.

Source: NTT East web site at http://flets.com/first/index.html?banner_ID=200001

Present: Hypothesis from Empirical Evidence

33

Timing Issue: 3G and FTTH penetration was somehow related.

Application Issue: Transition needs replacement from one thing to another, and voice is strong application.

Feeling Issue: “Fun” is important. Giving customers more choice may be something good.

ICT Utilization International Comparison

<Present>

34

Present: Status of ICT Utilization

35

6,15

6,11

6,11

6,06

6,03

5,76

5,76

5,73

5,67

5,64

4,87

0 2 4 6 8

Sweden

Singapore

Qatar

Taiwan, China

United Arab Emirates

Luxemburg

Iceland

Korea, Rep.

Malta

Portugal

Japan

Impact of ICT on Access to Basic Services Top 10

Source: World Economic Forum “The Global Information Technology Report 2010-2011”

6,33

5,98

5,88

5,83

5,83

5,82

5,76

5,74

5,69

5,67

5,26

0 2 4 6 8

Sweden

Taiwan, China

Korea, Rep.

Singapore

France

United Kingdom

Norway

Iceland

Canada

United States

Japan (26) (45)

Impact of ICT on New Services/Products Top 10

According to “The Global Information Technology Report 2010-2011” by World Economic Forum, Japan is in the lower range in terms of ICT utilization.

6,16

6,15

5,99

5,74

5,73

5,67

5,66

5,57

5,54

5,54

4,28

0 2 4 6 8

Qatar

Singapore

Sweden

United Arab Emirates

Taiwan, China

Korea, Rep.

Portugal

Estonia

Malta

Austria

Japan (68)

ICT Use and Government Efficiency Top 10

To the Future <Present to Future>

36

Present to Future: Fundamental Principles of “Path of Light” Strategy

37

Source: MIC “Fundamental Principles of “Path of Light” Strategy” August 31, 2010

The Japanese government formulated the strategy to promote ICT utilization.

Pillar1: Incentives to promote foundation of ICT utilization

Pillar 2: Review of rules for fair competition

Pillar 3: Regulatory reform to promote ICT utilization

Fun

dam

enta

l Pri

nci

ple

s o

f “P

ath

of

Ligh

t” S

trat

egy

•Financial support for municipalities to develop broadband facility for ICT in such as medical care, education, administration

•Realignment of frequency for wireless broadband

•Review of dominant regulation such as reinforcing firewall, open access NW

•Deliberate NTT organizational formation from various perspectives etc.

•Thrash out regulations to hinder ICT utilization

•Increase incentives for broadband utilization for municipalities

Conclusion:

38

Broadband penetration in Japan was driven mainly by price reduction backed by regulation.

Hypothetically, migration to FTTH related to timing issue, application issue, and feeling issue from empirical evidence. However, remaining migration needs more, and ICT utilization as a whole is still on its way.

Increase of broadband utilization and/ or develop killer application is the key for the future.

FYI: Comprehensive Data book about the Japanese ICT Market

39

CONTENTS Topics: The Latest Trend of ICT Chapter 1: A Big Picture of Info-Communications

Industry Chapter 2: Domestic Info-Communications Market Chapter 3: Diversifying Personal Services Chapter 4: Corporate ICT Market on Its Way to

Recovery

This is an ONLY English book describing ICT market and industry in Japan, that are drastically changing.

Information & Communications in Japan 2011