1. Development of the Japanese Telecom Industry some lessons for Thailand Development of the Japanese Telecom Industry — some lessons for Thailand Risaburo Nezu Senior Managing Director Fujitsu Research Institute May 19, 2006 World Bank Seminar Bangkok, Thailand

2. 1 Phase 1—Pre-market Stage Phase 1—Pre-market stage 1. Privatization of state-owned telephone operator and opening up of telecommunications sector to competition — Inauguration of NTT ( 1985) — Three new entries of New Common Carriers (NCC) — Competition in the trunk lines 2. Price in the trunk went down by 80 %, but remained unchanged at the local loop — Japanese telecommunication cost was the highest in the world — High connection price deterred the adoption of the Internet at the time of dial-up (Narrow band)

3. 2 Phase 1—Pre-market Stage (2) 3. Japan placed higher priority on physical construction of infrastructure rather than reducing cost. The emphasis of the government and NTT was: From 1990-2000 Integrated Service of Digital Network (ISDN) From 2000 — Fiber to the Home ( FTTH) This scenario was unique in the world. 4. Unbalanced emphasis on infrastructure was stimulated by the US initiative for National Information Infrastructure (NII) and GII under the Clinton-Gore Administration

4. 3 Phase 2 — Domestic Competition 5. Competition at the local loop (last one mile) began in 1997 when the telecommunication law was amended to open local loop to be used by new entrants under the same conditions of the incumbent operator. — After this opening up, a venture business (Tokyo Metalic, Yahoo BB) entered and offered a new service, ADSL (Broad band), on NTT’s local loop. NTT was not forthcoming about ADSL, as it would disrupt its scenario for ISDN and FTTH.

5. 4 Phase 2 — Domestic Competition(2) — NTT initially tried to disrupt this new entry by refusing or delaying collocation, but was warned by JFTC in January 2001. NTT stopped its procrastination tactics, and decided to compete in the ADSL business. Thus, a full-fledged competition started for the first time in the telecommunication sector. Throughout 2002 and 2003 Japanese ADSL subscribers increased by 300,000 every month and exceeded 10 million by the end of 2003. — With the advent of ADSL in the market, ISDN immediately lost its appeal to consumers, as ASDL was cheaper, faster and featured an always-on mode. — At present, Japanese ADSL is the cheapest and fastest in the world.

6. 5 Phase 3 From Fixed to Mobile Communication 6. Success of NTT DoCoMo due to outsiders. — Introduction of i-mode Mobile handset that connects to Internet. — Service started only in 1999, but reached a level of 40 million subscribers, the most successful mobile telephone business model in the world — But success was limited to the domestic market due to its insistence on its domestic standard and uniquely Japanese concept. — The 3G mobile phone is still uncertain outside of Japan — Fierce competition with KDDI — Vodafone gave up on Japan and was sold to Yahoo

7. 6 Phase 4 Competition among Different Technologies — Fixed line dial-up, ADSL, VDSL, ISDN, FTTH, BPL — Wireless (fixed and mobile) Mobile phone (2G, 3G, 4G), WiFi, Bluetooth, WiMax — Fixed - Mobile Convergence (FMC) — Convergence of telecom and broadcasting One-seg

8. 7 Phase 5 Oligopoly among Three Large Players ? 1. Three groups, NTT, KDDI and Softbank, seem to be emerging as winners in the telecom industry in the 21 st century. 2. Ultimately, NTT still maintains an overwhelming position. Debate is underway in the government as to the future industrial structure. 3. As of now, they are competing for greater market share in both fixed and mobile fields. Prices are dropping and new services are brought in one after another. Consumers are reaping the benefits.

9. 8 Japanese Telecom Operators at Present (from Nikkei) NTT GroupKDDI Softbank (Yahoo) Landline57 million1.2 million0.8 million ADSL5.7 million1.5 million5 million Optical fiber 3.4 million0.4 (with TEPCO) 0.03 million Mobile50 million 25 million (with Tuka) 15 million (from Vodafone)

10. 9 Dial-up and ADSL Rates Source: FRI KoreaUK 0 10 20 30 40 50 60 70 80 90 100 JapanUSGermany dial-up (40H)ADSL （ US$ / Month ）

11. 10 NTT’s Share in DSL and FTTH Source: 2005 WHITE PAPER Information and Communications in Japan

12. 11 Broadband Expansion in Japan 86 387 943 1,495 1,866 (ten thousands) (end of fiscal year) Note: Data for 2004 is until end of calendar year Source: 2005 WHITE PAPER Information and Communications in Japan

13. 12 Japanese Mobile Telephone Subscribers (%) Source: 2005 WHITE PAPER Information and Communications in Japan Ratio of Mobile Telephones with Internet Access 4,153 5,114 6,114 6,935 7,594 8,192 8,700 7,515 (ten thousands) (end of fiscal year)

14. 13 Telecommunications in Asia Investment relative to GDP (%) Fixed telephone lines per 1000 Mobile subscribers per 1000 Computers per 1000 Internet users per 1000 China1.892092154179 Korea1.33538701539650 Taiwan1.245911141375464 Philippines0.91412703069 India0.6946251235 Japan0.47472679543613 Thailand0.2810539457117 USA0.17524546763632

15. 14 Lessons for Thailand 1.Government may fail if it meddles with the selection of technologies. After all, the future of technology is unknown. 2. In the infrastructure business, merely opening up a formerly state-controlled market does not work. Incumbent operators have enormous power to harass newcomers. Thus, rigorous competition policy must be enforced. 3.However, unbundling of the local loop has been unsuccessful in many countries. There are a few examples in which governments have laid fiber-optic cables and lend them to commercial operators. In some Asian countries, governments subsidize telecom operators to build new telecom networks. Such government intervention must be designed to promote competition and newcomers. Mere subsidies for incumbent risks are unproductive.

16. 15 Lessons for Thailand 4. Entrepreneurship may play a crucial role in creating competition. They never compete on the same market or the same technology. Critical resources such as frequencies must be distributed not only for existing players, but to newcomers as well. 5. Telecommunications is becoming more and more embedded into lifestyle and culture. Dynamic expansion of the telecom industry (both infrastructure and service) depends on other institutional reforms (e.g. copyright, privacy protection, IPR). 6. Governments tend to worry about foreign participation in telecom operators. So far, however, there has been no single case of a threat to national interest/security.