Industrial Reports (c) JETRO, 2007

Recent Developments in the Industry

Japanese Economy Division

Summary • ’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 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 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 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 customers, launched a multiple channel service for dual, simultaneous communication on the same line, and additional services for up to five phone numbers. In light of the shrinking fixed-line phone market and fierce competition in broadband, NTT East’s operating income dropped 2.5% to 2,125.3 billion yen, and NTT West’s declined 3.3% to 2,029.6 billion yen.

2) NTT DoCoMo

NTT DoCoMo enhanced its rate plans and services, and aggressively introduced new handsets. The company also increased and improved the functions of its mobile wallet phones, which also function as e-money cards, credit cards, train passes and other payment applications. Amidst intense competition in fees and services, NTT DoCoMo’s consolidated operating income dipped 1.6% to 4,765.9 billion yen.

B. KDDI Group

The KDDI Group expanded and enhanced discounts for fixed-line services, began offering a basic ISDN interface communications mode for business customers, as well as dual, simultaneous communications on a single line. The company also upgraded network security with a variety of functions to better protect personal information. As a result of these developments, as well as its merger with telecom carrier PoweredCom, KDDI’s operating income from fixed-line services increased 3.9% to 619.3 billion yen in fiscal 2005. In mobile communications, KDDI acquired the three companies of the Tu-Ka Group in October 2005, and then integrated its au and Tu-Ka businesses. KDDI launched a variety of handsets to enhance its lineup, including the world’s first model compatible with Japan “One Segment” digital terrestrial broadcasting system for mobile phones. KDDI also expanded and improved discounts, and allowed users to shift from Tu-Ka to au mobile phones with the same phone number. KDDI’s operating income from mobile services increased 8.0% to 2,510.4 billion yen.

C. SoftBank Group

SoftBank successfully introduced the Otoku Line fixed-line service, helping the company to raise consolidated operating income 5.3% to 353.7 billion yen. In mobile services, following its acquisition of Vodafone, SoftBank introduced a large number of third-generation (3G) handsets and straightforward rate structures. These include a flat-rate email plan for unlimited emails to and from mobile phones in Japan, and a flat-rate family plan for unlimited calls among family members. SoftBank’s consolidated mobile operating income dipped 0.2% to 1,467.6 billion yen.

6. Issues in Telecom Industry

A. First New Mobile Firms in 12 Years

On November 10, 2005, the Ministry of Internal Affairs and Communications issued letters of approval to BB Mobile (a subsidiary of SoftBank), eMobile (a subsidiary of eAccess), and ip mobile to enter the mobile phone business. This is the first time that companies have entered the market since the Digital Phone Group and the Tu-Ka Group entered the market in 1994. SoftBank, after acquiring Vodafone in 2006, relinquished its own mobile-phone license to the ministry. Both eMobile and ip mobile plan to phase in services from 2007.

Industrial Reports (c) JETRO, 2007

B. Start of One Segment Services

The “One Segment” system, which enables digital terrestrial broadcasts to be viewed on cell phones, PHS, and notebook PCs, started centering in Tokyo, Nagoya and Osaka in April 2006. Programming is currently the same as existing digital broadcasts, but programs created specifically for handsets are expected to be offered, thereby creating new broadcasting and communications markets.

C. Acquisition of Vodafone of the U.K. by SoftBank

SoftBank acquired Vodafone on April 27, 2006 to make a full-scale entry into the mobile phone market. As a result, the industry is now dominated by three major competing groups—NTT, KDDI and SoftBank—just as in the fixed-line phone market(Fig. 23, 24).

D. Sale of Blackberry Handhelds

NTT DoCoMo announced on September 19, 2006 that it would begin selling Blackberry mobile information terminals, manufactured by Canada-based Research in Motion Limited (RIM). Popular among businesspeople in North America, the Blackberry to be sold in Japan will also be useable overseas. The Blackberry, which can be used to make voice calls and send/receive data, is equipped with a standard keyboard and is operated like a PC. Willcom launched the W-ZERO 03, a handset with PC functions, on December 14, 2005, although the Blackberry is smaller and lighter.

E. Start of Number Portability

Number portability, inaugurated on October 24, 2006, allows subscribers to switch mobile phone carriers while retaining their original phone numbers. This means that carriers must now compete more intensely on fees and services to retain customers, since the former demerit of losing one’s number when switching carriers is no longer a factor.

7. List of Companies

Please refer to the following Ministry of Internal Affairs and Communications link:

www.johotsusintokei.soumu.go.jp/field/data/gt010402.xls

8. Entering Japan’s Telecom Business

Please refer to the following Ministry of Internal Affairs and Communications links:

English www.soumu.go.jp/joho_tsusin/eng/Resources/Manual/Entry-Manual/entry2k-eng.pdf

Japanese www.soumu.go.jp/joho_tsusin/policyreports/japanese/misc/Entry-Manual/TBmanual02/entry02.pdf

Reference Materials Information and Communications Handbook 2006, InfoCom Research, Inc. White Paper on Information and Communications 2006, Ministry of Internal Affairs and Communications *Telecoms Data Book 2006, Telecommunications Carriers Association Financial reports of various carriers

* has been published only by Japanese.

Industrial Reports (c) JETRO, 2007

Fig. 1. Definition and Scope of Information and Communications Industry

Posts Posts Local telecommunications Fixed-line phone Long-distance communications Communications Other telecommunications (including cable broadcasting) Mobile phone Mobile telecommunications Services incidental to telecommunications Services incidental to telecommunications Public broadcasting Public broadcasting Private Private broadcasting Private radio broadcasting Broadcasting Information and Private satellite broadcasting communications Cable broadcasting industry Cable radio Software (including package software (but excluding game software) Software and development under consignment) Information services Game software Information processing services Information processing and provision services Information provision services Video information production and distribution Movie and video program production and distribution Video, voice, and text information Newspapers Newspapers production Publishing Publishing Information and News provision News provision communication Non-ferrous metal manufacturing Communications cable production Communications cable production s industry Cable communications equipment and tools manufacture Communications equipment and tools and Wireless communications equipment and tools manufacture Information and communications Information and related equipment and tools manufacture Radio receiver, television receiver, vide equipment manufacture device manufacturing communications- Electric audio equipment and tools manufacture related manufacturing Computer and related equipment manufacture Computer and related equipment manufacture industries Electrical equipment and tools Other electric equipment and tools manufacture Magnetic tale and disk manufacture manufacturing General equipment and tools Office, service, and private-sector equipment Office equipment and tool manufacture manufacturing and tool manufacture Other manufacturing Manufacturing not included in other categories Information recording media manufacture Communications equipment and tools rental Communications equipment and tool manufacture Information and Goods rental Office equipment ant tool rental communications- Office equipment rental Computer and related equipment rental related service Advertising Advertising Advertising industries (not included Printing, plate making and book Printing, plate making and book binding Printing, plate making and book binding in other categories) Entertainment Movie and other theaters, etc. Movie and other theaters, etc. Information and Telecommunications facility communications-related Telecommunications facility construction Telecommunications facility construction construction construction Research Research Research Research

Note: The scope of the information and communications industry includes the production, processing, storage, distribution, and provision of information and materials and equipment necessary to perform these actions. Source: Ministry of Internal Affairs and Communications

Industrial Reports (c) JETRO, 2007

Fig. 2. Scale of Japanese Telecommunications Market by Segment (Billion yen, percent) Year 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Fixed-line phone 8,236 8,836 9,328 9,561 10,205 10,877 10,766 10,673 10,434 10,183 7.3 5.6 2.5 6.7 6.6 -1.0 -0.9 -2.2 -2.4 Mobile phone 1,641 2,683 3,845 4,595 5,123 5,789 5,940 5,884 6,255 6,280 63.5 43.3 19.5 11.5 13.0 2.6 -0.9 6.3 0.4 Services incidental to telecommunications 64 65 65 66 62 63 56 58 52 49 1.5 -0.4 2.0 -6.9 3.1 -12.4 3.8 -10.8 -4.8 Total telecommunications market 9,941 11,584 13,238 14,222 15,390 16,729 16,761 16,615 16,741 16,512 16.5 14.3 7.4 8.2 8.7 0.2 -0.9 0.8 -1.4 Notes: 1. Market scales are nominal domestic values. 2. Lower rows indicate year-on-year % change. Source: Ministry of Internal Affairs and Communications

Fig. 3. Number of Companies Involved (No. of companies, percent) Fiscal Year 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 No. of telecom businesses 4,726 6,024 6,780 7,900 9,350 10,520 11,318 12,518 13,090 13,774 27.5 12.5 16.5 18.4 12.5 7.6 10.6 4.6 5.2 Reference: Number of ISPs 1,703 2,661 3,365 4,234 5,612 6,741 7,527 8,860 9,111 9,681 56.3 26.5 25.8 32.5 20.1 11.7 17.7 2.8 6.3 Note: Lower rows indicate year-on-year % change. Source: Ministry of Internal Affairs and Communications

Fig. 4. Capital Investment (Billion yen, percent) FY 2004 FY 2005 Category Estimate YOY Change Planned YOY Change Registered telecom cos. 2,393.7 8.3 2,626.9 9.7 of which: NTT 863.1 4.0 880.1 2.0 New common carriers 1,530.7 10.8 1,746.7 14.1 Other telecoms (notifications) 116.1 ▲ 25.8 67.9 ▲ 41.5 Total 2,509.9 6.0 2,694.8 7.4 Source: Ministry of Internal Affairs and Communications

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Fig. 5. Investments, by Objective (%) FY 2001 FY 2002 FY 2003 FY 2004 FY 2005 Actual Actual Actual Estimated Planned 276 firms 254 firms 255 firms 183 firms 174 firms Respond to new demand 68.2 64.6 67.3 67.4 69.2 Of which: Expand service area 16.4 11.8 11.9 16.8 15.6 Launch new services 7.9 5.6 5.3 4.9 7.3 Enter new business 5.7 2.6 1.5 2.3 1.1 Maintenance and repair 3.7 4.1 4.3 3.9 3.7 Updates (replace old equipment) 4.2 5.1 4.7 4.1 3.8 Research and development 5.4 8.4 5.6 7.9 7.5 Streamlining and labor saving 9.2 8.7 8.8 7.8 6.9 Improved safety and reliability 3.5 3.7 4.0 4.0 3.8 Other 5.8 5.4 5.3 4.9 5.1 Total 100.0 100.0 100.0 100.0 100.0 Digitalization 50.8 43.2 46.6 45.3 47.9 Mobile systems 29.6 24.8 27.2 34.1 36.0 Of which: Related to 3G 13.5 14.0 23.6 23.2 25.4 Not related to 3G 16.1 10.8 7.2 4.3 2.2 Not related directly to mobile systems 11.2 8.4 9.2 10.4 11.4 Note: Number of companies indicates respondents. Source: Ministry of Internal Affairs and Communications

Fig. 6. Telecom Employees, by Sector (No. of persons, %) FY 1995 FY 1996 FY 1997 FY 1998 FY 1999 FY 2000 FY 2001 FY 2002 FY 2003 FY 2004 Fixed-line phones 287,467 301,918 285,656 279,305 288,224 287,485 276,510 254,464 258,746 258,980 5.0 -5.4 -2.2 3.2 -0.3 -3.8 -8.0 1.7 0.1 Mobile phones 69,382 91,188 103,630 113,130 123,829 142,720 144,929 149,837 153,787 157,134 31.4 13.6 9.2 9.5 15.3 1.5 3.4 2.6 2.2 Services 8,496 8,529 8,366 8,362 7,692 7,784 6,835 7,110 6,311 6,094 0.4 -1.9 0.0 -8.0 1.2 -12.2 4.0 -11.2 -3.4 Total 365,345 401,635 397,652 400,797 419,745 437,989 428,274 411,411 418,844 422,208 9.9 -1.0 0.8 4.7 4.3 -2.2 -3.9 1.8 0.8 Note: Lower rows indicate year-on-year % changes. Source: Ministry of Internal Affairs and Communications

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Fig. 7. Telecommunications Service Subscribers (Thousand persons, %) Year 2001 2002 2003 2004 2005 50,998 51,162 51,592 51,626 50,563 Subscriber phones -2.4 0.3 0.8 0.1 -2.1 10,327 9,610 8,627 7,981 7,491 ISDN 6.5 -6.9 -10.2 -7.5 -6.1 61,325 60,772 60,219 59,607 58,053 Fixed-line phone -1.0 -0.9 -0.9 -1.0 -2.6 69,121 75,657 81,520 86,998 91,792 Mobile phones 13.4 9.5 7.7 6.7 5.5 5,698 5,461 5,135 4,476 4,692 PHS -2.5 -4.1 -6.0 -12.8 4.8 74,819 81,118 86,655 91,474 96,484 Mobile systems 12.0 8.4 6.8 5.6 5.5 - - 5,276 8,305 11,457 IP telephony - - - 57.4 37.9 Note: Lower rows indicate year-on-year % changes. Source: Ministry of Internal Affairs and Communications

Fig. 8. Subscribers, by Carrier (Thousand subscribers) Fiscal year-end 2000 2001 2002 2003 2004 2005 NTT DoCoMo Group 36,219 41,011 44,149 46,328 48,825 51,144 KDDI (au) Group 10,986 12,214 14,049 16,959 19,542 22,699 Vodafone Group 9,978 12,232 13,963 15,002 15,041 15,210 Tu-Ka Group 3,954 3,891 3,783 3,632 3,590 2,739 Total 61,137 69,349 75,944 81,921 86,998 91,792 Vodafone Group numbers for 2002 and before are for defunct J-Phone Group. Source: Telecommunications Carriers Association

Fig. 9. 3G Mobile Phone Subscribers

(Thousand subscribers) FY2001 FY2002 FY2003 FY2004 FY2005 NTT DoCoMo Group 89 330 3,045 11,501 23,463 W-CDMA Vodafone - 25 138 917 3,038 CDMA2000 1x KDDI (au) Group - 6,806 13,509 17,935 21,828 Total 89 7,161 16,692 30,353 48,329 % of total mobile market 0.1% 9.4% 20.4% 34.9% 52.7% Source: Telecommunications Carriers Association

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Fig. 10. No. of Calls, by Caller Phone Type (Billion calls) FY1999 FY2000 FY2001 FY2002 FY2003 FY2004 PHS 4.69 3.59 2.62 2.22 2.13 1.72 Mobile phone 33.39 43.83 45.24 47.45 50.44 51.68 Fixed-line phone 96.32 97.33 90.54 82.72 77.44 73.07 Total 134.40 144.75 138.40 132.39 130.00 126.48 Note: Fixed-line phones include all subscriber, public and ISDN lines, and IP phone lines as of 2004. Source: Ministry of Internal Affairs and Communications

Fig. 11. Call Time, by Caller Phone Type (Million hours) FY1999 FY2000 FY2001 FY2002 FY2003 FY2004 PHS 99110115154225153 Mobile phone 1,036 1,343 1,516 1,598 1,659 1,672 Fixed-line phone 5,017 5,573 4,935 3,995 3,315 2,847 Total 6,152 7,027 6,566 5,747 5,198 4,673 Note: Fixed-line phones include all subscriber, public and ISDN lines, and IP phone lines as of 2004. Source: Ministry of Internal Affairs and Communications

Fig. 12-1. Line Startup and Monthly Fees (NTT East and NTT West) (Yen) Installation 36,000 One-time payments Contract 800 Type 1 1,450 Household Type 2 1,550 Type 3 1,700 Basic fees Type 1 2,300 Business Type 2 2,350 Type 3 2,500 1. Fees are for dial-up lines. 2. Type 1 is 1 to less than 50,000 lines. Type 2 is 50,000 to less than 400,000 lines. Type 3 is 400,000 or more lines. 3. Amounts are exclusive of consumption taxes. Source: NTT East and NTT West websites

Industrial Reports (c) JETRO, 2007

Fig. 12-2. Calling Rates

(Yen)

NTT Communications NTT Communications KDDI SoftBank Telecom Platinum Line

Local Calls 8.5 (8.5) [8.5] 8.5 (8.5) [8.5] 8.9 (8.9) [8.9] Adjacent area 20 (20) [20] 20 (20) [20] 21 (21) [21] Inner- Up to 20 km 8 (8) [8] prefecture Up to 30 km 30 (30) [20] 30 (30) [20] 31.5 (31.5) [31.5] long distance Up to 60 km More than 60 km 40 (30) [20] 40 (30) [20] 42 (31.5) [21] Adjacent area 20 (20) [20] 20 (20) [20] 21 (21) [21] Up to 20 km Up to 30 km 30 (30) [30] 30 (30) [30] 31.5 (31.5) [31.5] Inter- Up to 60 km 40 (30) [30] 40 (30) [30] 42 (31.5) [31.5] prefecture & 15 (15) [15] Up to 100 km 60 (40) [30] inner-city 60 (40) [30] 63 (42) [31.5] Up to 160 km 80 (60) [40] 84 (63) [42] Up to 170 km 80 (70) [40] More than 170 km 80 (70) [40] 84 (73.5) [42] Note(s): 1. Figures on left are for daytime (8:00 a.m. to 7:00 p.m.), center figures in parentheses are for nighttime (7:00 p.m. to 11:00 p.m.), weekends and holidays, and right figures in brackets are for late-nights/early mornings (11:00 p.m. to 8:00 a.m.). 2. All rates are for three-minute calls. 3. Rates are as of October 31, 2006. 4. All rates are exclusive of consumption taxes. Source: Company websites

Fig. 13. NTT DoCoMo Mobile Phone Rate Plans (Yen) Monthly Free time Rate plan Contract fee Call rate basic fee (yen) SS Type 3,600 1,000 30 seconds/20 yen S Type 4,600 2,000 30 seconds/18 yen M Type 6,600 4,000 30 seconds/14 yen FOMA & L Type 9,600 6,000 30 seconds/10 yen mova 3,000 LL Type 14,600 11,000 30 seconds/7.5 yen Weekdays 8:00 a.m. - 7:00 p.m.: 15 yen/minute Business Type 9,800 5,500 7:00 p.m. - 8:00 a.m., and weekends & holidays: 30 yen/minute Limited Type 4,200 2,200 30 seconds/20 yen Note: Business rates (weekdays 8:00 a.m. - 7:00 p.m.) are for calls to other than NTT DoCoMo phones. Source: NTT DoCoMo website

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Fig. 14. Mobile Phone Services, by Operator

Two-month free-time carryover Fee-based Family discounts services NTT Successively higher annual discounts for continuing subscribers DoCoMo "i-mode" mobile Internet Free services "Osaifu Keitai" e-wallet for e-money, credit card and other payment functions. Video phone 50% rate discounts for calls to up to three specified numbers (limited to au and fixed-line phones) Fee-based Student discounts of 50% on basic fee, voice calls and SMS, and 20% for calls to cell/PHS phones of other companies services 50% discounts on calls home from au phone au "Ezweb" mobile Internet Free services "Ezbook" electronic publications (novels, magazines, etc.) that can be read on mobile phone "EZmail reading" voice readout of e-mail 50% rate discounts for voice calls to SoftBank, fixed-line and IP phones, and video calls to three specified numbers Fee-based Free calls and e-mail to SoftBank phones during specified times services SoftBank Unlimited use of e-mail and Internet for flat rate Mobile "S! Cast" digital magazine (fashion, etc.) subscriptions Free services "S! GPS" location search using GPS navigation Video phone 15% discount on monthly fees for all family members Fee-based "Dontoku" discounts up to 35% on basic rates according to years of subscription services Half-price calls on caller's birthday Tu-Ka Mobile Internet Free services Prepaid services "Trio de Talk" three-party calls Source: Company websites

Fig. 15. IP Telephony Rates (Yen)

Carrier Service name Basic fee Inner-carrier Domestic fixed-line Mobile phones SoftBank BB BB Phone - 0 7.99 75 (60) NTT Communications OCN Dot Phone - 0 8.4 55.125 KDDI KDDI 280 0 8 54 Japan Telecom ODN IP phone 200 0 8.4 56.7 Tokyo Electric Power (DTI) POINT Phone 280 0 7.5 54 NTT East Hikari Denwa 500 8 8 57 NTT West Hikari Denwa 1500 8 8 57 Notes: 1. Basic fees are monthly. 2. Costs of hardware (modem, adaptors, etc.) purchase/rental fees not included. 3. Rates show cost of first three minutes. 4. Rates do not include consumption taxes, except those of NTT Communications and Japan Telecom. 5. SoftBank BB divides its mobile phone rates into two time slots: 8:00 a.m. to 11:00 p.m. and 11:00 p.m. to 8:00 a.m (latter shown in parentheses) 6. KDDI mobile-phone rates are for calls to non-au phones (calls to au mobile phones cost 51 yen). 7. ODN IP plan is "ODN ADSL Plan 8M." 8. NTT East and NTT West plans are "Hikari Denwa A (Ace)." Source: Company websites

Industrial Reports (c) JETRO, 2007

Fig. 16 Subscription and Basic Fees in Major Cities (FY2005) 40,000 (Yen) 35,000 36,800 30,000 Subscription fee 25,000 Basic fee 20,000 17,400 15,000

10,000 6,500 6,600 7,400 5,000 1,700 1,768 2,085 1,667 1,960 0 Tokyo New York London Paris Dusseldorf Notes: 1. In the U.S. and France, subsidies are provided for basic fees. 2. Basic fees are monthly. Source: Ministry of Internal Affairs and Communications

Fig. 17 Fixed-Line Call Rates in Major Cities (FY 2005) 160 (Yen) 137 140

120 Local calls 100 80 Long-distance calls 80

60 40 40 19 16 16 14 18 20 8.5 11 0 Tokyo New York London Paris Dusseldorf Notes: 1. Rates are for three-minute fixed-line calls at 12 noon on weekdays. 2. Long-distance calls are according to the farthest region in the country. Source: Ministry of Internal Affairs and Communications

Industrial Reports (c) JETRO, 2007

Fig. 18 Mobile Phone Average Monthly Call Charges in Major Cities (FY 2005) 60 (100 yen/month) 51 50 43 41 40 41 40

30

20

10

0 Tokyo New York London Paris Dusseldorf Notes: 1. Voice calls only. 2. Assumes 99 minutes of use per month Source: Ministry of Internal Affairs and Communications

Fig. 19. NTT Access Charges (3 minute call from subscriber phone) (Yen) 2000 2001 2002 2003 2004 2005 2006 Local exchanges 4.95 4.60 4.50 4.80 5.18 5.32 5.05 Long-distance exchanges 7.65 5.88 4.78 5.79 6.17 7.09 6.84 Source: NTT East and NTT West

Fig. 20. NTT DoCoMo Connection Fees (Yen/second) 2000 2001 2002 2003 2004 2005 Inner-company connection 0.254 0.218 0.206 0.199 0.193 0.188 Inter-company connection 0.320 0.277 0.263 0.252 0.232 0.219 Source: NTT DoCoMo

Industrial Reports (c) JETRO, 2007

Fig. 21. Measures for Balanced Competition in Telecom Industry

NTT, the former domestic-phone monopoly, was restructured under a holding company (July 1997). NTT → Domestic and overseas carriers entered the telecom market.

Long-distance & international Elimination of domestic/international barriers and supply/demand adjustments (1997), and restrictions on foreign calls investment (1998)

Introduction of third-party connection to NTT local exchanges and My Line system for users to specify preferred Local calls carrier. Rate restrictions were largely relaxed by changing from fair compensation rates to advance notice and price caps.

Other than for NTT East and NTT West, all transactions between carriers and customers are decided by market. Rates NTT East and NTT West may negotiate prices with large customers.

Restrictions on NTT group carriers were introduced, universal service mechanism established, business categories Others (Types 1 & 2) were eliminated, carriers other than NTT East and NTT West allowed to decide rates, effective competition assessments were introduced in each market, and other business laws were revised in 2003.

The e-Japan Strategy and e-Japan Strategy II were introduced as IT national strategies, followed by the u-Japan National strategy Plan to create a ubiquitous-network society for connectivity anywhere, anytime by 2010.

Source: InfoCom Research, Inc.

Fig. 22. Carrier Groups Providing Mobile Phone Services

NTT DoCoMo GroupKDDI Group SoftBank Group (800 MHz and 1.5GHz bands) (800 MHz band) (1.5 GHz band) (1.5 GHz band) Hokkaido NTT DoCoMo Hokkaido Tohoku NTT DoCoMo Tohoku Kanto NTT DoCoMo KDDI Tokai NTT DoCoMo Tokai (Tu-Ka KDDI Kinki NTT DoCoMo Kansai brand) (au brand) SoftBank Mobile Hokuriku NTT DoCoMo Hokuriku Chugoku NTT DoCoMo Chugoku Shikoku NTT DoCoMo Shikoku Kyushu NTT DoCoMo Kyushu Okinawa Okinawa Cellular Phone Source: InfoCom Research, Inc.

Industrial Reports (c) JETRO, 2007

Fig. 23. Fixed-Line Phone Industry

NTT FY2005 sales: ¥4,467.3 bil (-2.7%) NTT East NTT West Operating income: ¥172.9 bil (-29.9%) Group Note: Results for these two regional firms only

KDDI FY2005 sales: ¥619.3 billion yen (+3.9%) KDDI (Merged in 2000) Operating income: -¥61.3 bil (-¥61.0 bil) Group KDD DDI IDO

SoftBank Telecom

(Name changed in Oct. 2006) FY2005 sales: ¥353.7 bil yen (+5.3%) Operating income: –¥20.9 bil (+¥31.2 bil) SoftBank Japan Telecom (affiliated with Vodafone) Note: Japan Telecom results

Group (Acquired in 2003) (Acquired in 2004) Ripplewood SoftBank Holdings

1. Figures in parentheses are year-on-year changes. 2. Figures are fiscal year ended March 2006. Source: Various materials.

Fig. 24. Mobile Phone Industry

NTT FY2005 sales: ¥4,765.9 bil (-1.6%) NTT DoCoMo Operating income: ¥832.6 bil (+6.2%) Group Subscribers: 51.14 mil (+4.7%)

P H S (Capital) WillCom KDDI

(Name change in 2005) FY2005 sales: ¥2,510.4 bil (+8.0%) KDDI DDI Pocket (Merger (Merger Operating income: ¥354.4 bil (+21.6%) in 2001) in 2005) Subscribers: 25.44 mil (+10.0%) Group (Established in 2004)

Kyocera Carlyle au Tu-Ka

SoftBank Mobile 2006 Vodafone SoftBank FY2005 sales: ¥1,467.6 bil (-0.2%) (Name change in 2004) Operating income: ¥76.3 bil (-51.7%) Group Vodafone Holdings Subscribers: 15.31 mil (+2.1%) (Sept. ’06)

(Name change in 2003) Japan Telecom Holdings

1. Figures in parentheses are year-on-year changes. 2. Unless otherwise specified, figures are for fiscal year ended March 2006. Source: Produced from various materials.