Hiroya Izumi

Director of International Economic Affairs Division,

Ministry of Internal Affairs and Communication, Japan

Driving Fiber to the home Driving Fiber to the home Driving Fiber to the home Driving Fiber to the home

*The Opinions included in the slides or explained in the presentation do not necessarily reflect those of the MIC.

Today’s Topics

• Current Situation of Telecommunications Market in Japan

• Brief History of Broadband Market, especially of FTTH Service

• Future Regulatory Perspective

１

0

10

20

30

40

50

60

70

80

90

100 Mobile Communications (Cellular + PHS)

Subscribers Telephone

Fixed Communications (Subscribers Telephone + ISDN)

Subscribers to High/Ultra High Speed Internet(DSL+CATV+FTTH+Wireless)

IP telephone

Population: 127.8M 　 (over 15 years old: 108.4M) Households: 49.6M

(Unit: Million)

Changes in the Number of Telecommunication Service Users

23M

58M

97M

２

Source： Ministry of Internal Affairs and Communications

(bn times) (bn hours)

Current Voice Traffic Movements

0

20

40

60

80

100

120

140

160

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

From PHS

From Mobile

From Fixed

From IP Phone

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

From PHS

From Mobile

From Fixed

From IP Phone

• Fixed-line traffic volume has been declining by around 15% a year after the peaking in FY2000.

• Voice traffic is shifting from PSTN to mobile ＆　 VoIP.

【 Number of communications】 【 Communication time】

３

Brief History of the Broadband Market, especially of FTTH Service

• Phase 1 (1994-2000)

Target set for optical fiber deployment by the Gov. and steady investment by NTT

• Phase 2 (2000-2004)

Introduction of unbundling rules led to intensified competition in the ADSL market

• Phase 3 (2004-)

Introduction of a low-price double play （ Voice & BB) FTTH service created significant demand for FTTH services

４

Phase 1 (1994-2000)Target setting for optical fiber deployment by the Gov.

and steady investment by NTT

• “Optical fiber networks should be established throughout Japan by 2010”- Information Communication Infrastructure Deployment Program (MPT, 1994)- Basic Guidelines for an Advanced Information and Telecommunications Society (Cabinet Office, 1995)

• Financial support (Tax, Funds, Loans etc)

0%

20%

40%

60%

80%

100%

1995 2000 2005 2010Prior deployment

Real deployment

Maturity

５

NTT’s Investment in Fiber Local loops

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Optising local loops (till feeder points)Optising local loops (till feeder points)

About 88%(as planned for 2006)

About 88%(as planned for 2006)

(FY)

Feeder Point: A point nearby a subscriber's house, at which feeder cables (large-capacity coaxial or optical cables from a central office) connect to subscriber local loop distribution cables.

６

Phase 2 (1999-2004)Introduction of unbundling rules led to

intensified competition in the ADSL market

• -2000 : ADSL service became technologically feasible

• 2000-2001 : Unbundling rules introduced

• Sep. 2001 : Yahoo BB! began low-price ADSL service (2,280yen/month)

→ 　 strong expectation for rules regarding line-sharing and inter- exchange optical-fiber unbundling

【 Copper 】 Line-sharing 　 97 yen/line 　 Dry-copper 1,334 yen/line

【 Optical fiber 】 Interoffice fiber 1.917 yen/meter Local loop (single star) 5,192 yen/line

* latest authorized price of NTT East

７

Current ICT Status in Japan: Broadband

- 50,000

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

550,000

FTTH

DSL

CATV

-

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

FTTH

DSL

CATV

FTTHFTTHAppx.26%

（ 6.31 million ）

FTTHFTTHAppx.26%

（ 6.31 million ）

Growth of Broadband SubscribersGrowth of Broadband Subscribers

Appx. 24 millionAppx. 24 million

DSLDSLAppx.60 ％

（ 14.49 million ）

DSLDSLAppx.60 ％

（ 14.49 million ）

CATVCATVAppx.14 ％

（ 3.41 million ）

CATVCATVAppx.14 ％

（ 3.41 million ）

Monthly increase (average) in the number of subscribersMonthly increase (average) in the number of subscribers

Yahoo BB! Yahoo BB! ８

Phase 3 (2004-) Introduction of a low-price double play （ Voice & BB) FTTH

service created significant demand for FTTH services

• In 2004, K-Opti.com, a subsidiary of an electric power company, introduced a low-price double play （ BB & Voice) FTTH service (100Mbps, 5,200yen/month), which was less expensive than “Yahoo! BB(ADSL, 12Mbps)+NTT West (Voice)”(5,547yen/month).

• This triggered the installation of fiber optic to homes. NTT followed that price strategy and this accelerated the installation of FTTH.

• Low level fiber local loop access charge (dark fiber unbundling) helped other competitors to enter this competition.

９

Current ICT Status in Japan: Broadband

- 50,000

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

550,000

FTTH

DSL

CATV

-

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

FTTH

DSL

CATV

FTTHFTTHAppx.26%

（ 6.31 million ）

FTTHFTTHAppx.26%

（ 6.31 million ）

Growth of Broadband SubscribersGrowth of Broadband Subscribers

Appx. 24 millionAppx. 24 million

DSLDSLAppx.60 ％

（ 14.49 million ）

DSLDSLAppx.60 ％

（ 14.49 million ）

CATVCATVAppx.14 ％

（ 3.41 million ）

CATVCATVAppx.14 ％

（ 3.41 million ）

Monthly increase (average) in the number of subscribersMonthly increase (average) in the number of subscribers

Yahoo BB! K-Opti.com Yahoo BB! K-Opti.com １０

Regulatory Perspective

• Unbundling of Optical fiber

• Review of competition rules for the NGN era

１１

Share of NTT East and West

NTTEast&West, 78.6%

Competitors,

21.4%

NTTEast&West,

93.8%

Competitors, 6.2%

Optical fiberOptical fiberMetal + Optical fiberMetal + Optical fiber

• As of March 2006, NTT’s share of subscriber lines (Metal + Optical fiber) was 93.8%, while its share of subscriber lines (Optical fiber) was 78.6% (cf. NTT’s share of FTTH service: 62.6%).

• In all prefectures, NTT’s share of subscriber lines (Metal + Optical fiber) was above 50%, which makes NTT subject to asymmetric regulations.

• However, the share of NTT’s subscribers (Optical fiber) was below 50% due to intense competition with such competitors, as electric power companies, in some western prefectures (Nara, Shiga).

cf. FTTH servicecf. FTTH service

NTTEast&West, 62.6%

Competitors,

37.4%

１２

RegulationsRegulations

Regulations on “Designated Facilities (Fixed)”

SubjectSubject

Telecommunication facilities (fixed) designated as essential facilities→ 　 Access lines and related telecommunications facilities

CriterionCriterion

Access lines with more than 50% of share (designated on a prefecture basis)→ 　 NTT East & West are subject to the regulations in all prefectures

Service Regulation Tariff and price (cap) regulator

Restrictions Restriction of information usage only for specified business

Equal treatment of other companies

Equal treatment of manufacturers, etc.

Firewall with specified carriers

Interconnection

rules

Authorization of interconnection tariffs

Rules for interconnection tariff (e.g. LRIC)

Development of interconnection accounts１３

Access charges were approved in August 2001 for 7 years from 2001 to 2007.

[AC: \5,074 /month]

2001 2002 2003 2004 2005 2006 2007

Balanced

Forward-looking Cost Method

• This method uses average charges based on the predicted cost and demand for the next several years.

• The cost price and the access charge should balance out during the said period.

• This method is especially desirable for new IP networks because it allows NTT to collect full investment on optical fiber. At the same time, we can suppress the level of charges despite, at the beginning, the cost per line being very high due to less demand.

Fiber local loop access chargeFiber local loop access charge

Cost per line

Cost per line Access

ChargeAccess Charge

１４

Foreseen changes in the early 2010’s

1. 2010 is the last targeted year of “New IT Reform Strategy” （ adopted in January 2006 by the IT Strategy Headquarters of the government ） and u-Japan policies (released in December 2004).

→ The Government’s target is for broadband-zero areas to be eliminated in FY2010.

2. Next generation network based on IP will be developed by each carriers (IP based networks will become the standard rather than the exception.).

→ NTT （ in the NTT Mid-Term Management Strategy) projects that the number of subscribers to FTTH service will be approximately 30 million in 2010.

3. In the early 2010s, the convergence and/or alliance of telecommunications and broadcasting services is likely to be well advanced

１５

New Competition Promotion Program 2010

Review of Designated Telecommunications Facilities System 　

1.Promotion of Facility Competition

2.Review of Interconnection Policies

3.Review of Universal Service System

Review of Calculation Method for Interconnection Charges of NTT East and West

4.Review of Tariff Policies

5.Other Main Policies

Calculation method for interconnection charges in relation to next-generation networks 　　

Comprehensive Review of Competition Rules to Address the Transition to IP Based Networks(Comprehensively implemented by early 2010s)

Review of Calculation Method for Calculating Interconnection Charge of PSTN (concluded in 2007)

Review of Calculation Method for Interconnection Charges for Fiber Optic Networks (dealt with after the submittal of an application by NTT East and West)

１６

Development of Comprehensive Broadband Policies

• Full Transition from PSTN to IP-Base Networks ( Coming of the “Everything over IP” Era)☞• Verification of Business Models ( Advent of Vertical Integration Business Model)☞• Transition to IP Based Networks makes the Concept of “Distance” Thin ( Necessity of ☞

Correcting Gap)

Transition to IP-Based Networks (Mainly Broadband Networks)Transition to IP-Based Networks (Mainly Broadband Networks)

• Utilization of Information & Communications Network as “the Basis Supporting the Social Economic System”

• Realization of Organic Cooperation between Networks and Contents/Applications• Arrangement of the Environment “to Implement Results of Rapid Technology Innovation in

the Markets”

Direction of Implementing PoliciesDirection of Implementing Policies

Balanced Development

of Infrastructure

Balanced Development

of Infrastructure

Improvement of Environmentto Promote Competition

Improvement of Environmentto Promote Competition

Promotion of Consumer Protection

Promotion of Consumer Protection

Innovation of New IndustriesInnovation of

New IndustriesInternational ContributionInternational Contribution

Development of Broadband PoliciesDevelopment of Broadband Policies

The world’s fastest achievement of the IT revolution in FY2010 １７

Thank you!