In many ways, this is reflective of its telecommunications industry. Japan’s telecoms economy is at present the largest in Asia-Pacific, worth $145 billion, and is second in the world to the US. This is widely expected to change next year, with a high growth rate expected to give China the same status in telecoms that it holds in the world economy. According to research firm BuddeComm, Japan rates third against China and the US in terms of broadband take up, with approximately 34.1 million subscribers.
This in no way reflects a declining state in Japanese telecoms. Rather, it is an early adopter of technologies that is now dealing with a maturing industry. Japan has operated 3G services for 10 years, with over 98% of its 117 million mobile subscribers using the network. Compare this to India, which only held its 3G auctions in April 2010 and is considered by many as one of the fastest growing telecoms markets. "Japan has assumed a dynamic leadership role in many aspects of global and regional telecommunications," says Lisa Jones, analyst at BuddeComm. "Its government has been active in regulating its telecommunications industry to introduce more effective competition."
In the fixed market, the country’s largest operator, NTT Communications, largely dominates with a monopoly of fibre networks. Its biggest IP-based brand, OCN, accounts for 7.9 million subscribers as of March 2010, with its two other fibre-based ISPs, Plala and goo, accounting for a further 2.1 million subscribers. NTT’s worldwide presence is even more impressive, with a global infrastructure network covering 150 countries and a Tier 1 IP backbone connecting with the world’s largest ISPs.
Nick Wakai, VP of IP business at NTT Communications, notes the ease with which international operators can pass traffic through the country: "It is a very open market with little regulation. In terms of international IP traffic, Pacnet is big in Japan, but Tata not as much. One of our major challenges next year is the rapid growth of IP and transiting this traffic from the capital. Japan is very Tokyo-centric with 90% of traffic passing through the city, which is why we have to handle this at night."
With much internet traffic coming in from the US, NTT Communications owns and operates a 9,000km submarine cable running on 10G transmission, and Wakai believes there is a need for an increased transition towards 40G to address customer satisfaction. "The biggest difference between our US and domestic customers is that Japanese customers are very sensitive to any kind of quality or packet loss, sometimes too sensitive."
NTT’s dominance in the fixed market is not reflective of its presence in the mobile space. There are three major mobile players, with NTT DoCoMo, Softbank and KDDI’s wholly-owned subsidiary UQ Communications each competing in Japan’s growing mobile broadband market. Softbank, the third largest operator, surprised its larger competitors in 2008 after it signed an exclusivity deal with Apple to offer the iPhone in Japan – an agreement in place for another two years. "NTT lost approximately two market share points as a result of this deal, to give them a 48% market share by the end of 2010, and they are presently experiencing negative revenue growth," says Marc Einstein, analyst at Frost & Sullivan. "Softbank were desperate enough to agree to Apple’s revenue sharing demands and DoCoMo were not and decided to go it alone with other devices."
Einstein estimates that nine million Japanese access the internet only through mobile. The country has culturally placed strong emphasis on mobility. "Japan became the fourth country to launch 4G, with DoCoMo announcing its roll-out in Q4 2010. LTE networks will play a huge role in its infrastructure development," Einstein said. "Despite its Apple deal, Softbank’s network remains the weakest and is focussed on 3G. KDDI has opted to deploy a WiMAX network, so it will be a while to catch up."
Through Telehouse, its 66%-owned subsidiary enterprise service, KDDI believes it holds the advantage over the NTT Group. Telehouse owns and operates 21 data centres in Japan and faces limited competition. "Most European or US companies are Tokyo-centric in their data centre presence," said Akio Sugeno, internet engineering, operations and business development at Telehouse. "Equinix has two facilities in the capital and NTT has data centres, but they are not carrier neutral. We own 41 international data centres but Japan proves the most stable environment in Asia for organisations wanting a local presence."
Capacity reported in April 2011 of the limited effect Japan’s 9.0 magnitude earthquake and consequent tsunami had on the country’s telecoms industry, with many of the major telcos able to restore services fairly quickly. "All 21 data centres were reported to have continued operations from a facility point of view," says Fred Cannone, director of sales and marketing at Telehouse. "Japanese facilities are generally earthquake engineered and, like our data centres, designed to withstand natural disasters."
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