Internet Over Power Lines

Internet Service over Power Lines in Japan: Costs and Policy Implications

by

Atsumasa Sakai Bachelor of Engineering, Electrical Engineering

University of Tokyo, Japan, 1993

Master of Engineering, Electronic Engineering University of Tokyo, Japan, 1995

Submitted to the Engineering Systems Division

in Partial Fulfillment of the Requirements for the Degree of

Master of Science in Technology and Policy

at the

Massachusetts Institute of Technology

June 2003

2003 Massachusetts Institute of Technology All rights reserved.

Signature of Author……………………………………………………………………………………………………….

Technology and Policy Program, Engineering Systems Division May 19, 2003

Certified by………………………………………………………………………………………………………………. Sharon Eisner Gillett

Research Associate, Center for Technology, Policy and Industrial Development Thesis Supervisor

Certified by………………………………………………………………………………………………………………. Dr. Chathan M. Cooke

Principal Research Engineer, Laboratory for Electromagnetic and Electronic Systems Thesis Reader

Accepted by……………………………………………………………………………………………………………… Daniel Hastings

Professor of Aeronautics and Astronautics and Engineering Systems Director, Technology and Policy Program

Chairman, Committee for Graduate Students

3

Internet Service over Power Lines in Japan: Costs and Policy Implications

by Atsumasa Sakai

Submitted to the Engineering Systems Division on May 19, 2003

in Partial Fulfillment of the Requirements for the Degree of Master of Science in Technology and Policy

ABSTRACT Thanks to high demand for broad band Internet service at a lower charge in Japan, it is expected that Internet service over power lines (IPL) will be launched in the near future. The problem, however, is whether the Japanese government should regulate IPL because of its potential antitrust issue. First, because of their stable financial base, electrical power companies might be able to offer bundled IPL service at a small charge to their electrical customers. Secondly, since an electrical power company has a so-called last one mile medium, a power line, which connects with every customers in its area, it might be possible for an electrical power company to capture most of the market share in the broad band Internet access service. The first part of this thesis analyzes the question of whether electric power suppliers have a cost advantage over the other broadband Internet data access providers such as telephone companies and cable television companies in providing the IPL service. After the analysis of the cost advantage, the thesis analyzes the potential antitrust issue of electrical power companies. First half of this part analyzes electric power company's steps to be a potential monopoly in the broadband Internet industry. Second half analyzes the same issue but in electrical power industry. IPL service bundled with power supply service might also result in unfair competition in the deregulated electric power industry because the incumbent utility company could use low-voltage power line network, which entrants do not have. The results show that IPL would not have a cost advantage over the other broadband Internet services under the current situation in Japan. The sensitivity analyses advise how IPL can be more cost-effective in the future. Based on the findings, the policy chapter recommends that the Japanese government should not impose strict regulation on power companies with the IPL service, including unbundling network equipment policy (UNE-P). Thesis Supervisor: Sharon E. Gillett Title: Research Associate, Center for Technology, Policy and Industrial Development

5

Acknowledgments

First and foremost, I would like to express my profound gratitude to Tokyo Electric Power

Company Inc. (TEPCO) for granting me support to pursue my graduate studies at Massachusetts

Institute of Technology. The support has given me opportunities to be exposed to higher

education abroad, to work on a project I am interested in, and to prepare myself to better serve

my company and society.

There are three people whom I would like to acknowledge individually. First, I am

deeply grateful to Professor Gillett, my thesis supervisor, for her much-appreciated

encouragement, and careful and wise guidance of my study. This thesis could not have been

completed without her plentiful advice and insightful comments, which have enriched my thesis.

Secondly, I would like to offer my sincere thanks to Dr. Cooke, my thesis reader, for his

insightful and critical comments and suggestions on the technical aspects. Third, I owe a great

deal to Mr. Abe of TEPCO, whose advice has helped my study substantially.

I would like to thank all the staffs and my friends in Technology and Policy Program,

specifically those who shared joy in intramural sports games as well as hard times in and out of

the class room with a myriad of projects during these precious two years.

Last, but never least, I thank my wife, Kaoru, for everything, specifically sharing this

exciting time here in Boston.

Atsumasa Sakai

May 19, 2003

6

to my wife, Kaoru, and my parents

7

Table of Contents Table of Contents 7 List of Figures 10 List of Tables 12 Chapter 1. Introduction 13 1.1. Motivation for the study 14 1.2. IPL industry 14 1.2.1. The history and current situation of IPL 14 1.2.2. The map of IPL industry 16 1.3. Perspective 17 1.3.1. Engineering cost models 17 1.3.2. IPL technology 18 1.3.3. Unbundled network elements (UNE) policy 18 1.3.4. IPL industry research 19 1.4. This thesis 20

Chapter 2. IPL Technology 21 2.1. Electrical power distribution networks 21 2.1.1. Topology of existing systems 21 2.2. Internet access over power lines (IPL) 23 2.2.1. Outline of IPL technology 23 2.2.2. Transmission of digital data: physical layer 25 2.2.3. MAC technology for IPL: data link layer 27 2.3. Network architectures 28 2.3.1. Fiber & low-voltage (LV) line network architecture 29 2.3.2. Medium-voltage (MV) & LV line network architecture (pure IPL network) 31 2.3.3. MV& wireless network architecture 32 2.3.4 Fiber to the Home (FTTH) 33 2.4. Implications of IPL plant evolution 34 2.4.1. Subscriber equipment 34 2.5. Evaluation of IPL LAN as Internet access network 36 2.5.1. Speed 36 2.5.2. Full- time connections 36 2.5.3. Security and network integrity 36 2.5.4. Availability 36 2.6. Market Overview 37 2.6.1. The perspective of future price 39 2.6.2. The emergence of FTTH 41 2.6.3. The market window for IPL in Japan 41 2.7. Technical Issues 42 2.7.1. Emission of electromagnetic waves 42

8

2.7.2. Standardization 44 2.7.3. Noise 45 2.7.4. Bypassing a transformer 45

Chapter 3. Cost Model 46 3.1. Basic idea of the model 46

3.2. Assumptions 47 3.2.1. Business model: wholesaler of access networks 47 3.2.2. Network architecture and facilities 48 3.2.3. Type of customers and networks 49 3.2.4. LAN size 50 3.3. Input cost elements: technology reference model 51 3.3.1. Costs shared by customers per cell 53 3.3.2. Costs shared by customers per LAN 55 3.3.3. Cost paid by one customer 59 3.4. Output cost elements 61

Chapter 4. Results 62 4.1. Result variables 62 4.2. Initial results 62

4.2.1. Cost per home passed 62 4.2.2. Cost per subscriber 64 4.2.3. Other findings: Cost structure 66 4.3. Reality in Japan 67 4.3.1. Definition of N (number of homes passed per LAN) 69 4.3.2. The cost per home passed with Japanese reality 69 4.3.3. The cost per subscriber with Japanese reality 71 4.3.4. Sensitivity analysis: Market window for IPL 72 4.4. Profitability of IPL 73 4.4.1. Modem sale 73 4.4.2. The number of homes passed per LAN 74 4.4.3. The reduction of the equipment cost per LAN 76 4.5. Conclusion 76

Chapter 5. Policy Implications 77 5.1. Japanese antitrust policy 77 5.1.1. The antitrust policy in telecommunications market 78 5.1.2. The antitrust policy in the electricity market 82 5.2. Antitrust issues in IPL 84 5.2.1. Broadband Internet market 84 5.2.2. Electricity market 85 5.3. Other policy issues 86 5.3.1. Asset allocation 86 5.3.2. Rights of way (pole and conduit) 88 5.3.3. Interference with radio waves 89

9

5.3.4. Use of customer information obtained by an electricity business 91 5.4. Policy recommendations 92

Chapter 6. Conclusions 93

6.1. Summary of key findings 93 6.1.1. Key findings from the cost analyses 93 6.1.2. Key findings from the policy analyses 94

6.2. Suggestions for further research 96 6.3. Policy recommendations 96

Endnotes 98 Bibliographies 99

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List of figures Fig. 2.1.1. Outline of electrical power network

Fig. 2.1.2. Outline of distribution network (overhead)

Fig. 2.1.3. Logical bus architecture of LV network

Fig. 2.2.1. Communications over power lines

Fig. 2.2.2. Sample IPL spectrum map on an electrical wire

Fig. 2.2.3. Internet over power lines

Fig. 2.2.4. OFDM spectrum

Fig. 2.3.1. Interoffice transmission network

Fig. 2.3.2. IPL LAN

Fig. 2.3.3. The image of Fiber and LV line network architecture

Fig. 2.3.4. The image of MV&LV lines network architecture

Fig. 2.3.5. The image of MV & wireless network architecture

Fig. 2.3.6. The image of FTTH network architecture

Fig. 2.6.1. The penetration of Broadband Access

Fig. 2.6.2. The price of ADSL

Fig. 2.6.3. The prediction of ADSL price

Fig. 2.6.4. The price of FTTH in Japan

Fig. 2.7.1. The differentiation mode and the common mode

Fig. 2.7.2. Dipole and Monopole

Fig. 3.1.1. The image of the cost model

Fig. 3.2.1. The coverage of the model

Fig. 3.3.1. The image of Fiber and LV lines network architecture

Fig. 3.3.2. The image of equipment at a substation

Fig. 3.3.3. The image of equipment at a pole

Fig. 4.2.1. Monthly IPL cost per home passed per LAN (modem rental)

Fig. 4.2.2. Monthly IPL cost per subscriber per LAN (modem rental)

Fig. 4.2.3. Monthly IPL cost per subscriber per LAN with various numbers of homes

passed per LAN(modem rental)

Fig. 4.2.4. The necessary number of homes per LAN (modem rental)

Fig. 4.2.5. The cost structure of total cost

11

Fig. 4.3.1. The current market size for IPL in Japan

Fig. 4.3.2. The market window for IPL in Japan

Fig. 4.3.3. Monthly IPL cost per home passed with Japanese reality (modem rental)

Fig. 4.3.4. Monthly IPL cost per subscriber with Japanese reality (modem rental)

Fig. 4.3.5. Monthly IPL cost per subscriber with various market windows in Japan

(modem rental)

Fig. 4.4.1. Monthly IPL cost per home passed per LAN with Japanese reality (modem sale)

Fig. 4.4.2. Monthly IPL cost per subscriber per LAN with Japanese reality (modem

rental)

Fig. 4.4.3. The necessary number of homes per LAN with Japanese reality (modem

rental)

Fig. 5.1.1. The relationship between MPHPT and JFTC

Fig. 5.1.2. The organizations in charge of the telecommunications policy

Fig. 5.1.3. The organizations in charge of the electricity policy

Fig. 5.1.4. The difference between the two cases

Fig. 5.3.1. The spectrum map ranging from 1 to 30 MHz in Japan

12

List of tables Table 2.1.1. Protocol layers of Internet access over power lines

Table 2.3.1. The summary of the network architectures

Table 2.5.1. The comparison of broadband access technology in Japan

Table 2.6.1. The number of subscribers of broadband Internet in Japan

Table 3.2.1. Japanese power companies’ business model of FTTH

Table 3.2.2. The number of customers

Table 3.3.1. The cost shared by customers per cell

Table 3.3.2. The cost shared by customers per LAN: onetime cost

Table 3.3.3. The cost shared by customers per LAN: ongoing cost

Table 3.3.4. The cost paid by one customer

Table 4.3.1. The retail prices of other broadband Internet methods

Introduction 21

Introduction 13

Chapter 1. Introduction

The Japanese government stated in its e-Japan project in the summer of 2001 that the

Internet service over power lines (IPL) was one of the promised access methods to promote the

broadband Internet in Japan. The problem, however, is whether the Japanese government should

regulate IPL strictly because of its potential antitrust issue. Power companies could offer the

low-priced Internet service because of the economy of, scope utilizing power lines. This fact is

advantageous to power companies, considering tha t the Japanese giant telephone company,

Nippon Telegraph and Telephone Corporation (NTT), is regulated by the unbundled network

elements (UNE) policy. A simple view might conclude that the power companies should also be

regulated by the UNE policy.

Meanwhile, the Japanese retail power market has been liberalized partially since March

2000, aiming that the competition would result in the price decrease of the electricity service,

which was relatively more expensive than those of other countries. The problem, however, is

whether the IPL service by the incumbent power companies might hinder this progress. The

electricity customers would be happy to stay intact if they are offered the bundled IPL service

with the electricity service, specifically at a discounted rate. Because the electricity entrants

have no way to offer the IPL services, such a bundled service would be regarded as an

anticompetitive tactics.

The Japanese government analyzes the potential antitrust issues using the “degree of

influence to society” to measure such market power described above. The weakness of the

measurement is that the “degree of influence to society” does not show the quantitative analysis.

Therefore, this thesis proposes to use the engineering cost model, which complements the

“degree of influence to society” measurement.

This thesis investigates the hypothesis that the power companies’ distribution network

enables them to provide more cost-effective Internet access than the other existing broadband

Internet access technologies such as ADSL and cable modem Internet.

To derive conclusions, I used the engineering cost model methodology for the analysis of

IPL costs. Because IPL technology is still in its early stages and there are few market available

products, I estimated the costs by assuming three scenarios: best, worst and intermediate. As for

the business model, I assumed that power companies would directly serve as wholesalers of

Chapter One 14

access networks to the Internet service providers (ISPs), as many ADSL access providers do.

Observing the business model, which Japanese power companies apply to their Fiber to the

Home (FTTH) service, I found that two companies offered the service by themselves and three

companies did through their affiliates. Considering the efficient maintenance of electrical wires,

however, I assumed that power companies would operate the IPL network directly. Finally, I

tested variations in the input parameter values as sensitivity analyses of the model.

The results show different conclusions from the hypothesis. IPL would not be as cost-

effective as existing broadband access methods under the assumption I made. The cost structure

of IPL also gives insight into what follows naturally from the technology. For example, the

results show that the cost of devices per low-voltage (LV) distribution network occupies the

significant component of the cost per subscriber. If IPL technology could expand the number of

subscribers under one LV network in future, it would be more cost effective.

The rest of this chapter discusses the hypothesis stated above in more detail. It

concludes providing a framework for the rest of the document.

1.1. Motivation for the study

According to the Telecommunications Council (TC), the “degree of influence to society”

is one of the most significant criteria to determine whether to regulate or not (76, 77). The

weakness, however, is that there has not been quantitative measure to show the “degree of

influence to society. ” To make it worse, the estimate of the entrants’ market power in the

broadband market is even tougher for the Japanese government than the estimate in the telephone

market, where only Nippon Telegraph and Telephone Corporation (NTT) had a dominant market

power. Under the current situation in Japan, I believe that this thesis’ quantitative approach to

measure the market power of the entrants will help the regulator to implement more effective

policies. Specifically, because it is uncertain how dominant a market power would IPL have in

the broadband Internet market in Japan, I believe that the cost comparison would give the clear

chart to measure the market power of power companies.

1.2. IPL industry

1.2.1. The history and current situation of IPL

Introduction 15

The history of IPL has not been without difficulties.

In Japan, IPL was regarded as one of the promised access methods of broadband Internet

in e-Japan project in the summer of 2001 (IT Strategy Headquarters Part II. Ch.1. sec.4.). The e-

Japan project is the government project, whose goal is to make Japan the top IT nation within 5

years since 2001. The implementation of IPL, however, was postponed in the summer of 2002

because the government research found that IPL might emit unintended radio waves which

bother existing broadcast service and amateur radio.

In other countries, there have been several technical and regulatory obstacles which make

the commercial IPL service difficult.

’99 Nor.Web, a venture between Nortel of Canada and United Utilities of Great Britain,

discontinued its IPL service in Great Britain (*1).

’02 Sept. RWE AG, a German utility, discontinued its one year commercial IPL

service with Ascom, a Switss vendor, in Germany (*2).

(Sources: *1: Libby; *2: F.A.Z.-Institut)

According to the Yankee Group, while the reasons of Nor.Web’s decision are not clear, the

followings might be the reasons: the emission issue, the expensive cost of the devices, fast

deployment of other broadband access such as ADSL and cable modem Internet, and the

management decision to redirect their focus (Libby 9).

Despite these terminations, several companies have started the commercial IPL service.

’01 July VYPE, a joint venture between a municipal power company, MVV (Mannheim

VerkehrsVerein), and a vendor, Power Plus Communications, launched the

commercial IPL service in Germany (*3).

’02 Dec. Hutchison Global Communications (HGC) started the commercial IPL

service in Hong Kong (*4).

’03 Feb. Scottish Hydro-Electric launched the trial IPL service in Scotland (*5).

(Sources:*3: Power Plus Communications; *4: Kwok; *5: Minto)

The unique challenge of IPL in Japan is that the number of homes covered by a

distribution transformer is small, around 10 to 20, while that of Europe is up to around 350

(Libby 10). This difference is derived from the voltage which a country uses. While Japan or

Chapter One 16

other countries, including the U.S, use 100/120V to 120/240 V distribution networks, European

countries use 220/380 to 240/415 V. In fact, commercial IPL services have been done only

nations which use 220 to 240 V systems, as seen above.

This fact leads to the higher cost per subscriber in Japan than that in Europe, and this is

the main reason why the IPL activity has been more popular in Europe than in Japan.

1.2.2. The map of IPL industry

There are several IPL organizations in the world. The key players are as follows:

• PLC Forum (Power Line Communications Forum): PLC Forum was founded in March

2000. The members of this organization are from worldwide.

<http://www.plcforum.org/>

• UPLC (the United Power Line Council): UPLC was founded in late 2001 in the U.S. The

main members are vendors.

<http://www.uplc.utc.org/>

• PLCA (the Power Line Communications Association): PLCA was founded in December

2001 in the U.S. The main members are utilities.

<http://www.plca.net/>

These three organizations cooperate together. Several Japanese power companies participate in

one or two of these organizations, though there is no organization like them in Japan.

The related organizations are shown below.

• The Columbia Institute for Tele-Information (CITI): a telecommunications research

center at Columbia University. ”CITI has been monitoring the development of Power

Line Communication (PLC) […] for more than a year.” (CITI).

http://www.citi.columbia.edu/

• HomePlug Powerline Alliance (HPA): although they aim at the home networking using

electrical wires, their basic technology is the same as those used by some IPL vendors.

HPA was founded in April 2000.

<http://www.homeplug.org/ >

• Echonet: this Japanese organization aims at the home networking using electrical wires as

well as wireless technology, founded in 1997.

Introduction 17

<http://www.echonet.gr.jp/index.htm>

• CISPR: “The International Special Committee on Radio Interference (CISPR) was

established in 1934 by a group of international organizations to address radio interference.

CISPR is a non-governmental group composed of National Committees of the

International Electrotechnical Commission (IEC), as well as numerous international

organizations. Many national spectrum regulators are represented” (Office of Spectrum

Management, 1).

<http://www.iec.ch/cgibin/procgi.pl/www/iecwww.p?wwwlang=E&wwwprog=dirdet.p&

committee=SC&number=cispr>

• IEEE Power Engineering Society Power System Communications Committee (PSCC):

Power Line Carrier Subcommittee (SC-3) is in charge of power line communications.

<http://www.ewh.ieee.org/soc/pes/pscc/>

As described, the emission issue is one of the challenges of IPL implementation. Because

regulations on frequency differ among nations, the IPL industry has tried to establish a unified

international standard, which would result in IPL cost decrease in the long run.

1.3. Perspective

The main purpose of this study is to analyze the potential antitrust issues of implementing

IPL in Japan quantitatively. The results could lead to strict regulations like unbundling

distribution power network elements to telecommunications carriers. Many previous studies deal

with the open access policies about cable networks in the U.S. Although their arguments focus

only on cable networks in the U.S., there are several similarities between their arguments and the

IPL argument. This study tries to argue the UNE policy over power networks combining the

arguments about these cable networks with Japanese power networks’ uniqueness. The rest of

this section introduces previous studies related to this thesis.

1.3.1. Engineering cost models

This thesis analyzes the cost of connecting homes to the Internet through electricity

infrastructure and discusses the technology and policy issues involved. It uses the engineering

cost model methodology, which was used in (Reed, 1993), (Reed, 1992), (Johnson and Reed,

Chapter One 18

1990), (Sirbu, Reed and Ferrante, 1989), (Gillett, 1995), and (Fryxell, Sirbu and Wanichkorn,

1999). The first four works deal with “the question of integration: are there economies of scope

or scale for either cable or telephone companies to provide multiple services over a single

‘Integrated Broadband Network?’” (Reed, 1992). The fifth work answers the specific question

of which is more cost-effective, the Internet over telephone networks or the Internet over cable

networks (Gillett, 1995). This thesis adds one more element to this question: which is more cost-

effective, the Internet over power lines (IPL) or the existing other methods.

For this analysis, first, the thesis takes existing infrastructure costs as given, except for

capital investments specifically needed to support the Internet access application. Second, the

cost models developed in this thesis use 2002 cost data gathered mainly from the Internet

websites. Third, the thesis considers only access providers’ capital costs. Pricing is not

discussed.

1.3.2. IPL technology

There are many academic papers dealing with the technology of power line

communications (PLC). Their purposes vary from the power companies’ internal use like the

automated-meter-reading (Ramseier, Arzberger, and Hause) to the home-networking

(Matsumoto), and the broadband Internet access (Sanderson, 2000). Dostert’s Powerline

Communicatins refers not only to technical aspects but also to regulatory aspects (Dostert). As

for the transformer bypass issue, one of the IPL’s technical challenges, Sanderson suggests one

solution in his U.S. Patent (Sanderson, 1999). This thesis refers to literature like those above for

the IPL technology.

1.3.3. Unbundled network elements (UNE) policy

Many studies on this topic examine cable modem Internet’s open policy issues, and the

opinions vary. Hazlett objects to the UNE policy. He proposes that vertical integration of the

Internet service providers (ISPs) by not only cable companies but also telephone companies

would bring benefits like the improvement of information quality (Hazlett). Meanwhile, Lemley

and Lessig strongly support the open access policy. They warn that such vertical controls would

slow the future innovation, and that the asymmetric regulation brings about confusion. In fact,

regarding the cable modem service as “Information service” confused power companies,

Introduction 19

resulting in power companies’ attempts to charge different rates of pole attachment fees on the

cables which are labeled as “Information service” use (APPA, 5). Among those, Noll proposes

an analytical framework to examine this issue quantitatively (Noll 42). He calculates the

benefits and costs of imposing the open access policy on cable companies using the framework.

This thesis applies these previous ideas to the IPL case, and discusses the costs and the

benefits of the UNE policy over IPL.

1.3.4. IPL industry research

In the summer of 2002, the Japanese government announced that they would postpone

the IPL implementation in Japan, based on their research result (MPHPT, 9 Aug. 2002). Their

research team examined field tests to see the effect when the government expands the spectrum

bandwidth of PLC to higher ranges than now. Because the result showed that the expansion of

PLC spectrum bandwidth would disturb existing wireless services, the government reached the

conclusion above.

In the U.S., UPLC researches on the IPL implementation in the U.S. Its reports deal with

the overview of PLC development, the technical issues, and the regulatory issues (Gray). CITI

has had a semi-annual conference, organizing the U.S. PLC industry, since 2002. The Federal

Communications Commission (FCC) recently announced that it would collect information and

comments regarding IPL implementation from public (FCC).

In Europe, EnerSearch AB, an industrial research and development consortium, reported

about the IPL implementation in Europe in their Powerline as an Alternative Local AccesS

(PALAS) project, a two-year project from January 2000 to December 2001 (EnerSearch AB).

The project examines more details of the commercial IPL implementation, such as the simulation

of IPL technology and the deployment tactics. Their reports showed the possibility as well as the

challenges of the IPL commercialization in Europe.

These studies, however, have not examined or publicized actual cost analyses of IPL.

This thesis contributes to these studies by showing the actual cost analyses and suggesting some

policy recommendations.

Chapter One 20

As can be seen above, no study provides any quantitative analysis of IPL implementation.

Therefore, the present thesis reports on the cost analyses and provides policy recommendations

of IPL implementation based on the obtained results.

1.4. This thesis

This thesis investigates the hypothesis that the power companies’ distribution network

enables them to provide more cost-effective Internet access than the other existing broadband

Internet access technologies such as ADSL and cable modem Internet. Chapter 2 provides

background on the multiple technologies involved in providing Internet access over power lines.

Chapter 2 describes electricity infrastructure and how the Internet access can be provided over it.

The methodology employed for this research begins with the construction of an

engineering cost model for IPL. These spreadsheet-style models are based on capital cost data

collected from the current information technology market. Chapter 3 describes the details of the

cost model. While Chapter 2 discusses technology issues at a general level, Chapter 3 describes

the specific implementations used in a certain type of network architecture.

The cost model yields two types of results: quantitative cost comparisons and their

implications for public policy. Chapter 4 shows the quantitative results. It compares the cost of

IPL under initial values with the costs of other technologies, and then inspects how far these

results are affected by the changes in these values. Chapter 5 discusses the policy implications in

Japan based on these result. Chapter 6 concludes with a set of policy recommendations and

suggestions for further research.

IPL Technology 23

Chapter 2. IPL Technology

This chapter reviews the present state of electrical power distribution network

infrastructure. It then discusses how this infrastructure can be used to provide Internet access,

and shows that IPL can be a substitute for existing broadband Internet technology such as ADSL

and cable modems. It concludes with a qualitative evaluation of the advantages and

disadvantages of IPL.

2.1. Electrical power distribution networks

2.1.1. Topology of existing systems

Electrical power networks are composed of several different parts: power plants,

transmission networks, substations, distribution networks, and customers (Fig. 2.1.1.).

Distribution networks are divided into two parts: medium voltage (MV) networks and low

voltage (LV) networks (Fig. 2.1.2). MV lines start from a substation, connected with LV lines

via a distribution transformer. LV lines finally reach customers. LV networks consist of LV

feeder lines, drop lines, Watt-Hour Meters (WHMs), circuit breakers, and electrical outlets. This

thesis focuses particularly on LV distribution networks. As seen in Fig. 2.1.2, a typical network

topology of LV networks is a tree-and-branch topology. The topology is similar to that of cable

TV networks. Therefore, the LV network is used as a shared medium when it is used as

communication media (Fig. 2.1.3.).

DistributionNetwork

6kV/200,100V(Medium/Low voltage)

TransmissionNetwork

500kV-66kV(High voltage)

Powerplants(Thermal, Hydro,

Nuclear) Substations Customers

Fig. 2.1.1. Outline of electrical power network

Chapter Two 24

Distributionsubstation

Medium

-voltagedistribution netow

rks

Trunk

Feeder

Distributiontransformer

Customer

Low-voltage

distribution networks

Drop

Fig. 2.1.2. Outline of distribution network (overhead)

Distributiontransformer

Customer

Fig. 2.1.3. Logical bus architecture of LV network

Furthermore, the topology of LV networks depends on several factors:

• Location (urban vs. rural, residential vs. industrial vs. business area)

• Customer density

• The type of house (detached houses, small apartments, multiple dwelling

units (MDUs))

IPL Technology 25

2.2. Internet access over power lines (IPL)

2.2.1. Outline of IPL technology

Electrical power companies have used both transmission and distribution networks as

media to transmit not only electricity but also data signals that are necessary to supervise

networks. For the purpose of supervising electrical networks, the network itself is a suitable as

well as economical medium to communicate these operational and maintenance data because

power companies do not have to use expensive leased lines and because the network connects to

all nodes such as substations and relay switches, which are to be monitored (Fig. 2.2.1). Power

companies have achieved such transmission over power lines by using data signals with higher

frequencies, 10 to 450 kHz, than that of ordinary electricity, 50 or 60 Hz (JEAC 314). The basic

idea of IPL is similar to this practice. The difference is that IPL uses much higher frequencies

than such operational use, typically varying from 1.7 MHz to 30 MHz (Gray, 2001), in order to

achieve high speed transmission rates (Fig. 2.2.2). Due to such high frequencies, IPL signals

hardly pass through a distribution transformer, which bridges a MV network and a LV network.

According to Dostert (32), signals with frequencies over 20 kHz rarely go through a distribution

transformer.

Fig. 2.2.1. Communications over power lines

Chapter Two 26

50/60 Hz 1.7MHz 30MHz

IPLElectricity

Fig. 2.2.2. Sample IPL spectrum map on an electrical wire

Fig. 2.2.3 illustrates IPL. The data channel is mixed into and separated from electrical

wires via a coupler inside of an IPL modem, featuring a high-band pass filter function. The

extracted data signals at a substation enter an IP router and are transmitted to the Internet via the

power company’s optical fiber based backbone networks.

As for ordinary electrical appliances, according to HomePlug Alliance (HPA), their

experiments show that it is unnecessary for IPL users to add a blocking filter to each electrical

outlet to protect the appliances from the data signals with high frequency through electrical wires

(Mader). Although their technology is limited to the inside home application, similar things

could be assumed for IPL access technology.

IPL Technology 27

Backbonenetwork/Internet

Electricity(50/60Hz)

Data (LAN) channel

Data (LAN) channelRouter

IPLModem

IPLModem

Fig. 2.2.3. Internet over power lines

IPL uses several technologies depending on protocol layers. Popular technologies are

Orthogonal Frequency Division Multiplexing (OFDM) and Spread Spectrum (SS) for the

physical layer, CSMA-CA for the MAC sublayer of data link layer (Table 2.1.1). The next

section describes each technology.

Table 2.1.1. Protocol layers of Internet access over power lines

Application layer

Transport layer

Network layer

Same

as any other

technology

LLC LLC Data link layer

MAC CSMA-CA

Physical layer OFDM SS

2.2.2. Transmission of digital data: physical layer

As will be discussed in more details later, distribution networks are subject to various

types of noise. If a noise bigger than a data signal is input into the network, the signal might be

lost. Therefore, ordinary single carrier modulation such as FSK or PSK is not appropriate for

Chapter Two 28

IPL. So far, two technologies are widely used for IPL to transmit signal over power lines. One

is OFDM, and the other is SS. Because OFDM makes use of a spectrum more efficiently than

SS, OFDM has become more popular than SS recently.

1) Orthogonal frequency division multiplexing (OFDM)

OFDM has been applied to not only IPL but also to digital audio broadcast and

ADSL. The UTC’s 2001 report explains OFDM as follows:

OFDM is a data communications technique for providing highly reliable data throughput

in a noisy environment. The concept calls for dividing the available spectrum into small

sub-carriers that are overlapped and orthogonally spaced (i.e., perpendicular to each

other). This technique obviously allows for a significantly greater number of sub-carriers

than would be possible in there were no overlapping. Although each sub-carrier has a low

data rate, the total (of all the sub-carriers) represents a very high data rate and provides

for very efficient use of the spectrum.

It is also noteworthy to mention that given the spurious nature of noise inside the home,

having a system that only loses small amounts of data during an unexpected blast of noise

is obviously beneficial. That is, OFDM is the most promising of the various PLT

modulation techniques due to its inherent advantages in a noisy environment. (73)

In summary, the strengths of OFDM are:

• Robustness against noisy environment:

The data are transmitted by several parallel carriers. Each carrier can be

modulated in several formats such as DQPSK and 16QAM. Therefore,

while some portions of the data might be lost due to noise, most parts of the

data could be transmitted.

• Efficient use of a spectrum:

While the spectrum of modulated signals of a single carrier tends to spread

like a rounded hill, that of OFDM looks rectangular in shape (Fig. 2.2.4.).

Therefore, OFDM achieves more efficient use of the spectrum bandwidth

than a modulation by a single carrier.

IPL Technology 29

#1 #N Frequency

Fig. 2.2.4. OFDM spectrum

2) Spread-spectrum modulation (SS)

SS utilizes a wide spectrum bandwidth but with low spectral power density.

Because of this low density, SS achieves several strengths:

• Low possibility of interference with other wireless telecommunications

• Robustness against noise

• High security

SS is popular in wireless telecommunications, specifically for military purposes. There

are two types of SS: Direct Sequence (DS) and Frequency Hopping (FH). Because

OFDM achieves more efficient use of a spectrum than SS, SS is less popular than OFDM

in the IPL market.

2.2.3. MAC technology for IPL: data link layer

The purpose of media access control (MAC) is to transmit data between the physical

layer and the logical link control sublayer (LLC). Because distribution network is shared among

customers, an access organization by MAC is necessary (Hines 28).

Because IPL technology is still in early stage, there is no standardized MAC protocol for IPL.

HomePlug Powerline Alliance, who creates an industry standard for high speed home

networking using power lines, suggests to use Carrier Sense Multiple Access/ Collision

Avoidance (CSMA/CA) as the MAC protocol (Gardner, par. 18). Although their standard is

targeting electrical network inside home, because the character of sharing medium is the same as

that of distribution network, same protocol can be used in IPL. CSMA/CA is the MAC protocol

also used in mobile networks. Because the electrical networks are subject to noise more heavily

Chapter Two 30

than Ethernet type networks, it might be better for IPL to adopt Collision Avoidance protocol

than Collision Detection (CD), which assumes that each node can listen to all other nodes.

Some IPL modem chip-vendors develop their own MAC protocols. For example, DS2, a

German vendor, develops own MAC protocol, whose idea is similar to that of DOCSIS’s cable

modems (Alfonso).

2.3. Network architectures

This section introduces several IPL network architectures. While some power companies

have ample fiber infrastructure enough to lay FTTP network, others are not. Therefore, power

companies would choose appropriate network architecture for implementing IPL depending on

its fiber infrastructure. As a business model of power companies, this paper assumes that power

companies would be wholesalers of Internet access of so called last one mile because this

business model tends to be dominant as those of Fiber to the Home (FTTH) service by power

companies mostly have adopted this wholesale of access infrastructure model (Yamazaki). That

is, Internet service providers (ISPs) like AOL would rent the infrastructure so that they could

offer their Internet service to their customers via power lines. Therefore, the power companies

themselves do not connect with Internet point of presence (IPOP), but with ISPs via their central

stations (Fig. 2.3.1).

To aggregate data signals communicated under one substation, power companies utilize

their own optical fiber based network, which were installed for other purposes like operation use

and rental fiber business use (Fig. 2.3.2.).

IPL Technology 31

ISP

ISP

ISP

CentralStation


Service coverage by a power company

Fig. 2.3.1. Interoffice transmission network

To: InterofficeTransmissionFiber networks

To: high-voltagepower transmission

networks

Router

Terminals

MV and LVdistribution networksSubstation

Electricity

Signal

Fig. 2.3.2. IPL LAN

2.3.1. Fiber & low-voltage (LV) line network architecture

The image is shown in Fig. 2.3.3. The circled part represents the location of the main

cost of this architecture. Some electrical power companies own fibers stretching from their

substations to poles for their utility operation as well as business use like rental fibers. I call

such fibers as Fiber to the Poles (FTTP) here. Therefore, it may be possible for power

companies to offer IPL making use of such fiber infrastructure. The cost model of this thesis

assumes this network architecture because this case is more likely; most electrical power

companies offer a kind of fiber business such as FTTH and rental fibers (see the web sites of

power companies listed at the end of this thesis). This architecture is similar to a Hybrid Fiber

Coax (HFC) Network by cable TV companies.

Chapter Two 32

a. Advantages

• Fiber cables provide ample bandwidth.

• It can use power company’s existing facility.

• Fiber cables are more reliable telecommunications media than medium-voltage

power lines as transmission medium.

• Using fiber cables instead of electrical wires reduces the influence of radiated

radio waves.

b. Disadvantages

• It would be economically inefficient.

That is, the cost per subscriber is sensitive to the number of subscribers under

one distribution transformer. As for fiber cables, power companies do not have

to install fiber cables newly for IPL purpose. The LV lines are connected with a

fiber cable via an optical-electrical converter (O/E converter), which would be

installed at the same pole where a distribution transformer is set. The problem,

however, is that the number of customers under one distribution transformer is

usually about less than twenty. Compared with Europe whose number is

between 200 and 500 (Gray, 1999, 14), Japanese case sounds economically

inefficient.

• The bandwidth is limited.

IPL users might not expect higher-speed Internet than the cable modem Internet.

This is because the bandwidth capacity of the electrical wire is less than that of

the coaxial cable used by cable TV companies.

IPL Technology 33


Tr

O/E


2.3.2. Medium-voltage (MV) & LV line network architecture (pure IPL network)

This architecture utilizes whole distribution networks including MV and LV networks

(Fig. 2.3.4.). The circled part represents the main cost of this architecture. A signal will be

transmitted from a customer to a distribution substation via a LV network, a bypass-transformer

device, and a MV network. At the station, the signal would be separated from the power lines

and would be transmitted to Internet through power companies’ backbone network. The main

issue of this architecture comes from a distribution transformer. The transformer obstructs

signals, which try to communicate between MV and LV networks. Since the distribution

transformer is designed to transmit 50 or 60 Hz electricity, data signals with 2 to 30 MHz cannot

be transmitted.

a. Advantage

• Power companies without ample fiber infrastructure could offer IPL.

b. Disadvantage

• The bypass transformer device is said to be costly.

According to UTC, the estimated cost of the bypass equipment is 100’s of

dollars (Gray, 1999, 17). Main.net, an IPL vendor, announced that their

technology found big spaces in a spectrum so that IPL signals can go through a

distribution transformer without any bypass device, though its detail is not

disclosed (Helman, par. 15).

• The radiation influence will be the largest among all network architectures

because the whole lines are composed of electrical cables.

Chapter Two 34


TrBypass

Fig. 2.3.4. Network architecture of MV&LV lines.

2.3.3. MV& wireless network architecture

This architecture uses radio waves to connect with customers instead of LV lines (2003,

Amperion). This network architecture expects to use distribution network as a substitute of

optical fiber network whose installation cost is expensive. Fig 2.3.5 shows the image of this

architecture. The circled part represents the main cost of this architecture.

a. Advantage

• MV network is affected by fewer disturbances than LV networks.

• MV networks are more robust than LV networks.

This is because MV networks have fewer nodes than LV networks.

b. Disadvantages

• The cost of antenna installation

• The bandwidth limit

Amperion, a Boston based IPL vendor, estimates the capacity as 45 Mbps

(Amperion). Although 45 Mbps sounds enough as a bandwidth, the

bandwidth per subscriber might not be enough for the broadband Internet.

This is mainly because the number of subscribers connected to one MV

network could be far more than 20 because the network is connected to

several LV networks. Therefore, the capacity would not be able to satisfy so

many subscribers.

IPL Technology 35


Tr

Fig. 2.3.5. The image of MV & wireless network architecture

2.3.4. Fiber to the Home (FTTH)

This is a reference to the fiber-LV architecture. Two power companies in Japan have

offered FTTH service by themselves: Tokyo Electric Power Company and Chubu Electric Power

Company (see their websites listed at the end of this thesis ). Fig. 2.3.6 shows the image of this

architecture. The circled part represents the main cost of this architecture.

a. Advantages

• Its wider bandwidth than any other Internet access technology

NTT EAST offers the FTTH service with the peak rate of 100 Mbps (NTT

EAST, 2003).

• Robustness of the transmission media

b. Disadvantages

• The cost of installing fiber cables

Recent research shows that the installation cost of FTTH in U.S. is estimated

to be $1,000 per subscriber (G. Johnson par.20)

Chapter Two 36


Tr

Fig. 2.3.6. The image of FTTH network architecture

Table 2.3.1 shows the summary of the network architectures.

Table 2.3.1. The summary of the network architectures

Architecture Vendors Estimated peak bandwidth Main invest required

1. Fiber & LV Kyushu Electric

Power Co. Inc.,

(Japanese power

company.)

3 Mbps (Kyushu, 2000) The O/E device at a

pole

2. MV & LV Powerline

Technologies

(U.S.)

2.5 Mbps (Gray, 2001, 20) The device to bypass a

Transformer

3. MV & Wireless Amperion

(U.S.)

6 Mbps (Amperion) Wireless antennas

4. FTTH 100 Mbps (NTT EAST) Fiber cables

2.4. Implications of IPL plant evolution

2.4.1. Subscriber equipment

In this thesis, I assume that typical IPL in Japan would adopt fiber-LV lines network

architecture because many power companies in Japan have ample FTTP infrastructures which

enable them offer FTTH services. Like the FTTH service by telephone companies, which utilize

the telephone lines inside a building, it is more economical to make use of existing wires

IPL Technology 37

connecting with customer than to install additional fiber cables. Necessary devices are as

follows:

a. Devices at a substation

The devices are as follows:

i. Terminal equipments to connect with IPL LANs.

ii. IP routers and transmission facilities to connect with backbone networks

In this thesis, I assume that power companies would utilize the facilities used for their FTTH

service. Because IP routers and transmission facilities for backbone networks are installed for

the FTTH service, power companies need to install only LAN cards of an IP router to implement

the IPL service.

b. Devices at a pole

The device which is put at a pole needs to perform the following functions:

i. A coupler with a high band pass filter to divide and combine data signals with an

electrical wire. The coupler should also perform as a surge absorber.

ii. An IPL modem to communicate with users’ modems.

iii. A bridge function to connect IPL LAN with the point-to-point fiber to the substation.

iv. An O/E conversion to convert electrical signals from and to optical signals.

Power companies utilize their own fiber cables between a substation and a pole, which is

equipped with a distribution transformer.

c. A device at a customer

The customer premise equipment (CPE) is an IPL modem. The modem should have

following functions:

i. A coupler with a high band pass filter to divide and combine data signals with an

electrical wire. The coupler should also perform as a surge absorber.

ii. An IPL modem function, which supports the IPL LAN’s media access protocol.

iii. A protocol converter, which translates the IPL protocol and Ethernet protocol.

According to HomePlug Alliance (HPA), line filters at other electrical outlets for the other

electrical appliances are not necessary (Mader).

Chapter Two 38

2.5. Evaluation of IPL LAN as Internet access networks

This section analyzes whether IPL can be a substitute for existing high-speed Internet

access technology such as ADSL and cable modem. FTTH is not included in this evaluation

because of its extremely wider bandwidth than any other technology.

2.5.1. Speed

The typical burst rate of IPL is said to be 2 to 10 Mbps (Gray, 2001, 48). The rate would

depend on the selection of a network architecture and transmission technology. This rate is

competitive with existing technology because typical ADSL and cable modems offer 1.5 to 12

Mb/s burst rate.

Although the variable bandwidth per subscriber might be smaller, resulting from the fact

that an IPL network is shared by users like cable Internet, this concern could be mitigated by

future expansion of burst rate. The theoretical capacity of IPL bandwidth is estimated to be as

large as 250 Mbps (Dostert 273). Therefore, the rate in practice might become larger than the

current one, close to 100 Mbps in the future. In fact, the burst rate of ADSL has increased from

1.5 Mbps to 12 Mbps, and the development of even faster ADSL chip has been kept.

2.5.2. Full-time connections

IPL achieves full-time connections because it needs no dial-up.

2.5.3. Security and network integrity

Because IPL uses shared medium, user’s information could be easily obtained by others.

To protect privacy of users, encryption technology could be provided at the MAC layer. In fact,

the use of 56-bit data encryption standard (DES) is applied to HomePlug standard (Gardner, par.

47)

2.5.4. Availability

While other broadband technologies have a certain limitation in availability, IPL does not

have such a severe limitation. For examples, subscribers of ADSL have to live within 2 to 3

IPL Technology 39

miles from the central office. The penetration of cable television in Japan is around 30 %.

People who want to subscribe FTTH have to install a fiber cable to their homes. On the other

hand, power lines are almost everywhere, and IPL subscribers do not have to install cables.

From those analyses, I conclude that the IPL can be a substitute for existing high-speed Internet

access technology such as ADSL and cable Internet. I summarized the character in Table 2.5.1

Table 2.5.1. The comparison of broadband access technology in Japan

IPL ADSL Cable FTTH

Speed

(Mbps)/

Medium

2-10/

Unshielded twist

copper pair cable

with 2-5mm

diameter(*)

1.5-12/

Shielded twisted

copper pair cable

with .4-.9mm

diameter

1.5-8/

Coaxial cable

10-100/

Optical fiber

cable

Full- time

Connection

OK OK OK OK

Security OK

(Shared medium)

OK OK

(Shared

medium)

OK

Availability OK Distance limitation Smaller

Penetration

(30%)

Need to

install

fiber cables

(*Source: IEEJ, 311)

2.6. Market Overview

According to the Prime Minister of Japan and His Cabinet, the broadband penetration in

Japan is 15% in October, 2002 (The penetration of Internet in total is 44.0% in population and

60.5% in household.). The detail is shown in Table 2.6.1. The smaller penetration of cable

Internet than that of DSL may come from the relatively small penetration of cable television in

Japan, around 30%, compared with that of U.S., 60 % in 2001 (the Prime Minister of Japan and

His Cabinet).

Chapter Two 40

Table 2.6.1. The number of subscribers of broadband Internet in Japan

Type of access DSL Cable FTTH

Number of subscribers (million) 4.6 1.8 0.1

Market share of each method (%) 70.7 27.7 1.5

Annual Growth rate (%) 667.6 52.6 725.0

(Source: the Prime Minister of Japan and His Cabinet)

The number increased from 6% in December, 2000 (Fig. 2.6.1.). The main reasons of

this rapid growth are the decrease of the price of ADSL service after the summer in 2001 and the

emergence of wider bandwidth service, 8Mbps, compared with traditional 1.5Mbps (Fig 2.6.2.).

After the price of ADSL has become around 3,000 yen/mo, the growth rate of ADSL has

increased rapidly. Therefore, 3,000 yen/mo may be the criteria for potential customers to start

the broadband Internet.

The penetration of Broadband Access

0.050.0

100.0150.0200.0250.0300.0350.0400.0450.0

Mar-00

Jun-0

0

Sep-0

0

Dec-00

Mar-01

Jun-0

1

Sep-0

1

Dec-01

Mar-02

Time

The

num

ber

of s

ubsc

ribe

rs

(mill

ion)

Cable

DSL

FTTH

Wireless/FWA

Total

Fig. 2.6.1. The penetration of Broadband Access (Source: MPHPT, White Paper)

IPL Technology 41

Fig. 2.6.2. The price of ADSL (Source: MPHPT, White Paper)

2.6.1 The perspective of future price

As can be seen in Fig 2.6.2, there were two big price decreases, by around 1,000 yen per

month, in the past. NTT EAST explains the reasons in their press release as follows:

Feb. ’01 NTT began to offer ADSL services which require customers to purchase an

ADSL modem (NTT EAST, Jan., 2001);

Oct. ’01 NTT dropped the price to response to the customers’ requirement (NTT EAST,

Sept., 2001).

In my opinion, the price decrease in October was brought by two events. First, the wholesale

price of ADSL networks decreased from 800 yen per month per line to 187 yen per month per

line (NTT EAST, 2000). Secondly, the entry by Yahoo! BB with 2,200 yen per month

stimulated the competition among ADSL access providers. Yahoo! BB’s price was half as low

as the typical ADSL price then. The reason of Yahoo! BB’s low price in the summer 2001 is

reported that Yahoo has adopted Annex. A, which is so widely used in the world that the costs of

the equipments could be lowered than the costs of those by Annex.C, which has been created

The Price history of ADSL

5,100

4,0503,800

3,100 2,9002,600

800

187 173

-

1,000

2,000

3,000

4,000

5,000

6,000

Dec-99 Feb-01 Jul-01 Oct-01 Dec-01 Dec-02

Time

Ret

ail p

rice

(ye

n)

0

200

400

600

800

1000

Who

lesa

le p

rice

(ye

n)

'Retail price(NTT-East)

'Wholesale price(NTT-East)

Yahoo! BB in August 2001, 2,453yen/mo

Chapter Two 42

specifically for Japanese environment (Serizawa). Besides this, I also believe that the reduction

of the wholesale fee in the winter 2001 also enabled Yahoo! BB offer such a low retail price.

Because it is not likely that the above type of events would happen in the near future,

there will not be a huge price decrease of ADSL service. Instead, the retail price would decrease

eventually reflecting the economy of scale. After the summer in 2001, the decrease of NTT’s

retail ADSL price looks like being brought purely by the increase of subscribers. In fact, the

retail price has decreased, though there is neither significant wholesale fee change nor

technological innovation during this period. Furthermore, although NTT announced a 30 %

decrease of wholesale price for backbone optical fiber networks in December 2002, this did not

affect the retail ADSL price much.

For these reasons, it can be predicted that the price could still decline but slowly as the

number of subscribers increases until the number reaches the maximum capacity of 35 million

subscribers provided by NTT (the Prime minister of Japan and His Cabinet). The prediction is

shown in Fig. 2.6.3.

The prediction of ADSL Price

-

1,000

2,000

3,000

4,000

5,000

6,000

Dec-99

Apr-0

1

Aug-0

1

Dec-01

Apr-0

2

Aug-0

2

Dec-02

Apr-0

3

Aug-0

3

Dec-03

Time

Pri

ce (

yen

per

mo

nth

)

0

1000

2000

3000

4000

5000

6000

7000

Nu

mb

er o

f su

bsc

rib

ers

(uni

t: 1

,000

)

Retail price

Subscribers

Fig. 2.6.3. The prediction of ADSL price

IPL Technology 43

2.6.2. The emergence of FTTH

The ministry also predicts that the number of FTTH subscribers will overtake that of ADSL

subscribers at the end of year 2005 because the price of FTTH decreases eventually from around

5,000 yen per month to the potential criterion, 3,000 yen per month (Fig 2.6.4.), (MPHPT).

Fig. 2.6.4. The price of FTTH in Japan (Source: MPHPT, White Paper)

In the figure, the dashed line represents the potential criterion price, 3,000 yen per month.

The meaning of each service menu in the figure is as follows:

High-value: The service aiming at customers living in a detached house. A customer can

occupy a single fiber.

Basic: The service aiming at customers living in a detached house. Several

customers share a single fiber via optical couplers.

MDUs: The service aiming at customers living in MDUs. Several customers share a

single fiber.

(Source: NTT EAST, “Service menu”)

As can be seen from Fig. 2.6.4., the price of MDUs type may reach 3,000 yen per month soon.

However, because IPL will not target residents of MDUs, this will not affect the deployment of

IPL in the future.

2.6.3. The market window for IPL in Japan

For those reasons, if IPL could achieve the low price below 3,000 yen per month

Price history of FTTH

13,000

3,800

9,000

5,0003,800

0

3,000

6,000

9,000

12,000

15,000

High-value Basic MDUs

Service menu

Pri

ce (

yen

/mo

)

Decmber, 2000

Apr, 2002

32,000

Chapter Two 44

immediately, there is a possibility that IPL could capture the significant share of the rest of

broadband Internet market. The problem, however, is that the higher Internet service, FTTH

might achieve the price in a couple of years despite of the downturn economy in Japan. Because

IPL and other broadband access methods are no more than the substitute of FTTH in terms of the

speed, IPL would miss the market unless its implementation would be done in a couple of years,

or its speed would increase to competitive level like 100 Mbps.

2.7. Technical Issues

2.7.1. Emission of electromagnetic waves

Unfortunately, because the unintended emitted electromagnetic waves by IPL interfere

with existing telecommunications such as amateur radio and HF-broadcasting in Japan, Japanese

government announced last summer that IPL service should be postponed until this issue is

solved. This issue is said to have affected the deployment of commercial IPL services, i.e.,

Nor.Web in Britain (Libby 9). Because IPL uses high frequency carrier, ranging from 1.7MHz

to 30MHz, the electrical wire, functioning like radio wave antenna, emits electromagnetic waves.

Therefore the waves interfere with existing wireless communication system, which use the same

range of frequencies. Similar issue is also found in xDSL in Japan (NTT EAST, 2002).

Several solutions are proposed as follows:

a. Underground networks

Power companies can avoid the emission issue by implementing the IPL service only in

underground distribution networks because electric power cables used for underground are

typically shielded, which prevent electromagnetic waves from emitting. The problem, however,

is that most of the residential houses, which are IPL’s main target, receive electricity through

overhead wires in Japan. This solution is also costly.

b. Elimination of common-mode

This solution is technically feasible and used widely as a solution of interference

problems.

IPL Technology 45

Fig. 2.7.1. The differentiation mode (left) and the common mode (right)

As can be seen in Fig. 2.7.1., electric current on each electrical wire goes toward the same

direction in the common mode case. The common mode is unusual, but this will emit more

power of radio waves than that of the differentiation mode. The emission power of each mode is

as follows (Fig. 2.7.2):

• Differentia tion mode: proportional to 1/r^4. An electrical cable act like a dipole

antenna*.

• Common mode: proportional to 1/r^2. An electrical cable act like a

monopole antenna.

Here, “r” means the distance from the center of an electrical wire. Therefore, if one succeeds in

suppressing the common mode, one will achieve significant emission reduction. One popular

practical solution is to insert a common-mode filter, which is a market-available less expensive

product, at both sides of the line. *: In the case of the differentiation mode, other factors such as d, the distance between a

pair wire, and D, the distance between wires and ground, also affects the radiation power.

However, because d is usually small enough, only D and r should be taken account of.

Fig. 2.7.2. Dipole (left) and Monopole (right)

Chapter Two 46

c. Shielded cables

If one wants to suppress the emission of differentiation mode, one effective solution

might be to shield the power cable. Because overhead electrical cables are usually unshielded,

this measure means the replacement of existing cables with shielded cables, which will result in

huge investment in IPL business. Therefore, power companies should check the radiation is

small enough if they succeed in eliminating the common-mode issue.

d. Twisted pair cables

This will make quadrangular pole. The radiation is much smaller than dipole and

monopole cases. If power companies have to replace existing electrical cables with more twisted

pair cables, it would not be impractical for the same reason as that of shielded cables.

e. Reduction of the transmission power

Another solution might be to reduce the transmission power of IPL modems. However,

this would shorten the transmission distance as well as make data signal less robust against noise

in distribution networks.

In summary, the feasible solution so far is to eliminate the common-mode because other

solutions are neither economically feasible nor technically feasible.

2.7.2. Standardization

While standardization has not taken place yet, there are several organizations dealing

with IPL, such as PLC-Forum, UPLC, and PLCA. A PLCA executive told me that they wanted

to build the IPL standard within a year (Schaar). Besides these organizations, it might be another

option to cooperate with HomePlug Powerline Alliance (HPA), which released a standard for in-

home powerline networking.

This issue is important in predicting the prices of IPL modem and its service. Because

multiple standards would create several separate markets, the number of a certain type of IPL

equipments would be small, resulting in high cost. That is, the market size determines the

manufacturing cost. Therefore, it is hopeful for IPL providers to have fewer standards. As seen

in the Market Overview section, 2.6, Yahoo! BB achieved lower ADSL prices than others

IPL Technology 47

because Yahoo! BB has adopted world standard of ADSL, Annex-A, while others had adopted

Japanese-only standard, Annex-C. Because the market of Japan is smaller than that of the sum

of U.S. and other nations, the cost of Annex-C type equipments could be higher than that of

Annex-A type.

For these reasons, the above IPL organizations should try to coordinate one standard so

that they could achieve low cost. So far there are two important challenges. One is about the

difference of voltage system. Because there are two main streams in the world, 100V systems

and 200 V systems, the standard might be divided into two sub-standards accordance with the

voltage system. The other is the difference of regulation in emission issues. Because the

permitted levels of radiated radio waves differ among nations, IPL users cannot use a modem,

which is allowed to use in some country, in another country. As for the emission issue, PLC

Forum and the European Committee for Electrotechnical Standardization (CELENEC) cooperate

with the International Special Committee on Radio Interference (CISPR), which addresses radio

interference internationally (Newbury).

2.7.3. Noise

Although few data are shown about SNR (signal to noise ratio), distribution network

suffers from various noise such as those caused by electrical appliances (Gray, 2001, 65).

Fortunately, the noise caused by electrical appliances, i.e., impulse noise, mainly affects signals

in low frequency band, while IPL typically use high frequency band. Furthermore, as stated

above, because OFDM has mitigated this influence, the noise issue is not so severe now.

2.7.4. Bypassing a transformer

The weakness of IPL is that IPL cannot make most use of its distribution network due to

the signal block by a distribution transformer, which separate MV networks from LV networks.

Because of this limitation, IPL has to install an additional device, which detours the transformer

to link MV and LV networks. Some vendors like PowerComm created such devices, though

they are said to be costly (Gray, 1999, 17). Main.net, an IPL vendor, announced that their

technology does not need any device to let IPL signals go through the distribution transformer,

though its detail is not disclosed (Helman par. 15).

Chapter Three 48

Chapter 3. Cost Model

3.1. Basic idea of the model

I have built a cost model to provide residential Internet service over power lines (IPL).

This chapter explains the assumptions and the cost elements in the model. The model aims to be

applied to Japanese electric power companies with ample Fiber to the Pole (FTTP) infrastructure,

whose service area includes metropolitan areas or smaller areas. The model looks only at the

marginal cost of providing Internet connections (Fig. 3.1.1.). That is, the model does not include

the costs of providing traditional electricity service. Also, the model does not include technology

investments that are used for Internet service but are being made for other purposes. For

example, before offering IPL service, some power companies built FTTP infrastructure to offer

rental fiber and Fiber to the Home (FTTH) services primarily. Only the portions of the

infrastructure that were specifically required to support IPL service are included in the model.

The cost figures used in the model reflect what it would cost a power company as an

Internet access wholesaler to purchase equipment that is currently available from vendors.

(INPUT) (OUTPUT)

- # of subscribers ? [ MODEL ] ? - cost/subscriber vs. penetration

- costs of elements - cost/home passed vs. # of homes/LAN

Fig. 3.1.1. The image of the cost model

It is difficult to specify and obtain exact cost data of IPL because the technology is still in its

early stages and the commercial products are not available in today’s market. Therefore, this

thesis sets a price range as the substitute for the actual cost. The price range is composed of

prices of market-available products whose functions are similar to those of each IPL product. To

make the cost ana lysis result more realistic, this thesis investigates sensitivity analyses using

variables, whose actual costs are unknown. Original prices are collected from price lists

available from vendors’ websites. Since the market for networking equipment is extremely

competitive and digital technology continues to advance rapidly, cheaper and more capable

Cost Model 49

products are constantly appearing. Incidental costs (under $100), such as cables and connectors

needed at the substation, are not included in the model. I used 130 yen per dollar and 110 yen

per Euro as the currency rates in this thesis.

This chapter details the model’s inputs and variables, discussing first the assumption of

this model. The results are described in Chapter 4.

3.2. Assumptions

To build a cost model for IPL, I set several assumptions: wholesaling to Internet service

providers (ISPs); providing last-mile access; using fiber and LV network architecture. The main

reason for these assumptions is that the assumed situation is likely to occur in Japan.

3.2.1. Business model: wholesaler of access networks

First, this thesis assumes that power companies would be wholesalers of the Internet

access service to ISPs. They will not operate ISPs by themselves. This assumption is based on

the observation of Japanese power companies’ analogous business models of FTTH (Table

3.2.1.): while only Chubu Electric Power Company (Chubu) offers the service directly to its

Internet users, four other power companies such as Tokyo Electric Power Company (TEPCO)

and Kansai Electric Power Company (KEPCO), offer their optical fiber infrastructure to several

ISPs or to their telecommunications affiliates (Yamazaki). As seen, no power company except

Chubu, runs its own ISPs, either. For those reasons, I assume that the same thing could happen

to IPL service in Japan because IPL offers an access medium to customers, which is the same

idea as FTTH service.

Chapter Three 50

Table 3.2.1. Japanese power companies’ business model of FTTH

Power company FTTH

1. Hokkaido Electric Power Co., -

2. Tohoku Electric Power Co., (Planning)

3. Tokyo Electric Power Co., (TEPCO) Wholesale

4. Chubu Electric Power Co., Retail

5. Hokuriku Electric Power Co., -

6. Kansai Electric Power Co., Wholesale (affiliate)

7. Chugoku Electric Power Co., Wholesale (affiliate)

8. Shikoku Electric Power Co., -

9. Kyushu Electric Power Co., Wholesale (affiliate)

10. Okinawa Electric Power Co., (Planning)

(Sources: see the list at the end in bibliography1)

Second, this thesis assumes that power companies would offer so called “last-one-mile”--

access networks, not backbone networks (Fig. 3.2.1.). Although some IPL vendor proposes to

use medium-voltage networks as a backbone instead of fiber networks (Amperion), this thesis

assumes that power companies would use low-voltage networks as “last-one-mile” networks as

ADSL and cable modem Internet do.

ISP

ISP

ISP

CentralStation

Backbone/Internet

Fig. 3.2.1. The coverage of the model

3.2.2. Network architecture and facilities

First, this thesis assumes that the network architecture of IPL would be Fiber and LV line

network architecture, as described in Section 2.3.1. Nowadays, seven power companies out of

Cost Model 51

ten have started or are planning FTTH service in Japan (Yamazaki). This means that there are

enough FTTP infrastructures to achieve this network architecture. Therefore, it is likely that the

assuming situation will happen. One might wonder why power companies do not complete their

Internet service with FTTH alone instead of combining IPL. The reasons are twofold: first,

installation of FTTP needs less effort than that of FTTH in terms of the amount of cables to be

installed, and consequently the construction cost. The second reason is that the installation cost

of FTTH may be larger than that of IPL because FTTH needs to install fiber cables, while IPL

does not. Therefore, implementing IPL parallel to FTTH will probably be economically

reasonable.

Secondly, this thesis assumes that IPL service utilizes a power company’s fiber network

backbone, which links substations together. Because such a backbone has been built for a power

company’s operational use, the construction cost is not taken into account for this model.

3.2.3. Type of customers and networks

1) Detached houses or multiple dwelling units (MDUs)

This thesis assumes that the types of houses are detached houses and apartments that are

one or two stories. There are two reasons for this. First, targeting MDU residents would raise

cost. Apartments that are more than two stories like MDUs usually connect to medium-voltage

network directly because of the large amount of electricity that they consume. This means that a

power company needs to install a fiber cable into the MDU building to be connected with LV

networks inside of the building. This situation would happen because the cost model assumes

the Fiber and LV line network architecture. The installation, however, would be costly because

the power company might have to dig the ground for this purpose in addition to simple cable

installation.

Secondly, the market size is still large enough to support IPL economically. For example, about

fifty percent of dwelling buildings in Tokyo’s 23 wards are detached houses or apartments that

are one or two stories (Tokyo Metropolitan Government). These detached houses and

apartments that are one or two stories are typically provided with LV networks.

Chapter Three 52

2) Overhead or underground LV networks

This thesis assumes that IPL focuses on overhead LV networks. First, the targeted

customers, residents, usually receive electricity through ove rhead networks. As for the market

size, for example, 56.7 % of distribution networks in Tokyo’s 23 wards are overhead networks

(TEPCO Illustrated 56). The rest, underground networks, usually serve commercial buildings,

whose building density is so high that costly underground networks can be efficiently developed.

The percentage of overhead networks rises to 91.1 % in their total service area (TEPCO

Illustrated 56). Second, implementing IPL to underground networks would be more costly than

to overhead networks because power companies would have to dig the ground to install an O/E

converter near a distribution transformer.

Although there is an issue of interference by emitted electromagnetic waves specifically

for overhead networks, this thesis assumes that the issue could be solved in the near future

because the standard of such emitted radio waves is under review world-wide (CISPR) and also

because the IPL vendors have made efforts to build an IPL modem, which limits such emissions.

For those reasons, this thesis assumes as follows: the type of customers would be

residents of detached house and apartments that are one or two stories; power companies would

implement IPL only to overhead LV networks. As for the market size, residents of detached

house and apartments that are one or two stories usually receive electricity through overhead LV

networks. Therefore, for example, IPL would target residents of about fifty percent of dwelling

buildings in Tokyo’s 23 wards.

3.2.4. LAN size

This thesis defines a LAN as one LV network under one distribution transformer. The

model assumes two related figures, as shown in Table 3.2.2.

Cost Model 53

Table 3.2.2. The number of customers

1) Per substation 10,000

2) Per LAN 20

The reasons are as follows: first, the total number of substations in Tokyo is 511, and the

number of household customers is estimated as 6,300,000 households (TEPCO Illustrated, 4, 56).

Therefore, the number of customers covered by a substation in Tokyo is estimated as follows:

6,300,000/511 = 12,328.8

Therefore, the assumption 1) in Table 3.2.2. is reasonable.

Second, the capacity of a distribution transformer varies from 3kVA to 100kVA (IEEJ

316). This thesis chose 50kVA because this was the average value of the capacity and most

likely in Japan. The average ampere of residential customers is around 30A (TEPCO Illustrated,

17). Therefore, the number of customers covered by a distribution transformer is calculated as

follows:

50kVA / (30A * 100V) = 16.7

Because it is not likely that all the customers use the peak electricity simultaneously, the number

can be more than 16.7, and actually, the transformer capacity is designed in the same manner, too.

Therefore, the assumption 2) in Table 3.2.2. is reasonable.

3.3. Input cost elements: technology reference model

Fig. 3.3.1. shows the image of the necessary elements of the cost model.

Chapter Three 54

IPL-modem


O/E

Distributionsubstation

CustomerLV networkOptical fibernetworks

b. 20 customers (LAN)

a. 10,000 customers (cell of 500 LAN)

c. 1 customer


A LAN in this context is the group of residences served by a single fiber and its attached

LV network. Therefore, many LANs converge in a distribution substation. To distinguish the

aggregated LANs from a LAN, this thesis calls them a cell. In the following, I categorize input

elements according to the network where they belong: a cell, a LAN, a customer. Within these

categories, cost elements are further classified as onetime cost or ongoing cost.

Because of the difficulties of specifying and obtaining the real cost of some elements

from publicly available sources, this thesis sets a cost range for such elements depending on

three scenarios: Best, Worst, and Intermediate or Realistic. In the best case scenario, all cost

elements would end up costing the value at the low end of the estimated range. Similarly, in the

worst case, all cost elements would end up costing the value at the high end of the estimated

range. Intermediate or Realistic scenario assumes that everything works moderately and more

realistically than other scenarios for implementing IPL in terms of cost. These scenarios are

reasonable because there are no tradeoffs among the cost elements.

In the following sections, I use two types of capital costs: those incurred upfront

(onetime) and those incurred on an ongoing basis.. Both costs are capital costs. Operating

expenses (OPEXs), such as the costs of supporting ISP retailers, equipment powering and

maintenance, are outside the scope of this thesis.

Cost Model 55

3.3.1. Costs shared by customers per cell

Most of the facilities in a substation are shared by customers under one substation. Such

facilities include optical transmission equipment, routers, and network management servers.

This thesis assumes that IPL utilizes in-use FTTH facilities because some potential FTTH

customers might choose IPL instead of FTTH because of its lower price. In fact, this type of

choice has been offered in Japan. Nippon Telegraph and Telephone EAST Corporation (NTT

EAST), a Japanese telecommunications giant, offers its MDU customers a similar choice in their

FTTH menu: Type1 (Combined FTTH): install fiber cable to the entrance of the building, and

connect the cable with its existing telephone network inside of the building; Type 2 (Pure

FTTH): install fiber cable to the customer through the building (NTT EAST, “Service menu”).

This assumption means that the costs of most facilities in a substation have been already invested

for FTTH purposes. The only cost which IPL will incur is the costs of a terminal system and

additional LAN cards, which would integrate an IPL LAN into FTTH networks.

1) Onetime cost

According to le Tanneur, the average bandwidth per customer during peak time is

estimated to be 50 kbps (le Tanneur 102). Because this thesis adopts the number, the total

capacity of a LAN is 1 Mbps. Consequently, that of a cell of 500 LANs is 0.5 Gbps. Therefore,

the number of the necessary items is derived from this capacity analysis.

There are several ways to build a terminal system of IPL (Kyushu Electric Power Co.,

2000). In this thesis, I assume that Japanese power companies would build the terminal system

using publicly available devices, such as IP-based facilities because that is cost-effective. The

optical fiber cables which are used for the IPL purpose are assumed to be installed already, and

will be connected with the terminal system. Fig 3.3.2 shows the image of the terminal system at

the substation.

Chapter Three 56


E/OE/O E/OE/O

Fig. 3.3.2. The image of equipment at a substation

In the figure, the assumed protocol between Router and Hub (1) is 1000BASE-T. The protocol

between Hub (1) and Hub (2) is 10/100BASE-T. The protocol between Hub (2) and O/E

converter is 10/100BASE-T. Hub (1) has 24 ports plus 1 1000BASE-T port. Hub (2) has 16

ports.

First, the actual LAN card configuration can be derived from the options offered by

router vendors like NEC: the price of a LAN card is 88,000 yen (NEC). The card is a gigabit

interface connection card (GBIC), which can receive 1000BASE-T.

Second, I cite the prices of those hubs from Fujitsu. Hub (1) has one 1000BASE-T port

and 24 10/100BASE-TX ports. The price is 432,000 yen (Fujitsu 48). Hub (2) has 16

10/100BASE-TX ports. Its price is 29,800 yen (Fujitsu 50).

Third, I cite the price of an O/E converter from a media converter, which transforms

10/100 BASE-TX into 100BASE-FX (single mode), and vice versa. The price is 62,000 yen

(Allied-telesis).

The costs of the facilities at the substation are fixed here regardless of scenarios (Table

3.3.1.).

Cost Model 57

Table 3.3.1. The cost shared by customers per cell

Cost (unit: yen/cell) Element

Best Worst Intermediate

A LAN card 176,000 88,000*2

A terminal system 32,877,200

Hub (1) (864,000) 432,000*2

Hub (2) (1,013,200) 298,000*17*2

O/E converter (31,000,000) 62,000*(33*15+5)

Total 33,053,200

(Sources: NEC for a LAN card; Fujitsu for Hub (1) and (2); Allied-telesis for an O/E converter)

3.3.2. Costs shared by customers per LAN

Each LAN can be upgraded separately. This upgrade has two components: adding an

O/E device, which links a fiber cable and an LV network, and utilizing a fiber cable of FTTP

infrastructure (Fig. 3.3.3).

O/EConverter

SpecialIPL

Modem

SurgeAbsorber

Tr

IPL-modem

LV wire

Opticalfiber cable

IPL-modem

IPL-modem

LAN

O/Edevice

Fig. 3.3.3. The image of equipment at a pole

1) Onetime cost

Chapter Three 58

This cost includes expenditure needed to invest one time, usually up front. The cost

elements are the cost of an O/E device and the labor cost of installing the device. Because no

O/E device is available in the market now, I substitute the aggregated prices of products, each of

which has the same functions necessary to the O/E device, for the cost. As stated in Chapter 2,

the O/E device is essentially composed of three products: an O/E converter, an IPL modem with

the function similar to a hub (special IPL modem), and a surge absorber.

First, the price of an O/E converter ranges between 55,000 yen and 62,000 yen. In the

best case scenario, I cite the price from that of an optical node unit (ONU) used in Fiber to the

Curb (FTTC) because the function is the same as the assumed O/E converter. The price is

55,000 yen (NTT EAST, “CN-100”). In the worst case scenario, I cite the price from that of a

media converter which transforms 10/100 BASE-TX into 100BASE-FX (single mode), and vice

versa. This specification is reasonable because the capacity limit of IPL would be less than 100

Mbps, and the IPL’s MAC would be similar to that of Ethernet. The price of an O/E converter is

fixed here. The price I cite is 62,000 yen (Allied-telesis). In the intermediate case scenario, this

thesis uses 55,000 because this is more realistic.

Secondly, the cost of the special IPL modem varies from 24,000 yen to 78,300 yen. I

divide the cost of the special modem into two parts: an ordinary IPL mode and a bridge or a hub.

Observing wireless LAN’s products, I assume that the special modem is similar to the access

point antenna of the wireless LAN because both aggregate signals of a sub-network and convert

own protocols to and from Ethernet protocol (Fig. 3.3.3). I assume that the aggregation function

is similar to that of a bridge and the conversion function is similar to that of an ordinary IPL

modem.

The cost of a hub varies depending on the scenario. In the best case scenario, I cite the

market price from a Fujitsu’s hub, which can afford 10 BASE-T. This assumption is reasonable

because the peak rate of IPL is typically 10 Mbps. The price is 12,300 yen in 2002 (Fujitsu 86).

In the worst case scenario, I cite the price from a Fujitsu hub, which can afford 10/100 BASE-

TX. This assumption is reasonable when the peak rate of IPL might expand to 100 Mbps in the

near future. The price was 39,300 yen in 2002 (Fujitsu 86). In the intermediate case scenario, I

choose the same price as that of the worst scenario. This assumption can be reasonable because

Cost Model 59

an IPL vendor announced that their IPL modem had achieved 45Mbps (Amperion). In summary,

the cost ranges from 12,300 yen to 39,300 yen.

The cost of an IPL modem varies depending on the scenario. The reasons will be

described later in section 3.3.3. The price range of an IPL modem is between 11,700 yen and

39,000 yen.

Third, the price of the absorber ranges between 1,800 yen and 15,000 yen. I choose an

ADSL splitter with a surge absorber as the substitute for the surge absorber in the best scenario.

Its market price is 1,800 yen (DTI). Although the splitter is designed to be used inside a house,

the assumed surge absorber should be designed like this splitter. That is, the absorber should

protect an IPL modem from an electrical surge like one caused by lightning outside of a house.

In the worst case scenario, I choose a high-speed response type surge absorber as the substitute.

Its market price is 15,000 yen (MTT Corporation, 508). This value sounds reasonable because

this product is designed to be used outside of buildings. In the intermediate case scenario, I also

choose the same absorber as the one in the worst case scenario because the O/E device is

designed to be placed outside, and the surge absorber used in the device would be as strong as

the one used in this high-speed response type absorber.

Fourth, as for the labor cost of installing an O/E device, I assume that the cost is similar

to the price of the FTTH installation service fee in the best case scenario. The reasons are the

following: the work of installing an O/E device has several elements: to attach an O/E device on

a pole, to connect the O/E device with a fiber cable and electrical wires respectively, and to test

the communication between an IPL model at the user’s home and the power company’s

management server. Likewise, the work of FTTH installation has the elements following: to

attach an optical distribution box to a pole, to connect a feeder fiber cable with a drop fiber cable,

to install the cable in the user’s house, and to test the communication between an FTTH’s ONU

and the FTTH provider’s management server. According to NTT EAST, the installation fee is

27,100 yen (NTT EAST, “Installation fee”) for an attached house user. Such a price does not

necessarily reflect the whole installation cost from my experience as an engineer, which is why I

use it as a lower bound defining the best case scenario. In the worst case scenario, I assume that

the cost is similar to the cost estimation of FTTH installation reported in Public Power magazine.

Chapter Three 60

The reason is almost the same as that in the best case scenario, but rather prudent. According to

Public Power magazine, the installation cost of FTTH per home passed is estimated to be $1,000,

which means 130,000 yen (G. Johnson par.20). Because the work of installing an O/E device

would not include the cost of installing fiber cables, this cost could be the worst case cost. In the

intermediate case scenario, I assume that the cost is midway between those of the best and the

worst case scenarios. Therefore, the cost is 80,000 yen. Because the cost of the best case

scenario does not seem to reflect the whole installation cost, this value may be closer to the real

installation cost. In summary, the cost of installing an O/E device varies between 27,100 yen

and 130,000 yen.

2) Ongoing cost

This cost includes expenditure needed continuously, usually monthly. The cost element

is the opportunity cost of an optical fiber cable. I cite the cost from NTT’s rental fiber business.

This is partly because power companies in Japan do not publicly disclose their price lists of the

rental fiber business, and partly because the power companies may offer the prices similar to that

of NTT because they compete with NTT in the rental fiber business. According to NTT EAST,

the price of rental fiber for access networks is 5,231 yen/core/month (NTT EAST, July 2001).

The opportunity cost of an optical fiber cable is fixed regardless of scenarios because this

assumption seems reasonably certain.

In summary, Table 3.3.2. and 3.3.3. show the onetime and ongoing cost respectively.

Cost Model 61

Table 3.3.2. The cost shared by customers per LAN: onetime cost

Scenario (unit: yen/ LAN) Element


O/E device 80,800 155,300 132,300

(O/E converter) (55,000) (62,000) (55,000)

(Hub) (12,300) (39,300) (39,300)

(IPL modem) (11,700) (39,000) (23,000)

(Surge absorber) (1,800) (15,000) (15,000)

O/E-labor (installation) 27,100 130,000 80,000

Total cost 107,900 285,300 212,300

Table 3.3.3. The cost shared by customers per LAN: ongoing cost

Scenario (unit: yen/LAN/mo) Element


Rental fiber 5,231

Total 5,231

3.3.3. Cost paid by one customer

The only cost element here is the cost of customer premise equipment (CPE). Filters at

other electrical outlets to prevent the Internet signals from entering other electrical appliances are

not necessary according to HomePlug Alliance (HPA) (Mader). The cost is a onetime cost and

must be incurred by each customer who subscribes to the service. For a subscriber to connect to

the IPL LAN, the equipment is needed to perform the following functions:

• Provide a physical interface to the subscriber’s computer

• Provide a physical interface to the electrical wire, including IPL modem functionality

• Support the IPL LAN’s media access protocol.

• Separate data signal and electricity

While this collection of functions could be implemented in a variety of ways, this thesis assumes

that an IPL modem is equipped with all the above functions.

Chapter Three 62

1) Onetime cost

I estimate that the cost of IPL modem is almost as low as the price of a power line carrier

(PLC) modem certified by HPA, 11,700 yen in the best case scenario (Microcenter). While the

PLC modems are designed to be used inside a house rather than the access use outside a house,

they basically use the same physical and MAC technology as those of IPL modems. In fact, an

IPL modem vendor says that its IPL modem is compatible with the PLC modem (Turner).

Therefore, I estimate this price as the one in the best scenario. In the worst case scenario, I cite

the cost from that of a cable modem before its function was standardized. The cost of the cable

modem in 1998 was $300 in the U.S., which can be translated as 39,000 yen (Data Over Cable

Service Interface Specification (DOCSIS) Team, 8). There is no standard of IPL modem

technology, though the related organizations are trying to make a standard. Therefore, I choose

the cost of a cable modem before standardization for the worst case scenario. Actually, after

DOCSIS 1.0, the cost has decreased to less than $50 according to the DOCSIS Team. In the

intermediate case scenario, I estimate that the cost is almost the same as the price of ADSL

modem in its first year end because IPL will probably follow the same path as ADSL followed:

establish a standard suitable for Japanese environment. The IPL standard might be Japanese

specific because the voltage is 100 V while the voltage of Europe and other countries is around

240 V. The price of an ADSL modem was 23,000 yen in January 2001 in Japan (NTT EAST,

Jan. 2001). Furthermore, because the technology of IPL is also similar to that of ADSL, i.e., the

discrete frequency mode, both types of modem might have common cost elements. For those

reasons, I choose this price as the cost of an IPL modem in the intermediate case scenario.

Actually, the price of an IPL modem, which is commercially offered in Germany, is 119 Euro

(Vype). The value is translated as 13,000 yen. Because the modem is provided by Vype, the

service provider, that provider might subsidize the cost of the modem. Therefore, the true cost

could be more, say around 20,000 yen. Therefore, the estimated cost, cited from the price of an

ADSL modem, 23,000 yen, seems more realistic. In summary, the price range of an IPL modem

is between 11,700 yen and 39,000 yen (Table 3.3.4.).

Cost Model 63

Table 3.3.4. The cost paid by one customer

Scenario (unit: yen) Element


IPL modem (CPE) 13,000 39,000 23,000

3.4. Output cost elements

Output cost elements consist of cost per home passed and cost per subscriber The results

are shown in Chapter 4.

Chapter Three 64

Endnote: 1 Hokkaido Electric Power Company Inc. See <http://www.hepco.co.jp/>

Tohoku Electric Power Company Inc. See <http://www.tohoku-epco.co.jp/>

Tokyo Electric Power Company Inc. (TEPCO) See <http://www.tepco.ne.jp/>

Chubu Electric Power Company Inc. See <http://www.commufa.jp/>

Hokuriku Electric Power Company Inc. See <http://www.rikuden.co.jp/>

Kansai Electric Power Company Inc. (KEPCO) See <http://www.kepco.co.jp/>

Chugoku Electric Power Company Inc. See <http://www.energia.co.jp/>

Shikoku Electric Power Company Inc. See <http://yonden.co.jp>

Kyushu Electric Power Company Inc. See <http://www.kyuden.co.jp/>

Okinawa Electric Power Company, Inc. (OEPC) See <http://www.okiden.co.jp/>

Results 65

Chapter 4. Results

This chapter shows the results of the IPL cost model analyses discussed in Chapter 3.

First, it defines the model’s cost result variables. Then it shows the set of graphs based on an

original set of input parameter values as well as those of sensitivity analyses that explore the

effect of changes in each of the different input parameter values. Third, it takes account of the

reality in Japan, including the penetration of personal computers as well as those of other

broadband access methods. The chapter concludes with a comparison of the IPL costs with the

costs of other broadband Internet access methods and a few suggestions to make IPL more cost-

effective.

4.1. Result variables

As described in the previous chapter, the outputs of the model consist of two elements:

the cost per home passed and the cost per subscriber.

• Cost per home passed (Chp): average cost divided by all homes reachable with IPL

system;

• Cost per subscriber (Csub): average cost divided by all subscribers reachable with IPL

system;

each element consists of two sub-elements: onetime cost and ongoing cost;

• Onetime cost (Cone): expenditure needed to invest onetime, usually up front;

• Ongoing cost (Con): expenditure needed continuously, usually monthly.

Three cost outcomes, which are defined in Chapter 3 as cost shared per cell, LAN, and customer,

are composed of the above two sub-elements.

The analyses begins with an examination of the cost per home passed resulting from the

original parameter settings.

4.2. Initial results

4.2.1. Cost per home passed

The cost per home passed of IPL (Chp) is calculated in the following manner: first,

calculate Cone and Con using the cost outcomes obtained from Chapter 3.

Chapter Four 66

i) Onetime cost: Cone

CPEN

laborEOEON

TScardLANCone +

++

×+

=)_//(

500)_(

- (4.2.1)

[yen/home passed]

ii) On going cost: Con

N

trentalFiberCon

cos__= - (4.2.2)

[yen/mo/home passed]

Here, TS means a terminal system; CPE means an IPL modem; O/E means an O/E device at a

pole; N means the number of homes per LAN. In Chapter 3, N was set at 20, which is maximal.

Second, amortize Cone at 6 % for the discount rate and 3 years for the period. The reason for this

is that these numbers are the usual case with telecommunications business. Finally, obtain Chp

by adding Con to Cone. Repeat these steps for each scenario.

The initial result is shown in Fig. 4.2.1.

Monthly IPL cost per home passed per LAN

0

1000

2000

3000

4000

5000

6000

0 2 4 6 8 10 12 14 16 18 20

Number of home passed per LAN

Cos

t (y

en/m

o/h

om

e p

asse

d)

Worst

Intermediate

Best

`

Fig. 4.2.1. Monthly IPL cost per home passed per LAN (modem rental)

The result in Fig. 4.2.1. assumes that power companies provide IPL modems. The key finding

here is that as the number of homes passed per LAN increases, the cost converges at between

1,000 and 2,000 yen per month, depending on the scenario.

Results 67

4.2.2. Cost per subscriber

The cost per subscriber (Csub) is calculated in the similar way as that of Chp. The only

difference is that the cost outputs are calculated based on the penetration of IPL, not the number

of homes. I set the penetration as P in this thesis. Therefore, N is replaced by N*P in the

equation 4.2.1 and 4.2.2. I set N at 20 as a sample, and calculated Csub. The result is shown in

Fig. 4.2.2. Fig. 4.2.2. shows the result when power companies are assumed to provide the

modems. The same trend is seen here as that seen in Fig. 4.2.1.

Monthly IPL cost per subscriber per LAN:N = 20

0100020003000400050006000

0% 20%

40%

60%

80%

100%

Penetration (%)

Co

st

(yen

/mo

/su

bsc

rib

er)

Worst

Intermediate

Best


Next, I tried sensitivity analyses for the cost per subscriber. I chose two variables, N: the

number of homes passed in one LAN, and Y: the period of IPL’s market window. I tried several

values for N in the intermediate case scenario. The result is shown in Fig 4.2.3. The result

assumes the intermediate case scenario and that power companies provide modems to their users.

As can be seen, first, the prices converge on 1,000 yen per month for most of Ns. Second, the

cost rises rapidly as N becomes small.

Chapter Four 68

Monthly IPL cost per subscriber per LAN: Intermediate

0

1000

2000

3000

4000

5000

6000

0% 10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Penetration (%)

Co

st (

yen

/mo

/su

bsc

rib

er)

N=10

N=20

N=40

N=60

N=80

N=100

Fig. 4.2.3. Cost per subscriber per LAN with various numbers of home passed per LAN

(modem rental)

Fig 4.2.4. shows the same result in another format. As will be described in Section 4.3., the IPL

cost per subscriber may have to range from 1,000 yen per month to 3,000 yen per month,

observing the today’s retail prices of other broadband methods in Japan.

The necessary number of homes passed per LAN: Intermediate

0

20

40

60

80

100

120

0% 10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Penetration (%)

Nu

mb

er o

f h

om

es p

asse

d

per

LAN 1.000 yen/mo

2,000 yen/mo

3,000 yen/mo


As seen in Fig. 4.2.3., when N equals 20, the cost will be below 2,000 yen per month over 60 %

Results 69

of the penetration. However, such a penetration is not likely, considering that the penetration of

the broadband Internet in Japan is 15 % after the first commercial ADSL service started three

years ago. Meanwhile, when N equals 80 or 100, the cost will be below 2,000 yen per month

over 15 % of the penetration. These values of N, however, are not realistic in the current

Japanese electric distribution networks, using 100/200 V systems.

4.2.3. Other findings: Cost structure

This section investigates the cost structure of IPL, and specifies the cost elements, which

raise the cost of implementing IPL. I assume that N equals 20, and the penetration is 100 %.

1) Onetime cost per home passed

a. Substation level (500*N = 10,000)

According to Table 3.3.1., the cost elements are shown below. The cost per home passed

is derived by dividing the total cost by the total number of customers under a cell, 10,000. The

cost per home passed here is 3,305 yen.

§ LAN card: 176,000/10,000

§ Terminal system for IPL: 32,877,200/10,000

Ø Total 33,053,200/10,000 = 3,305 yen

b. LAN level (N=20)

According to Table 3.3.2., the cost per home passed of LAN level equipment ranges

between 5,390 to 14,265 yen.

§ O/E device: 80,800 – 155,300 /20

§ O/E labor: 27,000 – 130,000 /20

Ø Total 107,800 – 285,300 /20 = 5,390 – 14,265 yen

c. Customer level (1)

According to Table 3.3.4., the cost varies from 13,000 to 39,000 yen.

Ø IPL modem: 13,000 – 39,000 yen

Chapter Four 70

From the above calculations, the total onetime cost per home passed varies from 21,695

to 56,570 yen.

2) Ongoing cost

b. LAN level (N=20)

According to Table 3.3.3., the ongoing cost per home passed is 261.6 yen per month.

Ø rental fiber: 5,231 /20 = 261.6 yen/mo

The total ongoing cost is 262 yen per month. I amortized the total onetime cost obtained above

into three years in a row, and compared it with the ongoing cost. Fig. 4.2.5. shows the cost

structure of total cost per home passed in the intermediate case scenario.

The cost structure of IPL: per home passed (Total =1,438 yen/mo)

103 , 7%

331 , 23%

717 , 51%

262 , 19%cell/10,000

LAN/20

customer/1

Ongoing

Fig. 4.2.5. The cost structure of total cost (unit: yen/month)

From Figure 4.2.5, the significant reduction of the total cost could be achieved by reducing

onetime cost, specifically pushing the cost of a modem to consumers. This effect will be

discussed later in Section 4.4.

4.3. Reality in Japan

In the previous analyses, I assumed that 100 % of homes passed are potential customers

for IPL. The reality, however, is different.

First, according to the Economic and Social Research Institute (ESRI), the penetration of

personal computers (Ppc) is on the average 63.3 % in March 2003 in Japan (sec.4). Secondly, the

broadband market penetration (Pbb) is 15 % in October 2002 in Japan (MPHPT, 2003). This

Results 71

paper assumes that other broadband users would not switch to IPL because the speeds are almost

the same and the previous analyses show that the retail price of IPL will not be likely further

lower than those of other broadband methods. The actual market left for IPL is only 48 % of

total households, as seen in Fig. 4.3.1. Furthermore, while the growth rate of Ppc is around 12 %

a year (ESRI), that of Pbb is 115 % a year (MPHPT, 2003). Because Pbb is growing much faster

than Ppc, the IPL target share is shrinking fast (Fig. 4.3.2). That is, the later the IPL service is

launched, the fewer the target for IPL is left.

The current market size of broadband for IPL

Penetration of Broadband

15%

Target of IPL48%

No PC37%

Fig. 4.3.1. The current market size for IPL in Japan

Chapter Four 72

The market window for IPL

0%

10%

20%

30%

40%

50%

60%

70%

80%

Mar-97

Mar-98

Mar-99

Mar-00

Mar-01

Mar-02

Mar-03

Mar-04

Mar-05

Time

Pen

etra

tio

n (

%)

Other broadband

IPL window

Fig. 4.3.2. The market window for IPL in Japan

4.3.1. Definition of N (number of homes passed per LAN)

For this reality in Japan, the valid number of homes passed per LAN is calculated in the

following manner.

Nmax: The actual maximal number per LV LAN. The average is 20, as described

in Section 3.2.4.

Nunserved: The number considering the reality in Japan, such as the PC penetration and

broadband market share. Nunserved is calculated as follows:

Nunserved = Nmax * (Ppc – Pbb ) = 0.48 Nmax - (4.3.1)

Nunserved-p: The number considering the penetration of IPL, Pipl, which ranges from 0 to

100 %.

Nunserved-p = Nunserved * Pipl = 0.48 Nmax* Pipl - (4.3.2)

4.3.2. The cost per home passed with Japanese reality

Taking account of this reality, the revised result is shown in Fig. 4.3.3. Compared with

Fig. 4.2.1., the cost rises by 500 to 1,000 yen per month in general.

Prediction

Results 73

Monthly IPL cost per home passed

0

1000

2000

3000

4000

5000

6000

0 2 4 6 8 10 12 14 16 18 20

Number of homes passed per LAN

Cos

t pe

r ho

me

pass

ed

(yen

/mo

/ho

me)

Worst

Intermediate

Best

Fig. 4.3.3. Monthly IPL cost per home passed with Japanese reality

(modem rental)

The dashed lines in the figure represent the retail price range of other broadband methods,

such as ADSL and cable modem. The retail prices in Japan range from 3,000 to 5,000 yen per

month when the customers rent the modems (Table 4.3.1). Because the operational cost is

usually from 2,000 to 3,000 yen per month, the costs can be estimated to be less then 3,000 yen

per month (Black, par. 17). Likewise, when the customers purchase the modems, the costs can

be estimated to be 2,500 yen per month because the retail prices range from 2,500 to 4,500 yen

per month. From these estimates, the best case scenario or the intermediate case scenario might

be able to be more cost-effective than the existing other broadband methods. However, these

analyses assume that the IPL penetration is 100 %, which is not likely.

Chapter Four 74

Table 4.3.1. The retail prices of other broadband Internet methods (unit: yen per month)

Modem rental Modem sale

ADSL

Yahoo! BB 3,318 2,448 8 Mbps, ADSL market share: 24%

3,030 2,600 1.5 Mbps, ADSL market share: 22% NTT EAST

3,140 2,650 8 M bps

3,153+ 3,153 1.5 Mbps, ADSL market share: 15% eAcess

3,953 3,453 8 Mbps

Cable modem

J COM 5,200 4,650 8 Mbps, Cable market share: 26%

2,900 2,200 512 kbps, the low-priced service. iTS.COM

3,200 2,500 8 Mbps

(Sources: see the list in Bibliography at the end)

4.3.3. The cost per subscriber with Japanese reality

Fig. 4.3.4. shows the cost per subscriber with Japanese reality when N equals 20.

Compared with the results without Japanese reality, which are expressed as “-theory” in the

figure, the costs rise by 500 to 1,500 yen per month. IPL could be as cost-effective as other

broadband methods over 60 % of the IPL penetration in the targeted market. That is, if the

penetration of IPL exceeds 29 % of total Japanese households, it could be as cost-effective as

other broadband methods. Although such a penetration might be eventually possible, that is not

realistic at first, as discussed in Section 4.2.2. Therefore, I conclude that IPL in Japan would not

have a cost advantage over the other broadband methods.

Results 75

Monthly IPL cost per subscriber in Japan: Nmax = 20

0

1000

2000

3000

4000

5000

6000

0% 10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Penetration (%)

Co

st (

yen

/mo

/su

bsc

rib

er)

Worst-real

Worst-theory

Best-real

Best-theory

`

Fig. 4.3.4. Monthly IPL cost per subscriber with Japanese reality

(modem rental)

4.3.4. Sensitivity analysis: Market window for IPL

The market window for IPL could be shorter than three years, which I assumed in the

previous analyses, due to the accelerated broadband subscriber growth as seen at the beginning

of this section. Furthermore, the Japanese government predicts that the number of FTTH

subscribers would overcome that of ADSL by the end of the fiscal year 2005 (MPHPT, White

Paper). Once the superior FTTH becomes popular, there will be no room for IPL to enter the

broadband Internet market. Unless IPL modem vendors could find any technical solution to the

emission issues, or the government changes the emission regulation, the IPL’s market window

would shorten more, say less than one year. Fig. 4.3.5. shows the result when the market

window for IPL is 2 and 3 years. As seen, the costs rise by 500 to 1,000 yen per month when the

market window is 2 years. IPL could be as cost-effective as other broadband Internet methods

only if the best case scenario occurs and the IPL penetration is over 80 %, which are not realistic.

Chapter Four 76

Monthly IPL cost per subscriber in Japan: Nmax=20

0

1000

2000

3000

4000

5000

6000

0% 10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Penetration (%)

Co

st (

yen

/mo

/su

bsc

rib

er)

Worst-2year

Worst-3year

Best-2year

Best-3year

`

Fig. 4.3.5. Monthly IPL cost per subscriber with various market windows in Japan

(modem rental)

4.4. Profitability of IPL

This section tries to analyze how IPL would be profitable in Japan based on the results

above.

4.4.1. Modem sale

As predicted in Section 4.2.3., the significant cost reduction can be expected if the IPL

customers purchase the IPL modems. In this section, I analyze how much the cost will be

reduced when the IPL customers purchase the IPL modems. The result is shown in Fig 4.4.1.

The dashed line in the figure represents the price range of other broadband methods, varying

from 2,500 to 4,500 yen per month. Indeed, the cost of IPL decreases by 500 to 1,000 yen per

month compared with when power companies provide the customers with IPL modems, but the

other broadband methods’ retail prices also decrease by 500 yen per month on average.

Therefore, IPL will not become as cost-effective as other broadband methods, even if the IPL

customers purchase the IPL modems.

Results 77

Monthly IPL cost per home passed:(modem sale)

0

1000

2000

3000

4000

5000

6000

0 2 4 6 8 10 12 14 16 18 20

Number of homes passed per LAN

Cos

t per

hom

e pa

ssed

(y

en/m

o/ho

me)

Worst

Intermediate

Best

Fig. 4.4.1. Monthly IPL cost per home passed (modem sale)

4.4.2. The number of homes passed per LAN

Then, I analyzed what would occur if the number of homes passed per LAN increased.

Fig 4.4.2. shows the revised result of Fig. 4.2.3, reflecting the reality in Japan. The result

assumes that power companies provide customers with the IPL modems.

Monthly IPL cost per subscriber per LAN: Intermediate

-

1,000

2,000

3,000

4,000

5,000

6,000

0% 10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Penetration (%)

Co

st

(yen

/mo

/su

bsc

rib

er)

N=10

N=20

N=40

N=60

N=80

N=100


When Nmax equals 20, the cost will be below the rivals ’ low-end prices over 60 % of the

Chapter Four 78

penetration. However, such a penetration is not realistic, as described in Section 4.2.2. However,

if Nmax is equal to or more than 80, the cost will be below the rivals’ low-end prices over 20 % of

the penetration. Fig 4.4.3. shows the same result in another format. From these findings, I

conclude that IPL would not have a cost advantage over the other broadband methods unless the

technology, which would increase the number of homes passed per LAN, is developed in the

future.

The necessary number of homes passed per LAN: Intermediate

0

20

40

60

80

100

120

0% 10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Penetration (%)

Nu

mb

er o

f h

om

es p

asse

d

per

LAN 1,100 yen/mo

2,000 yen/mo

3,000 yen/mo


Results 79

4.4.3. The reduction of the equipment cost per LAN

Finally, I analyzed how much the equipment cost per LAN should be reduced to make

IPL cost-effective. As predicted in Section 4.2.3., the significant cost reduction next to the case

of selling modems can be expected by reducing the equipment cost per LAN. I calculated the

equipment cost if the monthly IPL cost was 1,000 yen per month under the condition that Nmax

equaled 20 and the IPL penetration in the targeted market was 100 %, which meant 48 % of the

total Japanese houhold. I assumed the intermediate case scenario. Furthermore, I assumed that

all equipment costs except the one per LAN are fixed. The result showed as follows: first, the

IPL modems should be purchased by customers. Otherwise, the equipment cost per LAN will be

zero. Second, the equipment cost per pole is around 86,900 yen. Compared with the original

value under the same assumptions is 212,300 yen, it is a challenge to achieve this cost. I also

tried another set by changing the IPL penetration in the targeted market to 50 %. The result,

however, showed that the equipment cost should be zero. From these analyses, I conclude that it

is a challenge to achieve the same cost-effectiveness as that of other broadband methods under

the assumption I made, including the current IPL technology.

4.5. Conclusion

This chapter analyzed the cost results using the engineering cost model and the input

parameters collected in Chapter 3. The key findings are as follows:

Ø The IPL would not have more advantageous cost structure than other technologies.

Ø It might be cost-effective if IPL could technically increase the number of homes per

LAN in the future, i.e., 80 homes per LAN, and

Ø It might not improve the cost advantage to let IPL customers purchase the IPL

modems.

Therefore, IPL will not have an advantageous cost structure under the current situation in Japan.

For those reasons, I conclude that the IPL would not have a dominant market power in

the broadband Internet market in Japan.

Chapter Five 80

Chapter 5. Policy Implications

This chapter discusses the policy issues based on the results of this research.

5.1. Japanese antitrust policy

This section reviews Japanese antitrust policy before making a conclusion about the IPL

case. The main law which governs antitrust issues in Japan is the Act Concerning Prohibition of

Private Monopolization and Maintenance of Fair Trade: Siteki dokusen no kinsi oyobi kosei

torihiki no kakuho ni kansuru horitu, the so-called Antimonopoly Act. The entity in charge of the

issues is the Japan Fair Trade Commission (JFTC2). According to its website, its role is as

follows:

The Japan Fair Trade Commission is positioned as an extra ministerial body of the

Ministry of Public Management, Home Affairs, Posts and Telecommunications

(MPHPT).

However, the Japan Fair Trade Commission has the character of being an administrative

organization under the council system, consisting of a Chairman and four Commissioners.

In implementing the Antimonopoly Act, the Japan Fair Trade Commission independently

performs its duties without being directed or supervised by anyone else (2003, sec. 2-1-1).

MPHPT JFTC

Fig. 5.1.1. The relationship between MPHPT and JFTC

As for the telecommunications industry, JFTC cooperates with MPHPT3, which is in

charge of Japanese telecommunications policy. Likewise, as for the electricity industry, JFTC

cooperates with the Ministry of Economy, Trade and Industry (METI4), whose affiliate, Agency

for Natural Resources and Energy (ANRE5), is mainly in charge of Japanese electricity policy.

If a monopoly status harms the market, i.e., no price decrease in spite of the cost decrease, the

Japanese government will advise the market in order to recover a competitive status.

Policy Implications 81

5.1.1. The antitrust policy in telecommunications market

The “Manual for Market Entry into Japanese Telecommunications Business” states that

the entry into the telecommunications business should not impede fair competition according to

Examination Standards Regarding the Telecommunications Business Law’s Chapter II,

“Permission for Type I Telecommunications Business” (MPHPT 81).

The Telecommunications Council (TC), an affiliate of MPHPT, is mainly involved in the

current telecommunications policy. In their recent publication, “The Guideline of the

Competition Policy,” they propose three main points (TC 12):

1) Promote new entrants as well as secure fair competition,

2) Protect customers from complexity of services, and

3) Revise the regulation to adapt the shift toward IP networks.

Among these, the proposal 1) is related to the IPL case.

While TC focuses on how to stimulate the telecommunications competition, JFTC

encourages the fair competition among the participants.

Organizations MPHPT JFTC

TC

Law Telecommunications Business Law Antimonopoly Act

Fig. 5.1.2. The organizations in charge of the telecommunications policy

According to the “Guidelines of Competition Policy and System Reform of

Telecommunications Market,” the existence of two rules, the Antimonopoly Act and

Telecommunications Business Law’s connection rule for NTT facilities, has brought about some

confusion among business entities (5). Therefore, they set the following rules over the

Chapter Five 82

supervising entities, JFTC and MPHPT, in the guidelines to avoid such confusion

(JFTC&MPHPT, 51).

• Communicate with each other whenever one or both receives a complaint.

• Have a liaison for the above purpose.

• Proceed the complaining based on the following laws:

Ø Antimonopoly Act, Chapter 45 and

Ø Telecommunications Business Law, Chapter 96.

• Cooperate and share information smoothly and efficiently.

Unfortunately, there has been no quantitative criterion to measure a market power so far,

though TC has been trying to develop one. Instead, TC uses “the degree of the influence on

society,” which does not have clear quantitative definitions, either (89). Therefore, the following

parts review several cases to have a general image of Japanese antitrust policy in the

telecommunications market. The key policy here is the unbundled network equipment (UNE)

policy. In order to solve the antitrust issue in the telecommunications market, it is economically

and practically appropriate to unbundle the network equipment of an entity, which has a

relatively dominant market power in the market, and to lend it to the competitors.

a. Case study (1) Cable modem Internet

Cable television companies are exempted from the UNE policy. In terms of the “degree

of the influence on society,” the penetration of cable television subscribers, 27.1 % as of March

2002, is regarded as too small an influence on society to apply the UNE policy to cable television

companies (The Dispute Processing Committee, Ch.2, Sec. 3-(4)). In fact, as of October 2002,

the IT Strategy Headquarters report that the number of ADSL subscribers is two and a half as

many as that of cable modem Internet subscribers (sec. 1-(4)). Because of this less dominant

market power, cable companies are even allowed discounted bundled broadcasting service with

the Internet service. For example, J-COM Kansai, the biggest multiple system operator (MSO)

in Japan, offers a bundled menu at 8,400 yen per month, whose original price is a sum of TV

service charge, 3,980 yen per month and the Internet service charge, 5,200 yen per month (J-

COM Kansai).

As a reference, there are two differences between the U.S. and Japanese policy for the

cable modem Internet. First, the Japanese local governments do not have as strong an authority


as the US’s local governments have. Therefore, there will not be complex policy issues once

national level policies are launched. Second, while the U.S. federal government tries to define

cable modem Internet service as “Information service” to avoid telecommunications regulations

like UNE policy, the Japanese government does not.

b. Case study (2) the entry of power companies

As for power companies, on the other hand, the Japanese government regards the entry of

power companies as a big influence on society. The MPHPT’s press release on February 8, 2002

reported that Tokyo Electric Power Company, Inc. (TEPCO) obtained permission to operate

Type I Telecommunications Business under the six conditions below (MPHPT, 8 Feb. 2002).

(The date was about one month before TEPCO launched the FTTH service.)

• Fair treatment of poles among TEPCO’s telecommunications department and other

carriers,

• Shutdown of information between telecommunications department and others inside the

company,

• Prohibition of utilizing electricity supply service and sales information,

• Periodic disclosure of pole attachment data,

• Separate organization and customer information for telecommunications use, and

• Separate assets in the account book, and public disclosure.

Three more detailed criteria were announced for the account, a half year later by MPHPT

(MPHPT, 8 Aug. 2002):

• Disclosure of the account information

Assets and expenditures of telecommunications business

• Prohibition of mutual support

By defining the actual percentage of expense distribution

• Securing fair treatment of pole attachment

By applying the same charge to the cable for telecommunication use as that

carriers incur.

Chapter Five 84

Chubu Electric Power Company Inc. (Chubu), the third largest power company in Japan, also

faced the same condition when it received the permission of a telecommunications business

(MPHPT, Sept. 25, 2002).

Both power companies have offered Fiber to the Home (FTTH) service in their electrical

service areas by themselves. As seen above, the two power companies are not requested to

unbundle their network facilities.

Although two power companies in Japan have obtained the permission of the

telecommunications business in Japan, neither can offer the IPL service today. Because the

Japanese government decided to postpone the implementation of the IPL service due to its

technical problem on August 8, 2002, power companies in Japan can neither offer the service nor

make active efforts to fix the problem, like field tests.

c. Trends in Japan

For the ambitious purpose of making Japan a top IT nation in the world within five years

since 2001, the Japanese government founded an IT Strategy Headquarters as an affiliate of

Prime Ministry of Japan and His Cabinet. The Headquarters proposed an “e-Japan Strategy” to

implement its purpose. One of the important topics there was to promote the spread of

broadband Internet. In fact, the investigation of implementing IPL in Japan was included in the

e-Japan Priority Policy Program-2002, announced June 18, 2002 (The Headquarters Part II, 1-

(4)-2).

In order to reflect these changes in telecommunications policy, JFTC proposed that the

government should minimize the advance regulation on entrants to lower the hurdle to the entry

for potential entrants. JFTC stated that the current system to permit entrants the

telecommunications business, so-called TYPE I Telecommunications Business, not only got rid

of entrants’ incentive to enter the market but also tended to reflect someone’s intention (JFTC,

Nov. 2002, 9). JFTC proposed in their report that it is important to balance the regulation before

and after entry. For example, entry by utilities to other public industries is expected to bring

about competition based on facilities, but abuse of their market power in the new fields is a

matter of concern. Therefore, for the regulation before entry, it should be analyzed thoroughly 1)

whether it is possible for the entrants to abuse their dominant market power in utilities in the

telecommunications field, 2) what kind of harmful effects might be brought about, and 3)


whether advance regulation is sufficient to secure fair competition, if the government determines

to put some limits on the entrants’ activity in order to insure fair competition.

Observing these telecommunications policy trends in Japan, this thesis concludes that it is

not likely that the government will impose strict regulation on entrants into broadband access

business.

d. Summary

From these case studies and the results from the cost analyses, I conclude that it is

appropriate to apply the same or less strict regulation to the IPL service as discussed in

Subsection (b). Although there were some voices saying that IPL needed more strict regulation

than FTTH, the cost analyses showed the relatively weaker market power of IPL in the current

broadband Internet market.

5.1.2. The antitrust policy in the electricity market

According to JFTC and the Ministry of Economy, Trade and Industry (METI), “The

pricing of electricity far below the cost violates antitrust law” (6). However, there has not yet

been any regulation that applies to the bundled electricity service with the telecommunications

service. The discounted bundled service might entice the electricity customers, resulting in the

anticompetitive tactics against the electricity entrants, which do not have LV networks. The

following sections review several past cases to provide general image of Japanese antitrust

policy on the bundled services.

Organizations METI JFTC

ANRE

Law Electricity Utilities Industry Law Antimonopoly Act

Fig. 5.1.3. The organizations in charge of the electricity policy

Chapter Five 86

a. Case study: bundled service (1)

When NTT started a bundled service which offered the bundled service of the local

telephone service and the ADSL service at a discounted rate, its ADSL competitor, eAccess,

complained that this competition would not be fair. According to eAccess, the reasons were that

it could not offer local phone service and that NTT had a dominant market share in the local

phone market, 73% in March 2003 (MYLINE Carriers Association, 2003). The government

judgment was, however, for NTT because both local telephone and ADSL markets were under

competition and it was hard to anticipate how the bundling service would affect the ADSL

market. The government decided to require NTT reporting of data on the correlation between

the telephone and ADSL markets, and to monitor the markets for a possible policy revision (The

Dispute Processing Committee, Part II, Ch. 3, Sec. 1-8., 149).

b. Case study: bundled service (2)

Similar to the previous case, in the U.S. software industry, Microsoft was sued for

bundling its Internet browser software, Internet Explorer (IE), with its dominant personal

computer (PC) operating system (OS), Windows. After Microsoft bundled IE with Windows,

the previous number one browser company, Netscape, lost much of its market share. Although

still pending, the judgment so far has been in favor of Microsoft.

The point here was that the application software, IE, was regarded as a part of OS

functions. Following this logic, power companies can say that a bundled service of electricity

and IPL would not violate the antitrust policy if IPL is regarded as a part of the electricity

services. Observing that there is no lawsuit related to the Microsoft’s IE case in Japan, I

conclude that the Japanese government follows the U.S. judgment. Consequently, the bundled

IPL service might also be possible.

c. Summary

Japanese power companies might bundle their electricity service with the IPL service at a

discounted rate like those in the above cases. However, the story is slightly different from the

cases above. Because the liberalization of the power market has not been done for residents and

small businesses, the bundling of service could be tying the monopoly market to a competitive

market (Fig. 5.1.4.). As the Telecommunications Business Law, Chapter 31, section 2 mandated


that the price of discounted bundled service, subsidized from monopoly market, should be

adjusted (JFTC and MPHPT 29), that activity is prohibited under the current law.

Local phone + ADSL

(comp. but dominant) (comp.)

Electricity + IPL

(monopoly) (comp.)

Fig. 5.1.4. The difference between the two cases

Furthermore, because cross subsidy by the power companies between their power businesses and

telecommunications businesses is prohibited by the government, the discounted bundling of IPL

service cannot be attained under the current environment. Consequently, the fair competition in

the electricity market will be kept even if the IPL service is launched. The liberalization of the

resident-level power market will be on the agenda in April 2007 (EBS 24), though it is not clear

whether the liberalization will be implemented or not.

5.2. Antitrust issues in IPL

5.2.1. Broadband Internet market

This section discusses the issues related to Japanese power companies as entrants in the

broadband Internet market. The main issue here is about unbundling distribution power

networks. Considering that NTT, a former natural monopoly of telecommunications business, is

regulated by the UNE policy, power companies would also have to provide their distribution

power networks to telecommunications competitors if power companies have a dominant market

power in the Japanese broadband market, with IPL using the economy of scope.

My hypothesis is the opposite of the above prediction. First, the results of cost analyses

show that IPL would not be as cost-effective as other technologies such as ADSL and cable

modem in the current Japanese environment. In terms of the “degree of influence on society,”

Chapter Five 88

the observation of the recent broadband market shows that the cost is the biggest element to be

considered, not the market penetration of the original networks. For example, the number of

ADSL subscribers rapidly increased after its price became around 3,000 yen per month. In fact,

the U.S. data show that the top reason why people in the U.S. do not subscribe to broadband

Internet service is its expensive price, around $50 per month (OTP, 14). Moreover, IPL is at a

disadvantage in that it is not a first mover in the broadband Internet market. Third, as for the

possibility of cross subsidy from electricity revenue, the current regulation on TEPCO and

Chubu prohibits cross subsidy between electricity and telecommunications services. Therefore,

while the bundling of service would be possible, the discounted bundled service could not be

offered. One potential rationale to reverse the cross-subsidy regulation is the Microsoft’s IE case,

described in Section 5.1.2.

For these reasons, I conclude that power companies would not have a dominant market

power in the broadband Internet market even if they utilized their electricity networks, whose

penetration is superior to any other network. Consequently I recommend that the Japanese

government should not regulate power companies that offer IPL service as strictly as local

telephone companies are regulated under the UNE policy.

5.2.2. Electricity market

This section discusses the issues related to power companies as incumbents in the

electricity market. Main issue here is whether IPL would hinder the fair competition in the

electricity market.

a. Liberalized markets

A part of industrial customer markets is liberalized now. If we can apply the NTT vs.

eAccess case in Section 5.1.1. to these markets, power companies could offer discounted

bundling service of IPL and electricity. Though electricity service entrants, which do not have

distribution networks might complain of this matter, the discounted bundling service could be

allowed unless the correlation between two services turns out to be strong. However, in order to

achieve this service, the current cross-subsidy regulation on power companies’

telecommunications business should be loosened.


b. Non- Liberalized markets

Ordinary residential customer markets have not been liberalized yet. Therefore, the cross

subsidy like a discounted bundled service means leveraging power in the monopoly market, the

electricity market, into the competitive market, the broadband market. Observing that NTT faces

the UNE policy today, I believe that power companies would receive more strict regulation if

they try to bundle the IPL service with the electricity service at a discounted rate.

5.3. Other policy issues

There are several policy issues related to IPL besides antitrust issues. This section

discusses the issues as follows:

• Asset allocation (electricity or information),

• Rights of way (pole, conduit),

• Interference of radio waves, and

• Use of customer information achieved by electricity business.

Most of these issues can be solved if IPL is offered by power companies’ telecommunications,

affiliates. Here, however, I try to assume that power companies directly operate IPL because the

situation is more likely to happen in today’s environment. Many of the answers are shown by

the government in the requirement to TEPCO, issued on Feb. 8, 2002 (MPHPT, Feb. 2002).

5.3.1. Asset allocation

The use of utility assets for the commercial telecommunications service has complex

jurisdictional and regulatory issues. The challenge will be about the distribution electrical wires,

while the physically separated devices like an O/E device will be easily classified as a

telecommunications asset. It will be argued how power lines would be valued when they are

used for IPL service. Power companies could integrate an auto-meter reading service using the

IPL service so that the IPL service could be regarded as an extended utility service.

In Japan, for example, the asset of FTTH service has been separated from that of

electricity service in the power companies’ account books because of the government

requirement. The difficulty of IPL is, however, power lines cannot be divided physically like

optical fiber cables because the same medium transmits electricity and data signals

Chapter Five 90

simultaneously. If distribution power lines are regarded as telecommunications asset as well as

electricity asset, the power lines might be ruled by more than one regulator, i.e., MPHPT and

METI, in the future, which would cause some confusion.

This decision might also bring some organizational conflict inside power companies. For

example, the maintenance workers of the distribution department in a power company will have

to be trained to understand telecommunications technology. This means the extra work for the

workers, and some resistance might be expected. As a result, the maintenance workers of the

telecommunications department in the company might have to be trained to deal with electrical

wires. In this case, the same resistance might be expected, too.

As for the ratio of the telecommunication portion, one approach might be to estimate a

rental fee of power lines, supposing that an affiliate offers IPL service borrowing the lines from

the power company. Power companies could refer to NTT’s calculation of ADSL connection fee.

The main portion might be the maintenance fee of a line.

In summary, the following challenges are needed to be solved for this asset allocation

issue.

• Organizational conflicts

- Internal conflicts between the distribution dept. vs. the telecommunications dept.

- External conflicts between MPHPT vs. METI

• Legal and regulatory challenge

- Accounting

Different from that of Japan, this issue could be solved by regarding electrical wires as electricity

assets in the U.S., even if they transmit the Internet data. Like the cable modem, IPL might not

be regarded as the “telecommunications service” but the “information service.” Furthermore,

IPL might be regarded as one of the electricity services by integrating value added services like

the automated meter reading service. In fact, if the Internet service using electricity wires is

approved as one of the electricity services, the bundled service of IPL and electricity would not

violate antitrust issues, according to the Microsoft’s IE case, discussed in Section 5.1.2.


5.3.2. Rights of way (pole and conduit)

In Japan, the government requires that utilities provide telecommunications carriers

(carriers) and cable television operators (operators) non-discriminatory access to poles, ducts,

and rights-of-way for communications purposes. If a utility starts the IPL service, the power

lines can be regarded as telecommunications lines, which can be subject to the same attachment

fee as the one the carriers and the operators have paid. In fact, the government requires that

TEPCO and Chubu charge the attachment fee on their own fibers used for FTTH service. Both

power companies must put the fee in their account book of telecommunications business.

The problem, however, is that an electrical cable cannot be separated physically as

optical fiber cables can be. While each core can be determined as telecommunications use or

electricity use in the case of fiber cables, an electrical cable of the low voltage distribution

networks usually consist of only two electrical wires which would transmit electricity and the

Internet data simultaneously.

I try to solve this issue in the following way: first, the purpose of the attachment fee is to

prevent the free ride by carriers and operators. Because the poles were built to attach electrical

cables, it is strange to require the same amount of attachment fees on the electrical cables just

because the cables are used for the Internet use. Second, however, charging nothing to electrical

cables will give IPL a financial advantage over the other broadband carriers. Consequently the

competition will not be fair. Third, the cost analysis, however again, shows that IPL will not

have a cost advantage over the other carriers even without the attachment fees with the current

IPL technology. That is, requiring the attachment fee will make IPL even less cost-effective.

For these reasons, I recommend that the government should not require that power

companies charge an attachment fee on their electrical cables unless a breakthrough IPL

technology, which increases the number of homes per LAN, will be developed.

The different approach might be possible using the same logic discussed in Section 5.3.1.

That is, it might be possible for power companies to persuade the government that IPL is the

“electricity service,” by offering value-added services like the automated meter reading over IPL.

Unfortunately, because the Japanese government does not use the same measure as the U.S. use,

I do not think that this solution would be applied to the Japanese IPL case. The situation will

not be likely to change in the future, either, observing that the U.S. policy has brought about

Chapter Five 92

some confusion among the players, i.e. power companies’ attempts to charge different rates on

the cables, over which the cable companies offer the cable modem services (APPA).

In summary, the following challenges are necessary to be solved for the rights-of-way

issues.

• Legal and regulatory challenge

- Accounting

5.3.3. Interference with radio waves

Because the IPL system uses spectrum between 2MHz to 30 MHz as its carrier frequency,

the radiated electromagnetic waves sometimes interfere with the waves of existing amateur radio

and other uses. While it may be possible to suppress the radiation technically in the near future,

it might also be appropriate to investigate the current spectrum use and reallocate the spectrum

among users. According to the Rules for Enforcement of the Radio Law Chapter 44,

telecommunications over power lines (PLT) are allowed in the frequency bandwidth between 10

kHz to 450 kHz with less than 10W power. In the year of 2002, the Japanese government tested

the emission influence of expanding the PLT frequency to the range between 2 MHz to 30 MHz

because the IPL implementation was one of the projects to promote the broadband Internet

penetration in “e-Japan strategy” proposed by IT Strategy Headquarters, an affiliate of Prime

Ministry of Japan and His Cabinet. The result, however, showed that the emission would heavily

affect the existing wireless services such as broadcasting and amateur radio when electrical

cables were within 3 meter distance from the target facilities (MPHPT, 9 Aug. 2002). The

general use of 2MHz to 30MHz is shown in Fig. 5.3.1.


10 450 3 3,000

PLT MF HF VHF

[kHz] [MHz]

HF bandwidth is used mainly by

• Maritime mobile

• Amateur radio

• Aeronautical mobile

• HF-broadcasting

• Others (Land mobile, Fixed)

Fig. 5.3.1. The spectrum map ranging from 1 to 30 MHz in Japan

(Source: MPHPT, “The public disclosure of the frequency allocation”)

The government’s result also showed that the emission could be received even 100 to 400m

distance far from the electrical cables. For these reasons, on August 9, 2003, the Japanese

government decided to postpone the implementation of IPL in Japan until the emission issue is

technically solved. This decision did not affect the permission for the power companies to offer

the telecommunications services, which had been given a half year before for TEPCO and two

months later for Chubu.

Talking of the world movement, because the standard of the radiation regulation differs

among nations, a unified standard is planned on worldwide basis through the International

Special Committee on Radio Interference (CISPR). It is generally said that the order of the

severity is British, German and the U.S. low. In the U.S., the FCC’s Spectrum Policy Task Force

(SPTF) has been working on this issue, using the interfe rence “temperature,” which measures the

degree of interference of unintended radiated waves (Lyon, 10). In Europe, several organizations,

such as the European Telecommunication Standardization Institute (ETSI6), the IEEE Power

Engineering Society Power System Communications Committee (PSCC7), and CISPR are

working together to establish the standard of the radiation of the IPL system as well as that of the

home-networking over power lines. Although the Japanese government also participates in

Chapter Five 94

CISPR, it looks difficult for the Japanese government to reallocate the existing spectrum map

because of the strong resistance from the organizations such as the broadcasting stations and the

amateur radio communicators. The technical solutions were shown in Chapter two.

In summary, the following challenges are needed to be solved for the emission issue.

• Organizational resistance

- Existing frequency users vs. power companies and the Japanese government

• Technical challenge

- Development of the emission suppression

• Regulatory challenge

- Relocation of the existing spectrum map

5.3.4. Use of customer information obtained by an electricity business

About the information known as customer proprietary network information (CPNI), the

FCC limits the Bell Operating Companies’ use of customer information obtained from their

regulated market for the new market (Gray, 1999, 43). In Japan, the similar rule has also applied

to electrical power companies which offer FTTH service recently. However, there has not been

appropriate investigation of the power companies’ market power in new markets like the

broadband Internet market. If the market power is far less dominant than that of existing

competitors, using CPNI could be justified to achieve perfect competition. In fact, as for

MYLINE competition, the competition of local phone market, NTT won the game because it

created and offered various price menus, which reflected customers’ preferences on the

telephone. NTT’s rich CPNI, which its competitors did not have, enabled it to pursue this

strategy.

Recently, JFTC proposed that the government should minimize the advance regulation on

entrants, including CPNI, because severe regulation on entrants in advance would reduce the

entrants’ motivation. It says that the current permission system of TYPE 1 not only gets rid of

entrants’ motivation but also tends to reflect someone’s intention, purpose (JFTC, Nov. 2002, 9).

Therefore, JFTC proposes that the government should investigate the market only if something

wrong occurs there. For example, the entry by utilities in other public industries is expected to

bring about competition based on facilities, while the abuse of the market power in the area is

concerned. However, it should be analyzed thoroughly 1) whether it is possible for the entrants


to abuse their dominant market power in their area also in telecommunications area, 2) what kind

of harmful effects will be brought about, and 3) whether the advance regulation is appropriate to

secure fair competition, when the government determines to put some limits on the entrants’

activity in terms of secure of fair competition.

TC has the same opinion (TC, 9). The “Final report on how the competition policy in

telecommunications should be in order to promote IT revolution” reports that the government

should investigate how the CPNI in other market influence the telephone or Internet market.

In summary, the following challenge is needed to be solved:

• Regulatory challenge

- Permission of the use of CPNI

5.4. Policy recommendations

From these analyses, I recommend the following policies related to the IPL

implementation:

• Do not impose the UNE policy on power companies because of the little possibilities of

violating antitrust issues,

• Simulate the outcomes of the asset allocation policies thoroughly, specifically about the

organizational aspects and the accounting aspects.

• Do not charge the pole attachment fee on the electrical cables until the breakthrough

technology will be developed, i.e., the cost-effective bypass-transformer device.

• Support the development of the technology to suppress the radio-wave emission.

• Allow power companies use their customer information obtained from their electricity

business unless the obvious problem is found.

Chapter Five 96

Endnote: 2 The Japan Fair Trade Commission (JFTC). See <http://www.jftc.go.jp/e-page/f_home.htm> 3 Ministry of Public Management, Home Affairs, Posts and Telecommunications (MPHPT). See < http://www.soumu.go.jp/> 4 Ministry of Economy, Trade and Industry (METI). See < http://www.meti.go.jp/english/index.html >

5 Agency for Natural Resources and Energy (ANRE). See < http://www.enecho.meti.go.jp/english/index.htm > 6 the European Telecommunication Standardization Institute (ETSI). See <http://www.etsi.org/>. 7 the IEEE Power Engineering Society Power System Communications Committee (PSCC). See < http://www.ewh.ieee.org/soc/pes/pscc/>.

Conclusions 97

Chapter 6. Conclusions

This chapter summarizes the key findings of this study, first. Then it suggests the further

research. Finally, it concludes with the policy recommendations.

6.1. Summary of key findings

6.1.1. Key findings from the cost analyses

From the cost analyses, the followings are found:

• IPL would not have a dominant market power in Japan under the current situation,

The cost analyses show that IPL would not be as cost-effective as other broadband

methods such as ADSL and cable modem. For example, the monthly IPL cost will be 4,000 yen

per month on the likely condition that the number of home passed is 20, and that the IPL

penetration is 20 percent in the intermediate case scenario. Considering that the retail prices of

the other broadband methods are around 4,000 yen per month, and that the OPEX is around

2,500 yen per month, it cannot be said that IPL would be as cost-effective as other broadband

methods. Furthermore, if the Japanese reality is taken into account, the IPL cost increases to

around 6,000 yen per month under the same condition. Because the market window of IPL is

also shrinking faster, I conclude that IPL would not have a dominant market power in Japan

under the current situation.

• It might be cost-effective if IPL could technically increase the number of homes per LAN

in the future, i.e., 80 homes per LAN,

One way to increase the number is to adopt the MV & LV line network architecture,

discussed in Section 2.3.2. Aggregating four or five LV-LANs will capture the necessary

number of homes per LAN. If the cost of the bypass technology decreases to the affordable level

and the bandwidth limit of the power lines is technically solved, this option would make IPL

more cost-effective.

Chapter Six 98

• It might not improve the cost advantage to let IPL customers purchase the IPL modems.

Because the retail prices of other broadband methods also decrease by the similar degree,

this option is not effective to improve the cost advantage of IPL.

6.1.2. Key findings from the policy analyses

a. The Japanese broadband market

From the policy analyses, the followings related to the Japanese broadband market are

found:

• The “degree of influence on society” is the criterion to determine whether to regulate the

entrants, though the criterion does not have a quantitative measurement,

Although the penetration of cable television is one of the few quantitative measurements,

this measurement alone will not tell the market power of the entrants.

• The Japanese government should not impose the UNE policy on power companies which

offer the IPL services,

The reasons are as follows: first, the IPL would not have a cost advantage over other

broadband methods. Second, the power companies with IPL are not first movers. Third,

because the cross subsidy from the electricity revenues is prohibited, it is impossible to offer the

discounted bundled service of IPL and the electricity service. Finally, the UNE policy would

bring about the complex operational issues of distribution networks.

• The power companies should be allowed to use the customer proprietary network

information (CPNI) obtained from the electricity services,

As JFTC states in their report, it is uncertain how dominant the market power of power

companies in the broadband market will be with the IPL service. Rather, in order to stimulate

Conclusions 99

further competition, the Japanese government should not impose strict regulation on power

companies unless they turned out to have dominant market powers.

• The asset allocation issues need to be analyzed further,

As discussed in Section 5.3.1., if the LV distribution network assets are partially regarded

as telecommunications assets, there would be organizational conflicts not only the inside a power

company, but also between the regulators.

• The Japanese government should not impose the pole attachment fees on the electrical

cables, used for the IPL purpose,

Because IPL would not have a cost advantage even without the pole attachment fee, it is

recommendable for the government not to impose the fees on the power companies unless power

companies develop technologies, which would improve the IPL cost structure, i.e., increase the

number of homes per LAN.

• The Japanese government should reconsider the allocation of the spectrum as well as

assist the development of the IPL’s emission suppression technology.

Considering that the IPL technology is also expected to be used in the home-networking

in the future, the relocation of the spectrum should be investigated sooner or later, though the

work would not be easy.

b. The Japanese electricity market

From the policy analyses, the followings related to the Japanese electricity market are

found:

• The IPL service would not hinder the fair competition in the Japanese electricity market.

Chapter Six 100

First, the relatively expensive IPL service would not attract the electricity customers.

Second, because the current regulation prohibits incumbent power companies from offering the

cross subsidized bundled service of IPL and the electricity service, the IPL service by the

incumbent power companies would not be an advantage over other electricity entrants.

6.2. Suggestions for further research

The recommendable further researches are as follows:

• The cost reduction analyses of pole equipment,

This thesis made several assumptions related to the O/E device at a pole. The sensitivity

analysis in Section 4.4.3 shows that it is a challenge to make IPL as cost-effective as other

broadband methods under the assumptions I made, like using IP-based devices. However, such

cost-effectiveness might be possible under different assumptions. Because the pole equipment

cost occupies the larger portions of the cost of implementing IPL, I recommend further

researches on this topic.

• The cost analyses of the different network architectures.

MV & wireless architecture, which is adopted by Amperion, might be a good substitute

for fiber-based architecture. Considering the recent spread of wireless technology, specifically

WiFi technology, this architecture deserves considering for power companie s which seek for the

entry into telecommunications business.

6.3. Policy recommendations

Although the market window for IPL is shrinking recently, IPL is still expected in some

areas like rural areas, where the deployment of the broadband infrastructure is slow. In order to

benefit such areas, this thesis recommends the following policies:

• The Japanese government should not impose the UNE policy on power companies,

Conclusions 101

• Power companies should be allowed to use their customer information obtained from

their electricity business,

• The Pole attachment fees should not be charged to the electrical cables unless the IPL

service will be profitable,

• The Japanese government should consider the revision of the existing spectrum map, and

• Power companies should be allowed to offer the bundled IPL service with their electricity

service at a discounted rate to the liberalized electricity customers.

I believe that this study based on the engineering cost model would contribute to the

further effective policy implementation in the broadband market as well as the electricity market

in Japan.

Bibliographies 102

Endnotes 1 Hokkaido Electric Power Company Inc. See <http://www.hepco.co.jp/> Tohoku Electric Power Company Inc. See <http://www.tohoku-epco.co.jp/> Tokyo Electric Power Company Inc. (TEPCO) See <http://www.tepco.ne.jp/> Chubu Electric Power Company Inc. See <http://www.commufa.jp/> Hokuriku Electric Power Company Inc. See <http://www.rikuden.co.jp/> Kansai Electric Power Company Inc. (KEPCO) See <http://www.kepco.co.jp/> Chugoku Electric Power Company Inc. See <http://www.energia.co.jp/> Shikoku Electric Power Company Inc. See <http://yonden.co.jp> Kyushu Electric Power Company Inc. See <http://www.kyuden.co.jp/> Okinawa Electric Power Company, Inc. (OEPC) See <http://www.okiden.co.jp/> 2 The Japan Fair Trade Commission (JFTC). See <http://www.jftc.go.jp/e-page/f_home.htm> 3 Ministry of Public Management, Home Affairs, Posts and Telecommunications (MPHPT). See < http://www.soumu.go.jp/> 4 Ministry of Economy, Trade and Industry (METI). See < http://www.meti.go.jp/english/index.html >

5 Agency for Natural Resources and Energy (ANRE). See < http://www.enecho.meti.go.jp/english/index.htm > 6 the European Telecommunication Standardization Institute (ETSI). See <http://www.etsi.org/>. 7 the IEEE Power Engineering Society Power System Communications Committee (PSCC). See < http://www.ewh.ieee.org/soc/pes/pscc/>.

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