With more than eight million subscribers, Japan’s Voice over the Internet Protocol (VoIP) market by most measures constitutes the largest in the world. Yet this market did not develop as a result of an explicit VoIP regulatory policy. It emerged primarily out of Japan’s overall competition policy in the telecommunications sector — and the promotion of DSL line sharing, which has been one of the fundamental strands of this policy.
In 2000 the regulator, the Ministry of Posts and Telecommunications (MPT — now the Ministry of Internal Affairs and Communications, MIC), established rules for local-loop unbundling and co-location, largely to stimulate DSL deployment. [1] Subsequently MIC limited the interconnection rates that NTT’s operating companies (NTT East and NTT West) could charge independent DSL providers. Initially the base charge was around US$4.00 per shared line per month; this was lowered in 2004 to about US$1.00 per line.
The acceptance of these rules by the dominant incumbent carrier, NTT, led to rapid DSL deployment in Japan by NTT as well as new entrants, such as Yahoo!BB and eAccess. Yahoo!BB launched its DSL service in late 2001, charging about $20 for up to 1.5 Mbps links. Within a few years these access speeds grew to as fast as 50 Mbps for subscribers located near central offices. (In Japan over 90% of households are within 7 kilometres. of central offices.) Meanwhile, NTT also began deployment of FTTH, making high-speed access available at rates up to 100 Mbps for under $50 per month. By 2003 Japan had over 7 million DSL and other broadband subscribers, growing to more than 18 million by the end of 2004. [2]
This DSL subscriber growth, spurred by the regulator’s aggressive local loop unbundling and interconnection policy was a critical component in the rapid adoption of VoIP. The other key component was the aggressive marketing and product bundling strategy of the independent DSL providers. Yahoo!BB, for example, offered VoIP as part of its DSL subscriptions. Its subscribers were able to make free calls to other Yahoo!BB subscribers and inexpensive calls (domestic and international) to off-system numbers. In short, VoIP and broadband growth became highly interrelated in Japan. By the end of 2003 there were more than 3.5 million VoIP subscribers in the market, growing to more than 8 million a year later.
This early form of VoIP, however, did not eliminate users’ need to subscribe to conventional phone lines, as the VoIP services did not handle incoming calls from outside subscribers. This restriction changed when in 2002 MIC created an IP exchange numbering plan (050 prefix) for phone-to-PC calling and allocated about 7 million related numbers to ISPs. MIC also worked with the industry’s VoIP Development Consortium to develop standards for number allocation, interconnection, termination fees, and tariffs. At the same time, Japanese VoIP providers have not been subjected to emergency number and electronic surveillance requirements, as they have in the United States and other countries.
The experience in Japan shows how much market progress can be achieved when government and industry cooperate. In Japan policy is often developed through an interactive “guidance” process between these two segments of society. Whether the same results would have occurred in other countries — at the same general economic level — is uncertain, however. South Korea, for example, has led the world in broadband deployment yet lags Japan considerably in VoIP adoption, even as it benefits from some of the same underlying geographical and regulatory conditions. [3] Ironically, South Korean service providers have achieved higher broadband adoption rates without including VoIP, despite Korea’s lower per capita income and higher broadband service prices than in Japan. This may have been due to Korea’s younger population, higher education level and looser consumer credit as well as to other broadband stimulation efforts of the government.
Nonetheless, the example of Japan indicates how rapidly a new technology can proliferate among consumers predisposed to innovation when the government does not stand in the way. Once the decision to support DSL was made and it became evident that VoIP would be a major driver of DSL adoption, neither the government nor the incumbent created obstacles to the development and use of VoIP. Unlike some countries, Japan does not have a strong tradition of legal challenges of policy decisions in the courts or by “shopping regulators” (that is, appealing to regulators opposed to the decision — at another level of government or in another ministry or agency — to achieve a delay or reversal of the decision).
The main potential challenger of the decision was NTT, the dominant incumbent operator. Yet NTT was offered the opportunity to develop FTTH, which may have muted any resistance it wished to display to the unbundled loop and interconnection policies of the MIC. The other possible drawback to the government’s policy is that it may have contributed to the delivery of VoIP at an excessively low and unsustainable price. However, so far, Yahoo!BB has managed to sell a variety of other services to its growing subscriber base, including video programs and games, while eAccess has achieved profitability by focusing on the wholesale market.[4]
Endnotes:
[1] A summary of Japan’s broadband and VoIP policies appears in Robert Shaw, “The Impact of New Technologies such as Broadband and VoIP on Telecommunication Markets,” Seminar on Economic and Market Analysis for Central and Eastern European Countries (CEEC) and Baltic States,” Prague, September 9-11, 2003. The following treatment of this policy history has also benefited from the reviews of Sachio Semmoto (CEO, eAccess) and Takehiro Ikeuchi.
[2] The split was 13 million DSL, 2.9 million cable modem, and 2.4 million FTTH, with FTTH now experiencing the greatest growth in absolute as well as relative terms.
[3] For a summary of the early stages of Korea’s VoIP market and related regulatory approach, see IP Telephony and the Internet: Republic of Korea Case Study, ITU (prepared by Dr. Nae-Chan Lee), January 2001. Korea’s VoIP early VoIP service industry was made up of a large number of small and medium-size ISPs, offering the service for free to consumers. The incumbent operator, KT, was not highly motivated to develop VoIP (outside corporate applications) or to cooperate with the ISPs, as VoIP tended to reduce its customer base.
[4] Some critics of Japan’s VoIP policy also contend that it has depended on “locked in” service and product practices rather than open usage arrangements and SIP-based standards. For example, a commentator on thevoipweblog, October 18, 2005, states: “The only VoIP provider you can get service from is your ISP. If you want to choose a different one, you have to change ISPs first. And since the ATA they provide to you is built right into your ADSL modem, you can only use your VoIP service at the location where the ADSL modem has been installed.”Pages to attach to:4 New Paradigms …4.4 VoIP and Regulation2Copyright Castalia Limited. All rights reserved. Castalia is not liable for any loss caused by reliance on this document. Castalia is a part of the worldwide Castalia Advisory Group.