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Telecommunications
in Japan
Copyright 2017, Faulkner
Information Services. All Rights Reserved.
Docid: 00017543
Publication Date: 1706
Report Type: MARKET
Preview
The Japanese Telecommunications sector is
among the most modern and dynamic telecom markets in the world, pushed
forward by a strong pro-technology government program, a population
rapidly taking advantage of state of the art offerings in mobile telephony
and broadband, and gradual liberalization. Technologies like 4G mobile
service and fiber to the home broadband access are widely available, and tests of
5G technology are underway. NTT remains dominant, but there
is strong competition in many sectors and there are important opportunities for
investment in high tech products and services. NTT DoCoMo, the wireless
division of the incumbent, is one of the most innovative wireless carriers in
the world. This report takes a look at NTT and the other players in the Japanese
telecommunications market.
Report Contents:
- Executive Summary
- Market Dynamics
- Market Leaders
- Market Trends
- Strategic Planning Implications
- Web Links
Executive Summary
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The Japanese telecommunications market is one of the
strongest and most advanced in the world. The nation’s broadband market has
evolved quickly both in terms of size and the types of technology
available thanks to the influence of the government, which has guided
the market through technology fostering policies called e-Japan and u-Japan. These
initiatives helped open the market to competition and promote growth. As a result,
Japan now has one of the highest broadband penetration rates in the
world, including direct-fiber access, which is just now starting to take off in
the rest of the world.
The Japanese mobile market has also grown quickly. NTT DoCoMo, the
largest wireless carrier in the country, is among the most advanced in the world.
The company has long been a pioneer in the wireless space, having introduced a
WAP (Wireless Access Protocol) alternative to the mobile
Internet market with a service called i-mode.
Although NTT, the former state-owned
monopoly, is still the leading player in the fixed-line sector, there is some moderate
competition from KDDI and Softbank.
Market Dynamics
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Japan is an island nation located in
eastern Asia and is one of the most
populated and economically powerful countries in the world. More than
126.4 million people live there, and the greater Tokyo metropolitan area
is the largest in the world with 35.6 million inhabitants. Japan went
through an amazing period of economic growth after World War II –
growing an average of 10 percent per year for forty years – and it is
now the third largest economy in terms of nominal GDP (ranking behind
the United States and China). The country is made up of more than 3,000
islands but the four main ones are Honshu, Hokkaido, Kyushu, and
Shikoku. Figure 1 is a map of Japan.
Figure 1. Japan
Source: CIA World Factbook
Japan is a constitutional monarchy led by an emperor, although this position is
now largely ceremonial much like the monarchy in the UK. The true political
leader of the country is the Prime Minister, who is appointed by both houses of
the Diet, the country’s legislative body. The current Prime Minster, Shinzo Abe,
has been in his current position since December 2012. Table 1 provides a
snapshot of Japan and its telecom market.
|
Category |
Statistic |
|---|---|
|
|
|
|
Size |
145,935 |
|
|
126.7 million |
|
Per |
$42,960 (27th |
|
|
|
|
|
50% |
|
Mobile |
127% |
|
4G |
Yes |
|
|
31% |
|
% of |
91% |
|
State |
|
|
|
Open in all sectors |
|
|
Ministry of |
|
|
NTT |
|
Mobile |
au, NTT DoCoMo, |
History of the Telecommunications Market
Japan’s modern-day telecommunications industry was created as part of the
country’s rebuilding after World War II. In 1952, the Japanese government
restructured the Ministry of Telecommunications into two telecommunications
companies: Nippon Telegraph and Telephone (NTT) and Kokusai Denshin Denwa (KDD).
NTT was established as the country’s sole provider of domestic
telecommunications services, while KDD was granted a monopoly over all
international calling. NTT began aggressively building out its fixed-line
infrastructure, and the number of telephones in Japan went from 1.7 million in
1950 to 36 million in 1979.
The Japanese government partially privatized NTT in 1985, selling off a 35
percent stake in the company, and introduced competition to the market for the
first time. The country’s Ministry of Post and Telecommunications established
two tiers of competitors: Type I and Type II new common carriers (NCCs). Type I
NCCs were facilities-based operators and Type II companies were resellers,
although they were only allowed to provide long distance services. Several
companies rushed into the newly deregulated market: Dani Denden Inc (DDI), Japan
Telecom, and TeleWay Japan Corporation (TWJ) all launched domestic long distance
services, while International Telecommunications of Japan (ITJ) and IDC began
competing with KDD for international long distance services. The wave of new
competitors started a pricing war that caused rates for long-distance calls
made from Japan to drop by 75 percent before it ended.
At the same time, terminal equipment was deregulated, NTT’s activities,
investment choices, and budget decisions were removed from the purview of the
Japanese Diet. Instead, the Ministry of Posts and Telecommunications (MPT) was
established to regulate NTT. In January 2001, the MPT was integrated into the
newly created Ministry of Public Management, Home Affairs, Posts, and
Telecommunications (MPHPT). In September 2004, the Ministry changed its English
language name to the Ministry of Internal Affairs and Communications (MIC) to
make its functions simpler to understand.
The second round of reform occurred from 1996 through 1998. The main components
of the reform included network interconnection, the lifting of foreign
investment restrictions, and NTT reorganization.
In 1999, the Japanese government restructured NTT into three business units: two
regional local service providers called NTT East and NTT West, and a long
distance company called NTT Communications.
State of the Marketplace
Japan has an advanced, innovative telecommunications industry, but the
regulatory landscape does not do much to promote competition. Companies that
attempt to enter the market find that the government heavily protects
domestic businesses and that wireline connection and mobile termination rates are
very high. NTT continues to be allowed to dominate the market despite
ongoing criticism that it uses its position to stifle competition.
The Japanese government has been working for years to promote more competition
and limit NTT’s role in the market, but the telecom market is regulated by the
Ministry of Internal Affairs and Communications while competition issues are
handled by the Japanese Free Trade Commission (JFTC). Unfortunately, the JFTC
has a track record of not enforcing policy and doing everything it can to
promote competition, but the government recognizes that liberalization is
essential to its meeting the extremely ambitious goals it has set out for the
ITC sector.
Japan’s current telecom policy, the Telecommunications Business Law, went into
effect in April 2003 with the principle objectives being deregulating the
market, structural reform, promoting advanced technology, and protecting users.
NTT’s dominance of the market has also been addressed through a wide ranging set
of reforms and reorganizations.
The new law came into effect in April 2004 and it contained a number of
significant adjustments. The primary changes are in the following areas:
-
Abolition of the distinction between Type 1 and Type 2
telecommunications businesses. -
Abolition of the permission system for market entry for Type 1
telecommunications business. -
Abolition of the permission system for suspension and
discontinuance of business for Type 1 telecommunications
business. -
Abolition of tariff regulations for non-dominant carriers.
-
Abolition of ex-ante regulations for interconnection – such as
prior notification of an interconnection agreement for
non-dominant carriers. -
Maintenance of asymmetrical regulations for dominant carriers.
The result has been an improved competitive climate and easier access for
investors, but there is still some distance to go.
Fixed-Line.
Japan has an advanced fixed-line infrastructure, but revenues from local and
long distance calling continue to decrease as people transition to mobile
communications or VoIP. For several years, people who wanted to use a carrier
other than NTT had to use a dialing prefix instead of having their default
carrier set to the competitor. The Japanese government finally lifted that
provision in 2000, which helped stimulate competition and cut prices, but
customers continue to defect to other forms of communications.
The figure shows how the Japanese fixed-line market has evolved between
2005 and 2015.
Figure 2. Japanese Fixed-Line Statistics, 2005-2015
(lines in thousands)
Source: International
Telecommunications Union (ITU)
Wireless.
Japan has one of the most advanced mobile communications markets in the
world. The number of mobile telephones exceeded the number of landline
phones in March 2007, and that gap continues to widen. As of December 2015,
there were about 160.5 million mobile subscribers, which puts the penetration rate
at 127 percent. By comparison, only 50 percent of the population has a
landline.
Japan’s three primary mobile companies deliver service over a variety of
technologies, and wireless Internet services are very popular there. NTT DoCoMo
offers a mobile data service called i-mode that has been a huge success in
Japan. It is a packet-switched mobile service that keeps users constantly linked
to the Internet, enabling them to exchange e-mail, swap pictures, call up
restaurant guides, and navigate Web sites without having to establish a
connection each time. NTT DoCoMo licenses i-mode to other carriers and, at one
point, it was available in Australia, Hong Kong, Israel, and across Europe but
all of those markets have since phased out the service in favor of
faster, more-advanced technologies. NTT shut down i-mode in 2016.
Japan was also one of the first countries in the world to get 3G and 4G service.
Today, 92 percent of the population has access to 4G service, which is the
second highest coverage in the world (South Korea is first and the United States
is 10th).
NTT DoCoMo launched a fourth-generation service called Xi in December 2010, and
it now has more than 30 million customers.
The following figures shows how the mobile market has evolved between 2005 and
2015.
Figure 3. Japanese Wireless Statistics, 2005-2015
(in thousands)
Source: ITU
Internet.
It is difficult to provide a holistic view of the Japanese Internet sector
because so many people use their mobile phones to access content. But
according to the ITU, 91 percent of the population used a landline Internet
connection in 2015.
The Japanese government is pushing to make information technology the backbone
of Japan’s economy. To this end, Japan created the e-Japan five-year plan and
the mid-term u-Japan plan. It has invested heavily in high-speed infrastructure
and reformed laws that discourage e-commerce. As a result of the u-Japan
project, Japan has one of the most advanced broadband sectors in the world.
Japan had 38.9 million broadband users at the end of 2015, making it second
largest broadband market among the members of the Organization for Economic
Cooperation and Development (OECD) countries, which include most of the world’s
leading industrial nations (the United States is the largest, with 104.6 million
broadband subscribers). At the same time, the broadband penetration rate is 30 percent, which ranks 19th out of the OECD’s 30 members.
The following figure shows how the number of broadband subscribers grew between
2005 and 2015.
Figure 4.
Broadband Penetration Rate, 2005-2015
(in thousands)
Source: ITU
One of the cornerstones of the u-Japan strategy was to promote direct fiber
access as the best form of high-speed access, and that initiative has been very
successful. Approximately 90 percent of the country has access to direct-fiber
service, and the country has the second highest direct-fiber penetration rate in
the world now, trailing only Korea. Broadband access has become so popular in
Japan because it is fast and cost effective. A study published by the Japanese
government found that Japan’s broadband infrastructure offers the very fast
service at a very competitive price.
The following chart breaks down the number of broadband subscribers by
technology.
Figure 5.
Market Share of Broadband
Technologies
Source: OECD
Data
Before mid-2000 and the formation of the Asian Internet Network (AIN), all
Internet connections in Japan had to pass through the US. AIN enables Internet
users to have direct access to the region’s Web sites and covers voice, data,
video, and fax communications. In addition to AIN, Japan is connected to
several submarine cable networks, as illustrated in the following map.
Figure 6.
Japan’s Submarine Connections
Source: GigaOM
In 2014, Google teamed up with five Asian telecommunications companies,
including KDDI, to build a $300 million submarine cable between Japan and
the United States. Called FASTER, this cable will have more capacity than
any other trans-Pacific connection.
Japan is also served by five Intelsat satellites (four in the Pacific Ocean and
one in the Indian Ocean), one Intersputnik satellite, and one from Inmarsat.
Direct broadcasting satellites include BSAT, JSAT, and SCC.
Market
Leaders
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In
recent years, the Japanese government has made an effort to promote
competition in the telecommunications sector, but NTT is still the dominant
player across the board. The following section provides a snapshot of the key
players in the fixed-line, mobile, and Internet sectors.
Fixed-Line
NTT is the second largest telecommunications carrier in the world and the
leading provider of telephone service in Japan. It is essentially a holding
company for its regional local phone companies NTT East and NTT West and
long distance carrier NTT Communications. The local companies still enjoy
virtual monopolies while the long distance unit faces stiff competition.
NTT.
NTT is one of the largest telecommunications company in the world, with 11.5
trillion yen in annual revenue, 21 trillion yen in assets, and over 241,000
employees. It is the former state-owned monopoly provider of the nation’s basic
telecommunications service, but today, NTT operating companies have been
focusing upon structural reforms, as well as attempting to respond to new
opportunities and threats in the broadband area. Competition over fiber optics
access services is intensifying, with a number of significant new entrants,
particularly the power companies. The group is involved in an end-to-end
restructuring of the national network with fiber as a major part of the
government’s u-Japan plan, and the company is overhauling its entire network
with end to end fiber optics. The Japanese government still owns about 34
percent of the company.
Local telephone services are provided through two regional operating companies
called NTT East and NTT West. While the company was founded as a landline
company, those services now only account for about 13 percent of NTT’s revenues.
KDDI.
KDDI is the second largest telecommunications company in Japan, with $41 billion in revenue, more than 18,400 employees, and over six million fixed-line
customers. The company was formed in 2000 when two fixed-line competitors named
KDD and IDO merged, and it provides a full range of fixed-line services. In
2007, KDDI acquired a fiber-optic backbone operated by the Tokyo Electric Power
Company (TEPCO), a utility operator that made a foray into the telecom space.
Today, the company markets most of its services under the "au" brand, which got
its start with its wireless division. It also offers cable television service
through a subsidiary called Japan Cablenet, which allows it to offer service
bundles.
KDDI’s current strategy is called 3M, which stands for multi-use, multi-network,
and multi-device. The company is trying to create an environment where customers
can get a high-speed Internet connection on any device, whether it’s a computer,
laptop, tablet, television, or mobile phone, anywhere in Japan, so they are
promoting their 4G and FTTH networks.
SoftBank.
SoftBank entered the fixed-line market when it acquired Cable & Wireless IDC and
Japan Telecom in 2004. The Japan Telecom acquisition gave the company access to
a fiber-optic network that runs along railway lines operated by Japan Railway.
The company has 1.8 million fixed lines in service, most of which are corporate
customers. SoftBank also has a major strategic alliance with Yahoo! called the
"Yahoo! BB" that offers broadband service.
In 2015, Softbank announced plans to merge its four Japanese telecommunications
subsidiaries – Softbank Mobile, Softbank Telecom, Softbank BB Corp, and Ymobile
– into a single company.
The following graphs provide market share information for the local and long
distance markets.
Figure 7. Market Share for Fixed-Line Providers
*Includes NTT East and NTT West
Source: NTT Annual Report
Wireless
Japan has one of the highest mobile broadband penetration rates in the
world. According to information published by OpenSignal, Japan 90 percent of
the country has access to 4G service, which is the second highest rate in
the world. All three of the country’s wireless carriers offer 4G services
across the country.
NTT DoCoMo.
NTT DoCoMo was the first company to offer mobile communications services in
Japan and it is the current market leader with 74.9 million customers and 46
percent of the market, a figure that has been gradually declining over the
years. While most mobile communications companies rely on handset manufacturers
to drive the industry forward, NTT DoCoMo has an extensive research and
development division that has helped the company create and maintain its reputation as one of
the most innovative and advanced wireless carriers in the world.
DoCoMo engineers developed the W-CDMA standard, which the company used to create
a third-generation standard called FOMA that competes with the more popular
UMTS. NTT DoCoMo also created i-mode, one of the most popular wireless Internet
services of all time. i-mode technology was launched in 1999 and played a huge
role in making Japan one of the most advanced mobile markets in the world.
NTT DoCoMo is also an innovator when it comes to 4G services. Thirty million
people subscribe to its Xi LTE service, but DoCoMo also sells a Premium 4G
package that offers 225M bps of bandwidth. Furthermore, in May 2015, the company
announced it will invest over $5 billion in expanding its LTE network and adding
LTE-A technology that will offer connections of up to 370M bps.
DoCoMo is also already looking toward introducing 5G service in 2020. The
company already conducted a live demonstration of a multi-element antenna/circuit integration technology that will be used in a 5G network.
au.
au, the mobile division of KDDI, is the second largest wireless company in
Japan, with 48.6 million subscribers and 30 percent of the market. The company
provides a full suite of mobile telecommunications services, including mobile
data services, which are very popular in Japan. It offers a WAP-based data
service called EZweb that competes against NTT DoCoMo’s i-mode, but 99.5 of the
company’s customers receive service over its third-generation CDMA 1x network.
It also offers 4G service in select markets over an LTE network.
SoftBank Group.
SoftBank is a media and telecommunications company that entered the wireless
sector in 2006, when it acquired Vodafone Japan for $15.1 billion. it then
expanded its presence in the market by buying out Willcom in 2013. The company
now has 39.3 million customers and 24 percent of the market,
making it the third largest cellular carrier in Japan. Fourth-generation service
was introduced in February 2012 and is available in the Tokyo metro area as well
as most major markets.
In March 2016, SoftBank announced plans to reorganize itself into two
subsidiaries: one for its domestic operations and one for its international
business. The company is doing this to make its domestic operations more
attractive to investors by shielding it from SoftBank’s ownership in Sprint.
The following figure shows the market share for Japan’s wireless carriers, and
the table below that shows the network technologies they use.
Figure 8. Market
Share for Mobile Providers
Source: Carrier Data
| Carrier |
Subscribers (Millions) |
Network Technology |
|---|---|---|
| NTT DoCoMo | 74.9 | UMTS, HSPA, LTE, LTE-A |
| au | 48.5 |
CdmaOne, CDMA2000 1x EVDO, WiMAX, LTE, TD-LTE |
| SoftBank Mobile | 39.3 | UMTS, HSPA+, DC-HSDPA, TD-LTE, LTE, TD-LTE |
Source: Japan Telecommunications Carriers Association
Internet
The three leading ISPs in Japan are NTT, KDDI, and SoftBank. Powerline
companies have also made some marginal headway into the FTTH sector. In
2014, NTT DoCoMo entered the broadband market with a fiber product called
docomo Hikari that uses capacity it leases from its parent company.
The following two graphs provide market share information for fiber broadband
providers.
Figure 9. Market Share for
Fiber Broadband Providers
Source: Japanese Ministry of Internal Affairs and Communications
Market
Trends
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Ongoing market trends in Japan include the country’s growing wireless
subscriber rates, development of broadband, and a gradual influx of foreign
investment due to liberalization. The broadband and mobile sectors continue
to grow, while NTT is facing declining revenues from its core fixed-line
business.
Consolidation continues to occur, though the strongest companies have been able
to weather the current storm. The most notable victim of the drive toward
consolidation was Japan Telecom, which sold its DSL business to eAccess and then
was acquired by SoftBank.
E-Commerce/M-Commerce Growth
Although Japan’s Internet usage was held back by high access charges and low PC
penetration, an explosion in the use of cell phones and an unprecedented number
of Japanese Web start-ups have jumpstarted the e-commerce market. This is also a
specific target of the Japanese government with its e-Japan Priority Program.
The e-Japan program is a cornerstone of the Japanese government’s information
technology policy. These programs prioritize:
- Promotion of
broadband Internet usage. - Introduction
of IT into the education/training sectors. - Enhancement of
transmitted content in both quantity and quality. - Promotion of
e-government and e-local government initiatives. - Strengthening
of international activities.
The Japanese government has urged Japanese broadcasters and other media to
improve their content to survive a wave of new media, such as digital
satellite broadcasting, broadband telecom services, cable, and the Internet.
Deregulation and Competition
The Japanese government considers itself in the third stage of a wide-ranging
telecommunications reform, which has included partial privatization, addressing
competition concerns, opening the market to foreign investors and competition,
and preparing for a new information age. In the current stage, planned
reorganization of NTT is mainly accomplished.
One of the most important problems is continued high interconnect rates from
NTT, which have forced even domestic players to lose money by turning over a
large portion of their earnings to the legacy carrier. These issues are,
however, being addressed and competition is clearly beginning to take off.
SoftBank’s aggressive growth strategy over the past several years provides a
good example of this. KDDI is also trying to dial up competition on NTT by
offering a quadruple play bundle that combines fixed and mobile calling with
cable television services and broadband Internet access over a Wi-MAX
connection.
Current regulations also prevent NTT from offering bundles of discounted
wireless telephone service and direct-fiber Internet access because the
government fears such an offer will be so attractive that it will lead to a
monopoly. KDDI and SoftBank are not subject to those regulations.
Cutting-Edge Technologies
As mentioned earlier, Japan has one of the most advanced wireless markets in the
world. NTT DoCoMo was one of the first carriers to introduce a mobile data
service, i-mode, that became wildly popular, and it was a pioneer in the
development of 3G services. Today, all of the country’s wireless carriers offer
something faster than LTE; NTT DoCoMo is rolling out LTE-A while au and Softbank
have LTE-TD technology in their networks. The Japanese market is already looking
ahead to 5G, and the country’s three mobile operators have announced plans to
collectively invest $45.7 billion into 5G by 2023. The country expects to have
some form of service in place before the Tokyo Olympics in 2020.
Cutting-edge technologies are not limited to the mobile market either.
Direct-fiber access is widely available and prices are attractive. In March
2015, NTT successfully tested transmitting data at 400G bps over its fiber-optic
network, which is a massive upgrade over 100G bps connections that are currently
available.
Strategic Planning
Implications
[return to top of this report]
According
to a study by the Organization of Economic Cooperation and Development (OECD),
Japan has the best performing telecom sector in the developed world.
Currently, NTT’s
restructuring is ongoing. The government has steadily eased its grip on the
company through six separate share sales since 1986. The most recent sale
reduced the government’s stake to 34 percent. The government will always
remain a major player in the telecom market as it is required by
law to hold at least one third of the NTT’s shares.
Japan’s telecommunications service market will likely continue to expand as a result of
new technologies, such as IP-based networks, increasing data traffic, and
continued deregulation efforts by the Japanese government. The market has
recently been affected by the global downturn in the telecom sector, combined
with more recent global recessionary trends and Japan’s own economic downturn of the past several years. However, conditions are
now showing signs of recovery and Japan’s aggressive e-Japan policy is seeding investment in targeted areas.
There
are numerous significant opportunities for investment in the Japanese
telecommunications market. It is highly competitive, though many sectors
remain dominated by NTT. Foreign investment is now beginning to flow. It is
worth noting, however, that foreign investors are limited to holding less than one third of total shares
of the company.
Web Links
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Resource File
- International
Telecommunications Union Development Sector (ITU-D):
http://www.itu.int/en/ITU-D/Pages/default.aspx - Mobiforge: http://www.mobiforce.com/
- Organization of Economic Cooperation and Development (OECD) Broadband Portal:
http://www.oecd.org/sti/broadband/oecdbroadbandportal.htm
Organizations Mentioned in This Report
- au: http://www.au.kddi.com/
- K-Opticom: http://www.k-opti.com/
- KDDI: http://www.kddi.com/
- Ministry of Internal Affairs and Communications:http://www.soumu.go.jp/english/
- Nippon Telegraph and Telephone (NTT): http://www.ntt.co.jp/
- NTT
DoCoMo: http://www.nttdocomo.com/ - SoftBank: http://www.softbank.co.jp
About the Author
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Bruce Kramer is a manager for an automotive supply chain management company and an independent
telecommunications analyst. Mr. Kramer is a former senior editor for
Faulkner Information Services and has been covering the technology industry
for over a decade. His areas of specific focus are CRM and business process
outsourcing, international communications marketplace trends, provider
strategies, and regulatory developments.
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