Recent Developments in the Telecommunications Industry
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Industrial Reports (c) JETRO, 2007 Recent Developments in the Telecommunications Industry Japanese Economy Division Summary • Japan’s fixed-line phone market is shrinking while the mobile phone market continues to expand. The IP telephony market is growing rapidly in terms of number of subscribers. • NTT DoCoMo is by far the leader in terms of number of mobile phone subscribers. • Third-generation mobile phone subscribers are steadily increasing. • Call rates for both fixed-line and mobile phones are falling as a result of deregulation and other factors. • Three majors groups—NTT, KDDI and SoftBank—are the leaders, but two companies not affiliated with these groups will enter the mobile phone market in 2007. Japan’s telecommunication market, according to the Ministry of Internal Affairs and Communications White Paper on Information and Communications, comprises five major areas: information and communications core services, related services, product manufacturing, systems construction and research (Fig. 1). This paper focuses on fixed-line, mobile and IP telephony services. 1. Market Overview A. Market Scale In 2004, sales within the telecommunications industry declined by 1.4% from the previous year to 16,512 billion yen (Fig. 2). The trend over the past several years has been a shrinking market for fixed-line communications and a growing market for mobile communications, even though the latter is rather saturated. Services incidental to telecom refer to wireless communications in the fishing industry, cable broadcasting and telephone services, and wireless mobile services. The number of companies in the telecom industry grew by 5.2% to 13,744 in 2004 (Fig. 3). Although the number has increased steadily, the rate of growth has declined in recent years. B. Capital Investment Capital investment has been strong among registered telecom carriers, which account for a substantial portion of the market (Fig. 4). Much of the investment has been in response to increased demand, and investment in conjunction with the start of new services is growing (Fig. 5). Among the new services are fiber to the home (FTTH) and IP telephony services. In addition, investment in third-generation (3G) mobile phone networks is growing. C. Employment Employment in the telecom industry increased 0.8% to 422,208 persons in 2004 (Fig. 6). 2. Use and Services A. Number of Subscribers The number of fixed-line phone subscribers is declining, but mobile phone subscribers are increasing. At the end of fiscal 2005 (March 31, 2006), mobile phone subscribers outnumbered fixed-line phone subscribers by about 70 percent (96.48 million versus 58.08 million). Also, the number of new IP phone subscribers is growing rapidly (Fig. 7). By carrier, NTT DoCoMo has the most subscribers (Fig. 8), more than double that of the KDDI Group Industrial Reports (c) JETRO, 2007 (“au” brand). Recently, however, au has beefed up its services, narrowing the gap with NTT DoCoMo. New subscribers to 3G1 services have been increasing steadily, growing 59.2% to 48.33 million at the end of fiscal 2005 to account for 52.7% of all subscribers (Fig. 9). By country, at the end of 2004 only China and the United States had more subscribers than Japan, but the penetration rate was not particularly high at 70%. The highest penetration rate is 146.12% in the United Arab Emirates. IP telephony, a voice service using Internet Protocol (IP), is frequently offered as an additional service by providers of ADSL and other broadband. There are two types: 0AB-J and the increasingly popular 050, which offers free calls among subscribers of the same and partner providers. IP telephony subscribers increased 37.9% to 11.46 million in fiscal 2005. B. Number of Calls and Call Times Calls and call time continued to decrease in fiscal 2004 (figs. 10 & 11), down 2.7% to 126.48 billion calls and down 10.1% to 4.67 billion call hours. For mobile phones, however, the figures increased slightly. C. Calling Rates The rate for local calls from fixed telephones is approximately eight yen per three minutes (Fig. 12). Rates have declined by about 20% since the 1980s as a result of deregulation and other factors. Long-distance rates have fallen to about one-fifth that of 1985 (as of March 2006)2. Mobile phone users can select from a wide variety of plans offering various rate structures and discount services (figs. 13 & 14). Phone number allocations for IP telephones began in 2003. Calls made by IP telephones are routed via the Internet rather than switched lines, so distance doesn’t matter and calls are less expensive (Fig. 15). By international comparison, one-time subscription fees are overwhelmingly high in Tokyo, but basic fees are approximately the same as those in other major cities of the world (Fig. 16). Local calling rates in Tokyo are the least expensive, but long-distance rates are the second highest, after New York City (Fig. 17). Mobile phone rates are about average (Fig. 18). D. Access Fees Fees for both local and long-distance calls from fixed-line phones declined in 2006 (Fig. 19). Such fees include interconnection fees paid by other carriers to NTT East and NTT West, subsidiaries of the privatized former public monopoly NTT. In 2005, NTT DoCoMo’s mobile phone access fees declined for both inter-company calls (among subscribers of the parent DoCoMo and its regional companies) and inner-company calls (among parent DoCoMo subscribers) (Fig. 20). 3. Information and Communications Policies * See Fig. 21 A. Competition Policies The Ministry of Internal Affairs and Communications (formerly the Ministry of Posts and Telecommunications) has encouraged competition in the long distance and international service markets through measures such as the elimination of barriers between domestic and international services, the 1997 abolition of the supply and demand adjustment provision, and the 1998 elimination of restrictions on foreign investment. Measures implemented to encourage competition include the introduction of number portability for fixed-line phones, followed in October 2006 by number portability for mobile phones. Major sources of telecom carrier regulation in Japan are the Telecommunications Business Law and the NTT Law. 1 Third-generation mobile phones offer better sound quality, enhanced multimedia services and large-volume data transmission. 2 For more about calling rates: Ministry of Internal Affairs and Communications, White Paper on Information and Communications 2006. Industrial Reports (c) JETRO, 2007 B. Regulation of End-user Rates Former monopolies NTT and KDDI enjoy the top positions in the market, followed by the new common carriers (NCCs). Although they had been required to publicize contractual provisions of rates and other service conditions, increasing competition led to a lifting of the prohibition on negotiated transactions in 2004, thereby allowing them to set calling rates for individual corporate customers. C. Interconnection Fees When NTT’s interconnection fees became a matter of international concern, negotiations were held with the United States and EU in 2000. The resulting decision was to lower interconnection fees by 20% over a period of two years. It was also decided that a basic fee would be phased in to replace NTS costs (expenses not dependent on traffic volume) from fiscal 2005. D. National Strategy In 2004, the u-Japan strategy was announced as an extension of the existing e-Japan IT strategy. The strategy is aimed at facilitating greater unification of various electronic networks to help Japan deal with a range of difficult issues in areas such as lifestyles and society, healthcare and welfare, and transportation and logistics. 4. Industry Trends A. Fixed-line Phones Carriers offering fixed-line services include NTT East, NTT West, KDDI, SoftBank Telecom and J:COM. B. Mobile Phones Mobile communications carriers include three groups: the NTT DoCoMo Group, the KDDI Group (au) and the SoftBank Group (Fig. 22). NTT DoCoMo operates through several regional companies. The au brand is offered by KDDI and Okinawa Cellular Telephone Company. In October 2005, the KDDI Group acquired three Tu-Ka Group companies, so the group has the au and Tu-Ka mobile phone brands, as well as the KDDI fixed-line phone brand, making it the only mobile company that engages in both fixed-line and mobile communications. DoCoMo, however, is part of the NTT Group, which also offers fixed-line services. In April 2006, SoftBank entered the mobile phone business by acquiring Vodafone’s local operations. Two other firms—eMobile, a subsidiary of eAccess, and ip mobile—which use the 1.7 GHz and 2 GHz bands, respectively, plan to begin offering services in 2007. C. PHS PHS services are offered by the NTT DoCoMo Group, Willcom (formerly DDI Pocket) and the Astel Group. The NTT DoCoMo Group and the Astel Group have decided to withdraw from the PHS business in the future, leading to a strong possibility that Willcom will be the only PHS operator in Japan. D. IP Telephony IP telephony companies are divided into two groups by phone number types: 050 and 0AB-J. The 050 type includes SoftBank BB, NTT Communications, KDDI, Japan Telecom and Tokyo Electric Power Company. The 0AB-J companies include NTT East, NTT West, KDDI and Chubu Electric Power Company. The 050 group only offers minimum phone services, while 0AB-J services include all those available to fixed-line phones, including connection to 110 and other emergency numbers. Industrial Reports (c) JETRO, 2007 5. Developments by Leading Companies in Fiscal 2005 A. NTT Group 1) NTT East and NTT West NTT East and NTT West began offering discounts on basic fees for fixed lines of customers who pay for multiple lines under a single bill. They also promoted Hikari Denwa, a high-quality IP telephony service for optical fiber customers, launched a multiple channel service for dual, simultaneous communication on the same line, and additional services for up to five phone numbers.