Development of the Japanese Broadband Market 4

Before getting into the main issue about why optical fibre services have expanded so quickly in Japan, I have to write about the differences between two IP telephone services in order to clearly explain the issue.

The IP telephone service which I have written about to date is commonly called “050 VoIP (Voice over Internet Protocol)”. On the other hand, we have another　IP telephone service called “0AJ VoIP”.

These jargons are derived from telephone numbers which are used in each VoIP. For example, 050VoIP’s number is like 050-1234-5678 for mainly ADSL users. On the other hand, 0AJVoIP is like 03-1234-5678 for optical fibre users.

Actually, traditional telephone numbers are 0AJ as well. So, if you use ADSL and an 050VoIP, you will have 2 telephone numbers such as 0AJ (say, 03-1234-5678 for a traditional telephone) and 050 (say, 050-1234-5678 for 050VoIP) and you can use these numbers on the same telephone handset. (It may be difficult to understand, so I want to stop for a second to explain about telephone numbers.)

Anyway, what is important is that when you use 050VoIP on your ADSL, you have to use your traditional telephone line as well. (You don’t have to use an expensive traditional telephone when you call.)

OK. Let’s focus on the main subject.

In Dec. 2004, the number of ADSL users numbered 10 million compared to 0.9million for FTTH (Optical fibre service). SoftBank’s share of ADSL was about 47% (4.7million).

In contrast, in June 2008, the number of optical fibre users was 131million compared to that of 123million for ADSL. Why and how?

In the first quarter of 2005, NTT offered a new 0AJVoIP to its optical fibre subscribers. The point was that when customers use the service, they can cancel their traditional telephone lines. Therefore, it really meant that NTT decided to renounce the old telephone services and turn its resources to new IP networks.

The price of the 0AJVoIP was strategic. That is, customers had to pay for only 500yen (about £4) as a monthly fixed charge compared to about 2,000yen (about £16) for a traditional telephone.

That meant that 0AJVoIP was so cheap that a total cost of an optical fibre service and 0AJVoIP was almost the same as that of ADSL and a traditional telephone service. (Furthermore, customers could enjoy a high speed broadband service which was at most 100MB.)

It was certain that many customers got to use an optical fibre service and 0AJVoIP. SoftBank also offered its optical fibre services. However, this time NTT could defeat its competition. It could have succeeded in depriving SoftBank of its ADSL customers.

You may already have understood the answer to the question in my first blog which was “Why and how have so many people used optical fibre services in Japan?”.

The answer is “an inexpensive telephone (0AJVoIP)”. Of course, it is the case that customers’ needs for bandwidth have existed due to video streaming services such as YouTube, and so on. However, if there had not been 0AJVoIP, optical fibres wouldn’t have become used so widely. (NTT's share of optical fibres is more than 60%.)

Next time, I will write about the situation of 050VoIP after NTT offered 0AJVoIP where there was cannibalization between these two VoIP services. [to be continued]