SoftBank CEO Urges an End to Copper

Japanese media giant has a bold if somewhat self-serving plan to cover the country in optical fiber

Photo: Toshifumi Kitamura/AFP/Getty Images

3 November 2010—Japan has long been regarded as a leader when it comes to providing broadband connectivity and deploying "fiber to the home" (FTTH). Yet entrepreneur Masayoshi Son, chairman and CEO of telecom and media company SoftBank Corp., is critical of the way broadband technology is being implemented and has urged the government to back his ideas for radical change.

As is the case in most developed countries, the Japanese industry is employing broadband in two ways: over existing copper phone lines using digital subscriber line (DSL) technology, which provides theoretical maximum download speeds of around 50 megabits per second, and over newly laid optical fiber cable with the claim of delivering data at up to 200 Mb/s. Even though SoftBank has the largest number of DSL subscribers—a 38 percent market share—Son says this two-tier deployment strategy is costly and inefficient and is causing Japan to lose its competitive edge.

"Metal is the old way; metal is stupid," says Son. "It gets rusty, and the older it gets, the more it costs to maintain."

NTT East and NTT West control the majority of the copper lines and fiber installations in Japan and charge other telcos for their use. The two were once a giant national telecom monopoly and are now 34 percent owned by the Japanese government. In addition, the two NTT companies also compete with the telcos by offering the same telecom services. According to Son, operating and maintaining this infrastructure is causing the NTTs to lose US $3.6 billion a year.

To make Japan’s telecom industry more efficient and competitive, Son says that both NTTs should relinquish their debt-incurring infrastructure business, scrapping all copper lines entirely, and instead join with SoftBank, the other telcos, and the government in investing in an all-fiber network to be installed "city by city" by a new infrastructure company. This new company would "put all of us on an equal footing," says Son, who was once ranked close to Microsoft founder Bill Gates as the world’s richest person.

Today FTTH is installed on a demand basis. Removing all copper lines and replacing them with fiber would not only cut installation cost and time, it would also eliminate the high costs of copper line maintenance and selling new installations. "You only have sales cost because you sell on demand," says Son. He also argues that even when factoring in the increased cost of operating the expanded fiber network, the savings per year over today’s setup would be around $8.8 billion.

Son estimates the cost of laying fiber throughout Japan would be $37.5 billion and could be accomplished in five years with the telcos seeing immediate positive cash flows in the sixth year.

The result, he argues, is a win-win situation for telcos and subscribers. Today NTT’s fiber costs a subscriber 5000 yen [$60] per month, and it is provided only to citizens living in the cities, says Son. But with fiber laid throughout Japan and available to every citizen, costs would fall dramatically to "one-quarter the price NTT is charging today."

"Son’s plan has some good points," says Kenshi Tazaki, a vice president of research at Gartner. "But the figures he is using are incomplete, so this side of it needs careful evaluation. Also, he hasn’t sufficiently explained where the new infrastructure company’s long-term revenue sources will come from."

And though Son couches his ideas in terms of making Japan more competitive, an even greater motive appears to be his company’s business prospects, Tazaki says. Though SoftBank is the market leader in DSL broadband today, the number of subscribers is trending downward, according to data from Japan’s Ministry of Internal Affairs and Communications. At the same time, the number of subscribers to fiber is increasing and has already passed DSL; fiber is a category where SoftBank’s share is minuscule.

KDDI Corp., SoftBank’s main rival after NTT East and NTT West, has been building its own fiber network with the help of acquisitions such as its 2006 purchase of Tokyo Electric Power Co.’s fiber-optic unit for close to $1 billion. In September, KDDI launched a fiber-optic service with upload/download speeds of up to 1 gigabit per second—much faster than what NTT is providing.

SoftBank, by contrast, has remained dependent on the optical networks of the NTTs.

"Given SoftBank’s lack of investment in infrastructure, I think Son’s plan is more about improving SoftBank’s business situation rather than a vision to improve Japan’s international competitiveness," says Tazaki.

About the Author

John Boyd is a Tokyo-based technology and science journalist. In September 2010 he reported on a cable technology by Sony that could change smartphone designs.

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