Tuesday, October 05, 2004
Japan's Broadband Miracle
This is my most recent column for VON Magazine, Sept/Oct 2004, 2(5)
David I
-------
The almost-famous fact that the United States ranks eleventh in national broadband penetration is now wrong. The datum comes from a 2002 International Telecommunications Union (ITU) study. The U.S. growth rate, 46% from 2001 to 2002, paled next to Finland, Switzerland, Japan, Iceland, Netherlands, Austria, and Denmark, which all showed triple-digit growth. The latest ITU summary, from 2003, shows the U.S. falling to thirteenth. A naive linear projection to 2004 puts the U.S. at fifteenth -- or lower!
Clearly, technology's rising tide does not lift all nations at the same rate. Technology advances are more or less equally available in every country. Other factors, such as policy, culture and economics, determine the rate at which end users gain access to technology's benefits. A rise in national rank is a good indicator that a country is getting these other factors right.
Japan was the ITU's star of 2003, rising from thirteenth most wired in 2002 to eighth, overtaking more countries than any other highly wired nation. Even more amazingly, Japan's communications revolution didn't begin until 2001. In January 2001, Japan had only sixteen thousand DSL customers, and no fiber to the home (FTTH). There was some cable modem service, but in Japan, cable TV only serves twenty-some percent of the population.
Japan's Blistering Growth
Today, Japan's blistering broadband growth continues. The most recent report from Japan's MPHPT, the national telecom regulator, shows that in the year ending June 2004, Japan gained 5.2 million new DSL, cable modem and FTTH customers, for 15.6 million total customers. Today 100 megabit per second FTTH is Japan's fastest growing service -- with 1.4 million customers in June 2004 -- and Japan's DSL typically runs at ten times U.S. rates. In raw numbers, Japan has less than half as many people as the U.S. (126 million vs. 275 million), yet it has 6 broadband customers for every ten in the U.S. (14 million vs. 27 million).
Suggested Subhead: What Japan Did Right
So what is Japan doing right? One of my mottos is, "Where there's a will, there's right of way." Japan's will came from two factors, Korea's success and Japan's decade-plus recession. Japan saw its neighbor Korea's unprecedented broadband rollout make Korea the most wired nation on the planet. Part of Japan's motivation was, I believe, pure rivalry; Japan simply wanted to best its neighbor. But also, Korea's recovery from the 1997 Asian economic crisis was extraordinarily rapid, robust and coterminous with the 1998 start of its broadband rollout; I think Japan saw a national broadband effort as the least painful way out of its own economic malaise.
Japanese telecom authorities began pushing DSL in 1997, according to Adam Peake, a telecom strategist based in Japan. But, Peake says, NTT resisted until late 2000, when Japanese regulators rebuked NTT and mandated, "unbundling and co-location that required NTT to offer easy access to its premises and facilities at low rates and with short provisioning periods." NTT's local exchange companies expressed shame and obeyed, offering line sharing at mandated prices, about US$1.50 per month for unbundled copper loop and 3.5 US cents per meter per month for unbundled fiber. In part, this is culture; no U.S. ILEC would ever be this compliant. But in part it reflects NTT's effort to please its majority shareholder -- the Japanese government.
Another strategist, Nobuo Ikeda, says that these unbundling and co-location policies were necessary but not sufficient. He points to the role of Yahoo!BB, a Japanese DSL effort driven by Softbank head Masayoshi Son. Both Son and NTT President Jun-ichiro Miyazu sat on Japan's IT Strategy Council; one can infer that Son spoke persuasively to Miyazu. Soon DSL cost US$18 a month, the lowest price in the world, and energetic youths in Yahoo!BB uniforms were giving away DSL modems in Tokyo's subways. Suddenly Japan had millions of DSL customers. Ikeda points out that NTT unintentionally acted against itself; it set prices too low and it allowed Yahoo!BB's VOIP service to bypass NTT's switched network. This is necessary; incumbent telcos must shrink as the communications revolution advances. If NTT erred, it was a fortunate error for Japan!
What can the U.S. learn from Japan's four short successful years? Clearly, effective unbundling and co-location policies played a big role. But equally clearly, NTT got out of the way, albeit against its own short-term self-interest. U.S. telcos would never do this. Instead, U.S. policy makers must exert even stronger will. Or we can wait for market forces that might prove to be mythical as the U.S. continues to fall behind.
David I
-------
The almost-famous fact that the United States ranks eleventh in national broadband penetration is now wrong. The datum comes from a 2002 International Telecommunications Union (ITU) study. The U.S. growth rate, 46% from 2001 to 2002, paled next to Finland, Switzerland, Japan, Iceland, Netherlands, Austria, and Denmark, which all showed triple-digit growth. The latest ITU summary, from 2003, shows the U.S. falling to thirteenth. A naive linear projection to 2004 puts the U.S. at fifteenth -- or lower!
Clearly, technology's rising tide does not lift all nations at the same rate. Technology advances are more or less equally available in every country. Other factors, such as policy, culture and economics, determine the rate at which end users gain access to technology's benefits. A rise in national rank is a good indicator that a country is getting these other factors right.
Japan was the ITU's star of 2003, rising from thirteenth most wired in 2002 to eighth, overtaking more countries than any other highly wired nation. Even more amazingly, Japan's communications revolution didn't begin until 2001. In January 2001, Japan had only sixteen thousand DSL customers, and no fiber to the home (FTTH). There was some cable modem service, but in Japan, cable TV only serves twenty-some percent of the population.
Japan's Blistering Growth
Today, Japan's blistering broadband growth continues. The most recent report from Japan's MPHPT, the national telecom regulator, shows that in the year ending June 2004, Japan gained 5.2 million new DSL, cable modem and FTTH customers, for 15.6 million total customers. Today 100 megabit per second FTTH is Japan's fastest growing service -- with 1.4 million customers in June 2004 -- and Japan's DSL typically runs at ten times U.S. rates. In raw numbers, Japan has less than half as many people as the U.S. (126 million vs. 275 million), yet it has 6 broadband customers for every ten in the U.S. (14 million vs. 27 million).
Suggested Subhead: What Japan Did Right
So what is Japan doing right? One of my mottos is, "Where there's a will, there's right of way." Japan's will came from two factors, Korea's success and Japan's decade-plus recession. Japan saw its neighbor Korea's unprecedented broadband rollout make Korea the most wired nation on the planet. Part of Japan's motivation was, I believe, pure rivalry; Japan simply wanted to best its neighbor. But also, Korea's recovery from the 1997 Asian economic crisis was extraordinarily rapid, robust and coterminous with the 1998 start of its broadband rollout; I think Japan saw a national broadband effort as the least painful way out of its own economic malaise.
Japanese telecom authorities began pushing DSL in 1997, according to Adam Peake, a telecom strategist based in Japan. But, Peake says, NTT resisted until late 2000, when Japanese regulators rebuked NTT and mandated, "unbundling and co-location that required NTT to offer easy access to its premises and facilities at low rates and with short provisioning periods." NTT's local exchange companies expressed shame and obeyed, offering line sharing at mandated prices, about US$1.50 per month for unbundled copper loop and 3.5 US cents per meter per month for unbundled fiber. In part, this is culture; no U.S. ILEC would ever be this compliant. But in part it reflects NTT's effort to please its majority shareholder -- the Japanese government.
Another strategist, Nobuo Ikeda, says that these unbundling and co-location policies were necessary but not sufficient. He points to the role of Yahoo!BB, a Japanese DSL effort driven by Softbank head Masayoshi Son. Both Son and NTT President Jun-ichiro Miyazu sat on Japan's IT Strategy Council; one can infer that Son spoke persuasively to Miyazu. Soon DSL cost US$18 a month, the lowest price in the world, and energetic youths in Yahoo!BB uniforms were giving away DSL modems in Tokyo's subways. Suddenly Japan had millions of DSL customers. Ikeda points out that NTT unintentionally acted against itself; it set prices too low and it allowed Yahoo!BB's VOIP service to bypass NTT's switched network. This is necessary; incumbent telcos must shrink as the communications revolution advances. If NTT erred, it was a fortunate error for Japan!
What can the U.S. learn from Japan's four short successful years? Clearly, effective unbundling and co-location policies played a big role. But equally clearly, NTT got out of the way, albeit against its own short-term self-interest. U.S. telcos would never do this. Instead, U.S. policy makers must exert even stronger will. Or we can wait for market forces that might prove to be mythical as the U.S. continues to fall behind.
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