Japan Cranks Up Download Speeds

Softbank's Son drives adoption of DSL technology

As recently as 2001, despite a concerted government effort the year before to jump-start Internet technologies, "high-speed" connectivity in Japan meant a decidedly poky 64 kilobits per second--what you could get, basically, from ISDN (integrated services digital network) technology, long dismissed elsewhere as outdated. Well before that, customers in most other advanced industrial countries were able to get at least 1 megabit per second, be it over phone lines or television cable.

Similar services were becoming available in Japan, but they were mostly from start-ups lacking consumer name recognition or strong financial backing. Nippon Telegraph and Telephone Corp. (NTT), Japan's largest telco, offered an advanced service, but unenthusiastically--it was more interested in recouping its investment in ISDN before aggressively marketing a competing technology.

Now, however, thanks largely to the efforts of billionaire entrepreneur Masayoshi Son and his Softbank Corp. [see photo, " Son of Softbank"], Japan has caught up fast, mainly by deploying ADSL (asymmetric digital subscriber line) technology in its fixed-line telephone networks. Though Japan still lags far behind some other countries in broadband penetration--South Korea probably is the world leader--it now tops the world in providing the cheapest DSL services, according to its Ministry of Internal Affairs and Communications (MIC). With more than 13 million subscribers surfing the Web at speeds up to 50 Mb/s, Japan is also a leader in deploying the most advanced form of the technology.

Taking much of the credit for this dramatic shift is Yahoo! BB, one of scores of ventures backed by Softbank and its founder, president, and CEO Son. He has gambled big on the success of broadband--not that playing for high stakes is anything new to a man who, during the dot-com excesses of the 1990s, vied with Microsoft Corp.'s Bill Gates for the title of richest man in the world. To finance his push into ADSL, Son has sold off shares in several major holdings, including Yahoo! Inc. in the United States and Yahoo Japan. (Yahoo! BB--for broadband--is the name of the ADSL service operation jointly provided by Softbank and Yahoo Japan Corp., Tokyo; Yahoo Japan is a wholly owned subsidiary of Softbank.)

Not content with the broadband strategy alone, Son is seeking to turn all of Japan's communications markets on their heads, with a plan to offer his customers a full menu of fixed, wireless, and Internet services. He says he won't be stopped by either his telecom rivals or the government--he's seeking a court injunction to prevent the government from favoring his competitors.

The DSL story began in 2001 when Yahoo! BB launched an 8-Mb/s DSL service for a monthly charge of US $21--a fivefold speed increase over what NTT's regional operators were offering and at just one-third of their fees. To pay its way, Yahoo! BB needs to sign up subscribers fast. As of 30 September 2004, it counted 4.5 million installed lines, compared with NTT East Corp.'s 2.6 million lines and NTT West Corp.'s 2.1 million. Son says he's on course to have a total of 6 million subscribers by autumn of 2005.

Softbank has also advanced the technology. In 2002 it introduced an Internet Protocol-based telephone service (IP phone) as part of Yahoo! BB's ADSL offering, which greatly cut long-distance and overseas call charges. In 2003 it added a broadband TV service. And as of August 2004, Yahoo! BB's download peak speed rose to 50 Mb/s. As a result, typical monthly payments by subscribers have climbed to roughly $37.

But to compete long-term with entrenched NTT and KDDI Corp., Tokyo, Japan's second largest telephone company, Son says it's necessary to offer subscribers a "McDonald's-type menu" of broadband, fixed-line, and mobile services.

He added the second pillar to that strategy when he acquired Japan Telecom Holding Co.'s fixed-line business this April. For decades, NTT had a monopoly on fixed-line services. But this year, following the international trend of introducing competition into the telephone business, the government opened up NTT's local switching stations, which connect the "last mile" of wire to Japan's 60 million subscribers to other operators, and competition has ensued.

Playing for high stakes is nothing new for a man who, during the dot-com boom, vied with Bill Gates for the title of richest man in the world

In August, Son sparked a price-cutting war when he announced Japan Telecom would begin fixed-line services starting 1 December, so as to avoid having to pay a steep access charge to NTT for each DSL connection it provides, while providing cheaper call fees and a fixed monthly charge $1.83 lower than NTT's $16 fee. NTT's fixed-line basic fees are estimated to garner $16.5 billion annually--treasure that competitors can now fight to share.

KDDI is also preparing to launch a fixed-line service in February 2005. It responded to Japan Telecom's challenge by announcing its own competitively priced plan, marginally undercutting that of Japan Telecom. NTT has been forced to follow suit and will also lower monthly basic fees and other charges beginning in January. Subsequently, Softbank has announced a further price reduction, declaring it will always maintain the industry's lowest fees.

The third pillar of Son's telecom strategy is still to be erected. Son's attempt to obtain a license to use a 2-gigahertz frequency in 2003 for mobile phone operations was denied when MIC assigned the bandwidth to incumbent operators NTT DoCoMo, KDDI, and Vodafone K.K. Son's latest attempt to obtain a segment of the available 800-megahertz frequencies was also turned down, with MIC again assigning bandwidth to DoCoMo and KDDI.

In angry protest at what Son suggests is cronyism (a number of former MIC officials hold positions at NTT and KDDI), he took out ads in major newspapers criticizing "opaque decision making" by MIC. "This is not right," he declared. "I'm not going to stop." On 14 October he filed a lawsuit at Tokyo District Court asking for an injunction to stop the government from allocating 800-MHz frequencies to favored rivals.

This is not the way business-government relations usually are handled in Japan. Now, Son has raised the ante further, having Yahoo! BB take applications for a fiber-optic service that will compete against similar services provided by NTT and KDDI. Maximum speed per user is 100 Mb/s, at $63 per month, a little lower than that of the competition.

The battle will not stop there.

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