Development of the Japanese Broadband Internet Market 2

I wrote the first blog about product strategy and especially a pricing strategy of SoftBank about its ADSL service and IP telephone service. Before going on to my company’s strategy against SoftBank at that time, I will tell you what was SoftBank’s other strategies such as its place (distribution) strategy and its promotion strategy.

What astonished other telecom companies and ISPs was its place strategy as well. That is, it began to hand out a modem with an IP telephone function for free by the roadside near stations nationwide and in mass retailers. Maybe the modem would cost about 7,000Yen (about £50). In addition, I guess SoftBank gave out more than 0.3million modems at that time. In fact some of my friends received it but they didn’t use it. It was natural that other companies couldn’t do such a foolish thing. I think many Japanese students can remember sales people dressed in a “red” jacket and with the modem in a “red” paper carrier. (The “red” was a signature colour of SoftBank at that time.)

SoftBank also drastically increased the commission for mass retailers which was one of my company’s most important sales channels. Therefore, we could not but increase commission given to mass retailers as well. That meant that our expense also increased dramatically.

Re SoftBank’s promotion strategy, it used a famous actress for its ad. In fact, NTT DoCoMo, one of the subsidiaries of NTT, used her before for its advertising campaign including a TV commercial for more than 3 years. I remember that she appeared from a big “red” paper carrier in SoftBank’s TV commercial and said “Yahoo! BB. The No.1 broadband provider.”, where it created a meaningful impact to consumers because they could see the “red” paper carrier everywhere.

Anyway, the situation for other companies was worst. Actually, my company cut the price of its ADSL service as much as that done by SoftBank. However, the cheap IP telephone was significantly powerful. In July 2002, the number of ADSL users of SoftBank was about 0.8 million, compared to about 0.3 million of my company.

The time had come to decide. That is, even if revenue of the traditional telephone had decreased, we would have to offer the same cheap IP telephone services.

However, we had to solve a big problem related to Metcalf’s law on Page 85 of the text. There is a similar concept called “a network effect (or, network externality)” in the telecom industry, where the more people who own telephones, the more valuable the telephone is to each other because this creates a positive externality. [Wikipedia: http://en.wikipedia.org/wiki/Network_effect ]

Applying the concept to the situation at that time, the more people used BB phones including “the 24/7 free of charge IP telephone service between its customers”, the more valuable it was to each other. That is, the service of SoftBank was more attractive than that of any other company.

Apparently if we had offered the same IP telephone service, we could not have gotten ahead of the competition.

So, guess what we did in order to compete against SoftBank at that time. [To be continued]

Development of the Japanese broadband Internet market 1

I have worked for NTT Communication Corporation, one of the main subsidiaries of NTT, the largest telecommunication company in Japan, like BT in the UK. As I was in charge of designing and planning of Internet related services such as IP (Internet Protocol) telephone, I will write about how the Japanese Internet connecting services (especially broadband services) have developed so far.

Anyway, do you know how many subscribers of broadband services are in Japan? In June 2008, the number of these users was about 290 million. (ADSL (130M), Optical fibre (120M), CATV(40M)) Some of you might be surprised at the number of a optical fibre service called FTTH (Fibre To The Home). Maybe the adoption rate of FTTH in Japan is No.1 in the world. Why and how have so many people used the FTTH service in Japan? I’d like to describe a development of the Japanese broadband market historically on this blog in order to get its answer.

On page 70 of the text, you can see a description of Softbank, one of the major telecommunication companies in Japan (one of competitors of my company). The text says that a partnership between Softbank and Yahoo! Japan pioneered inexpensive, fast broadband Internet access. It was true but I think that the partnership was one of the reasons which they could succeed at that time.

In September 2001, Softbank began to offer its broadband service (ADSL) called Yahoo! BB. It also offered IP telephone service called BB phone to customers of Yahoo! BB in December 2001. (This was so-called Phone to Phone Service, unlike Skype.)These two services were very cheap. Especially, the BB phone was a price buster. That is to say, it was about a tenth of traditional telephone rates. Furthermore, it offered a 24/7 free of charge service between its customers.

On the other hand, other telecommunication companies couldn’t offer the same service immediately, because offering cheap IP telephone service had a risk of taking away revenue from their core traditional telephone operations that comprised about a half of their total sales. (At that time, Softbank was just an ADSL provider, so they didn’t have to concern about cannibalisation between BB phone and a traditional telephone service.) Therefore, Softbank could increase its customers quickly.

However, in the middle of 2002, other telecommunication companies could not help offering the same service as BB phone. (To be continued.)

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