Known for its enormous appetite for hi-tech gadgets and services, Japan has one of the most buzzing telecom markets in the world. The country has an estimated 205 million telecom users, signifying a teledensity of 162 per cent, amongst the highest in the world.
The phenomenal growth of the telecom sector has been fuelled by an increase in services such as 3G, fibre-tothe-home (FTTH), voice over internet protocol (VOIP) and triple play. Today, the Japanese telecom market is considered mature and innovative, and its infrastructure more advanced compared to countries in North America and Europe. The subscribers are price conscious and exacting in their demands.
The sector, led by the Ministry of Internal Affairs and Communications (MIC), took off in 1997 ?? the year that marked the beginning of the deregulation era in Japan. The market was rendered highly competitive by the entry of a number of new players. Technologically too, the sector made rapid strides. Japan was one of the early adopters of triple-play services under which TV, broadband and voice telephony are provided as a package service by a single operator.
Japan is looking to adopt more sophisticated and efficient technologies. In the mobile segment, Wi-Max and long-term evolution (LTE) are expected to play an important role. Fixed line services are gradually shifting from conventional public switched telephone networks (PSTNs) to IP-based networks. In fact, MIC plans to replace all PSTNs with IP-based networks by early 2010. In the broadband segment, FTTH services are fast replacing asymmetric digital subscriber line (ADSL).
tele.net presents an overview of the fast-paced Japanese telecom market…
Key players
As a result of continuous reorganisation, there are three or four major players in Japan’s telecom sector. While the Nippon Telegraph and Telephone (NTT) Group dominates all segments of the market, the other key players are KDDI and the SoftBank Group. The past few months have also witnessed the entry of new players like Emobile and Disney Mobile, which has increased the level of competition. Changing technology and increasing competition mean that there is immense pressure on the operators to differentiate their services on the basis of price, combinations and value-added services.
Nippon Telegraph and Telephone
The dominant player in the Japanese telecom market, the NTT Group comprises five companies: NTT East and NTT West (local telephone services), NTT DoCoMo (mobile services), NTT Communications (long distance and broadband) and NTT Data (information services). With a huge subscriber base of about 134 million (excluding i-mode customers) as of March 2008, the group has more than 60 per cent share of Japan’s overall telecom market.
The financial performance of NTT is also impressive. For 2007-08, the company’s net income was $6.08 billion with an earnings before interest, taxes, depreciation and amortisation (EBITDA) margin of 33.8 per cent. A marginal drop of 0.74 per cent in operating revenue was the only blemish on its balance sheet.
However, NTT, which enjoyed a nearmonopoly for decades, is now facing stiff competition. Market statistics show that NTT DoCoMo, the mobile services arm, is under a lot of pressure to maintain its market share. With 53.5 million subscribers in Japan (52 per cent market share) and more than 54 million users globally as of May 2008, NTT DoCoMo was able to capture only 17 per cent of the net mobile subscriber additions in May 2008.
To maintain its niche in the market, NTT DoCoMo has earmarked $6.88 billion for increasing the number of its Freedom of Mobile Multimedia Access 3G service base stations. This is expected to improve connectivity. In a bid to increase average revenue per user (ARPU) from data services, the company has started offering high speed packet access services. NTT DoCoMo recently announced that it has achieved 96 per cent high speed downlink packet data access coverage across Japan. The mobile operator had an aggregate (data and voice) ARPU of $56.44 per month per contract and a churn rate of 0.68 per cent as of March 2008.
Apart from innovations in the wireless segment, the NTT Group has launched many services on fibre-based next-generation networks to boost growth and offset the decline in landline revenues.
KDDI
With 29.3 per cent mobile market share and a subscriber base of 30.3 million as of May 2008, KDDI is the second largest operator in the mobile segment. Its market share has been increasing steadily since the introduction of mobile number portability (MNP) in 2006. MNP allows mobile users to switch operators while retaining their phone numbers. KDDI recently shifted its users from the digital cellular “TU-KA” services to CDMA-based “au” services.
KDDI is expanding aggressively in the fixed line segment, particularly with regard to fibre optic-based services. It has planned a capital expenditure of $1.44 billion for fixed line services by March 2009.
The various initiatives taken by the operator are yielding good results. The company gained $2.5 billion and $737 million in operating revenue and EBITDA respectively in 2007-08 over the previous year. However, ARPU fell by $2.3 per month from $59.14 in the quarter ended March 2008 compared to the corresponding quarter in the previous year, while average minutes of usage per subscriber per month declined by 2 minutes from 132 minutes. The churn rate was 0.89 per cent.
To gain a stronger foothold in the market, KDDI is planning to launch Wi-Max services, for which it was recently awarded the licence. KDDI is likely to start trials by February 2009 and launch the service commercially by the middle of the year.
SoftBank
An emerging player in the Japanese mobile market, SoftBank is gradually eroding the market shares of NTT DoCoMo and KDDI by offering competitive tariffs, deep discounts and free services. The operator currently has a subscriber base of 18.95 million and accounts for 18.3 per cent of the mobile market. According to the Telecommunication Carriers Association (TCA), SoftBank added 173,700 mobile subscribers in May 2008, higher than any of its competitors.
Recognising the potential of SoftBank, US-based Walt Disney tied up with the operator in March 2008 to launch Disney Mobile, a mobile virtual network operator (MVNO), in Japan. The MVNO offers both data and voice services.
SoftBank posted a fourfold increase in profits in 2007-08 compared to 2006-07. This was fuelled by an increase in net income and sales, which rose by 277 per cent and 9.1 per cent respectively. The operator’s ARPU, however, declined by $10 to reach $42.16 per month. According to company officials, the drop was due to subscribers shifting to lower-priced plans.
The operator recently launched 3G iPhones, which have been a success, especially amongst the youth.
Wireless segment
The wireless segment, which comprises mobile and personal handset system (PHS) services, accounts for about 52 per cent of the Japanese telecom market. As of June 2008, there were 108.25 million wireless subscribers in the country, signifying wireless penetration of about 85.23 per cent.
NTT DoCoMo accounts for 52 per cent of the mobile subscriber base, while PHS services are provided by a single operator, Willcom, Inc. Two MVNOs, Emobile and Disney Mobile, which ride on NTT’s and SoftBank’s networks, respectively, entered the market in 2008 and are gradually gaining a foothold.
According to TCA, Japan is one of the world’s top 3G markets. Over 87 per cent of the mobile subscribers in Japan use 3G networks, signifying over 91 million users. 3G networks enable data transmissions of up to 7.2 Mbps, thus providing support for twoway telephony, rapid music downloads and Java applications on mobile phones. Unlike other countries, 3G services were adopted rapidly in Japan.
Data, both SMS and non-SMS, is the fastest growing segment in the wireless market. Data services currently account for up to 35 per cent of revenue for operators, while 70-75 per cent of data revenue is obtained from non-SMS applications.
The Japanese consumers’ growing demand for faster data transmission has prompted operators to consider deploying fourth-generation technologies like mobile Wi-Max and LTE. MIC recently gave KDDI and Willcom, Inc. the licence to use 2.5 GHz bandwidth for Wi-Max services. The launch of services based on the latest technologies is expected to lower costs and enable a new era of personalised services.
With regard to connectivity, Japan ranks third after the US and Sweden, according to the network connectivity scorecard published by Nokia Siemens Networks in January 2008.
Fixed line segment
Fixed line services are in the midst of a technological transition. The government is encouraging fixed line operators to shift from conventional copper networks to fibre-based IP networks. In 2007, MIC launched the New Competition Promotion Program, 2010, which aims to promote competition in the segment and make IP networks easily accessible to all.
The IP phone subscriber base grew at a CAGR of 39.5 per cent during 2004-07, adding nearly 11.5 million users to reach 16.7 million. Meanwhile, the conventional fixed line user base, including ISDN, declined from 59.6 million to 52.4 million over the same period.
The increase in the demand for IP phones can be attributed to the shift in consumer preferences, from “voice only” to “voice and data” communication. While IP telephony has reduced communication costs considerably, its growth faces a challenge in that the service is considered an add-on to high speed broadband access.
The shift to IP networks has loosened NTT’s near-monopoly, and has enabled internet service providers like Jupiter Telecommunications to enter the arena and offer better services. In fact, the number of telephone connections not running on NTT’s local circuits increased by 4.9 per cent over the October-December 2007 quarter to 4.48 million. SoftBank is another operator that has benefited from the shift to IP-based services. The company has been able to garner 29.7 per cent share of the market, while NTT East, NTT West and NTT Communications have a combined market share of 48 per cent.
Broadband segment
With 28.3 million broadband subscribers as of December 2007, Japan has a broadband penetration rate of 22.15 per cent. According to recent data from the Organisation for Economic Cooperation and Development, the broadband connections offered in Japan are not only the fastest in the world, they are also the cheapest with respect to per unit cost.
The broadband segment, which has about eight players, is more competitive than the other telecom segments in Japan. While NTT leads with 44.9 per cent market share, the other key players are SoftBank (18.5 per cent share) and eAccess (6.8 per cent share). Jupiter Telecommunications, USEN and Yahoo! Japan are amongst the smaller players in the segment.
Most of the broadband services in Japan are offered on the DSL and FTTH platforms. Fibre connections account for 40 per cent of all broadband subscriptions. The share of DSL has been on the decline since 2006 as fibre offers faster data transmission. Other technologies like cable modem and wireless account for less than 15 per cent of the broadband market.
According to MIC, as of November 2007, the total volume of broadband traffic was estimated at about 800 gigabit per second, which was about two and a half times greater than that in November 2004.
The segment is witnessing an increase in triple-play models. The ISPs are focusing on improved content. Wi-Fi is used in homes, offices and hotspots in major railway stations and airports. NTT Communications has more than 3,000 hotspots throughout Japan.
Industry reports indicate that ISPs are investing heavily in fibre infrastructure to provide high speed services. While fibre optic lines offer better services, industry analysts are doubtful whether the push to install fibre is worth it, given the high cost of installation and the lack of services that take advantage of the fast connections. Nonetheless, given the emphasis on longterm investment in Japan, the move towards fibre is expected to continue and the transition is likely to be complete by 2010.
The Japanese government is taking steps to exploit the full potential of broadband services. MIC’s u-Japan policy of 2004 has forced NTT to deploy fibre networks irrespective of profitability, and unbundled the local loop at low prices. The government also subsidises fibre installations to enhance the reach of broadband services in rural areas.
In February 2008, JAXA, the Japanese space exploration agency, launched an experimental internet satellite. Called Kizuna, the satellite is designed to provide high speed internet connectivity to rural and other areas that have been left out of the country’s existing high speed network. The satellite is expected to provide home users with speeds of 155 Mbps, and business establishments that have larger receiver dishes with speeds of up to 1.2 Gbps.
The Japanese telecom sector is clearly advanced. It adopts the latest technologies ahead of its global counterparts. With the market in the process of migrating to nextgeneration networks, the Japanese consumer can look forward to a whole new gamut of fast and affordable services.
