1. Evolving broadband market & policy developments in Japan April 27, 2006 Taka Ebihara Japan Chair Center for Strategic & International Studies EDUCAUSE Policy Conference 2006

2. Copyright (C) CSIS 2006 All Rights Reserved. 2 Agenda Broadband Market in Japan Market statistics Services Broadband Policies Policies that have accelerated BB deployment Analysis of policy implications

3. Broadband Market in Japan Market statistics Services

4. Copyright (C) CSIS 2006 All Rights Reserved. 4 Snapshot: Japanese Broadband Market Japan(US) Population: 127 mil, (290 mil) Households: 50 mil, (110 mil) Geography:380,000 km 2 BB Subs: 22 mil*, (43 mil**) BB Penetration: 17.6%***(16.8%***) 11 th (12 th ) * As of Dec 2005 (MIC) ** As of Jun 2005 (FCC) *** As of Dec 2005 (OECD)

5. Copyright (C) CSIS 2006 All Rights Reserved. 5 Growing Broadband Market in Japan Source: Ministry of Internal affairs and Communications (MIC) 19992000 5 10 20 20012002200320042005 DEC FTTHFTTH ADSLADSL CABLECABLE In Million 3.2mil (14%) 4.6mil (21%) 14.5mil (65%) Total: 22.3mil

6. Copyright (C) CSIS 2006 All Rights Reserved. 6 Broadband Monthly Net Increase 2004 NOV 2005 NOV 20 40 60 80 In Thousand FTTH ADSL In case of NTT EAST (the largest incumbent operator)

7. Copyright (C) CSIS 2006 All Rights Reserved. 7 Source: Information NTT EAST (As of Mar 2005) Broadband Home Passed 98%=25M households Home Passed 73%=18M households In case of NTT EAST (FTTH)

8. Copyright (C) CSIS 2006 All Rights Reserved. 8 Broadband Competition ADSL price & speed competitions (2000~mid 2005) Average monthly price down 47% in 5 years $56.30/mth (1.5Mbps)  $29.8/mth (50Mbps) Increasing value-added services (mid 2005~) $35 $31 Price for 1Mbps Speed $30 $23 $3.30 $2.50 $0.60 50Mbps 45Mbps 40Mbps 26Mbps 12Mbps 8Mbps 1.5Mbps 2000 2005 2004 2003 2002 2001 Source: InfoCom Research Price per 1Mbps in ADSL

9. Copyright (C) CSIS 2006 All Rights Reserved. 9 Everything over FTTH Cellular RF TV Broadcasters Home Networking IP TV Internet VoIP Internet PSTN ISP Triple Play & Fixed Mobile Convergence Broadcasting & Telecom Convergence Triple Play & Fixed Mobile Convergence Broadcasting & Telecom Convergence FTTH

10. Copyright (C) CSIS 2006 All Rights Reserved. 10 Advanced mobile phone applications e-payment Electronic wallet Retail shop Train ticket Vending machine ATM

11. Copyright (C) CSIS 2006 All Rights Reserved. 11 Advanced mobile phone applications Digital mobile TV “One Segment Broadcasting” or “One Seg” based on ISDB-T Available nationwide by the end of 2006 Delivering richer content (visuals, related info, URLs) Benefits Major broadcasters: more viewership, more ad revenues Mobile operators: increasing data ARPU, e-commerce opportunities “One Seg” enabled devices Service availability as of Apr 2006

12. Japanese Broadband Policies Policies that have accelerated BB deployment Government initiatives Analysis of policy implications

13. Copyright (C) CSIS 2006 All Rights Reserved. 13 u-Japan strategy & estimated impact Estimated economic impact in 2010 Ubiquitous networking industries: $730 billion* Source: White Papers for Information Communication 2004 *1 USD = 120 JPY

14. Copyright (C) CSIS 2006 All Rights Reserved. 14 Mitigating Digital Divide: Gov’t financial supports for broadband Primary beneficiaries are municipalities For public sector Municipality intranet projects (schools, CCs, libraries) Rural FTTH projects (details in later slides) For both public and private sectors Zero- or low-interest-rate financing* For private sector Tax incentives* Deferred income tax payment Reduction of fixed asset taxes for designated network equipment *a very limited financial impact for the private sector due to a zero-interest- rate policy of Bank of Japan

15. Copyright (C) CSIS 2006 All Rights Reserved. 15 Gov’t-financed rural BB deployment: Rural FTTH Projects Collaboration of municipalities and service providers 1/3 of construction costs is subsidized Municipality-owned fiber networks to be wholesaled Level playing field must be ensured Source: MIC

16. Copyright (C) CSIS 2006 All Rights Reserved. 16 Analysis of Policy Implications Unbundling mandates for dry coppers and dark fibers Line sharing requirement Appropriate guidelines for co-locations and ROW Less technological complexities in BB deployment Fierce price competitions in ADSL market forced incumbent operators to move up to FTTH market Role of e-Japan and u-Japan Comparatively better understanding on long-term investments

17. Copyright (C) CSIS 2006 All Rights Reserved. 17 Net Neutrality Debate in Japan Consumers have sufficient choices “ISP-free” resale business model prevails CLECs have full-control over their networks Bandwidth limitation in access networks is NOT significant Sustainable development and “free rider” issues Demise of flat rate model? ISPs’ self-regulation against P2P traffic Rapidly increasing ad-supported FREE IP unicast video content

18. Copyright (C) CSIS 2006 All Rights Reserved. 18 Conclusion Fastest and cheapest broadband Reasonable CLEC market share Mixed results of facility-based competition National broadband strategies played a significant role Need a good balance between long-term and short- term development goals Maintaining incentives for innovative investment is the key to sustain broadband deployment