Development of the Japanese Broadband Internet Market 3

My company’s strategy was to form alliances with other ISPs, in order to compete against SoftBank which had such a strong network effect. [Wikipedia:http://en.wikipedia.org/wiki/Network_effect ]
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While my company had about 0.3 million broadband (mainly ADSL) users, as I mentioned in my second blog, Softbank had about 0.8 million users in July 2002. Because SoftBank had a strong position at the ADSL market, it took a vertical integration strategy where we thought had a good chance of succeeding. That is to say, we found that if we could ally ourselves with other ISPs except for SoftBank, the number of broadband users would be nearly the same.

It was the fact that many people in my company opposed the alliance strategy because it meant that we had to offer IP telephone services as a wholesale product to these ISPs. This meant that the strategy would also not only reduce the traditional telephone revenue as a sacred cow, but also generate less revenue from an IP telephone operation because we had to discount its price.

However, we had no choice but to do so at that time. The president of my company decided to make an alliance strategy in the summer of 2002 and powerful sales force was organised quickly. By the end of 2002, we did succeed to gather more than 170 ISPs nationwide.

In December 2002, my company’s IP telephone called “OCN dot Phone” was successfully launched with other ISPs which also offered their own brand IP telephone services.

The news that NTT offered IP telephones was top news in one of the most famous Japanese newspapers called “Asahi-Shinbun” because it meant that NTT, the largest telecom carrier in Japan, had decided to move away from the ‘traditional’ telephone.

OCN dot Phone could contribute to increasing not only the number of my company’s ADSL users but also that of other allied ISPs’. We also offered IP telephone service to business customers which SoftBank didn’t provide at that time. Although we could narrow the gap with SoftBank, we still couldn’t catch up to reach parity with our competitor. This was because it had offered its IP telephone services more than one year in advance of our launch.

At that time, the competition in the broadband market was mainly to acquire ADSL users. In Dec. 2004, the number of ADSL users numbered 10million compared to 0.9million for FTTH (Optical fibre service). SoftBank’s share of ADSL was about 47% (4.7million).

However, the situation was dramatically changed when NTT offered a new IP telephone service called “HIkari (means optical fibres)-Denwa (means telephones) “ to its optical fibre users.
[to be continued]