JIN-213 -- Booming IP Telephony Challenges NTT's Telecom Empire

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J@pan Inc Magazine Presents:
T H E J @ P A N I N C N E W S L E T T E R
Commentary on the Week's Business and Technology News
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Issue No. 213
Thursday, January 30, 2003
Tokyo

CONTENTS

++ Viewpoint: Booming IP Telephony Challenges NTT's Telecom Empire

++ Noteworthy News
- Exodus Communications To Transfer GOL to Fusion
- KDDI to Offer Brew-Capable Cellphone Service from Spring
- Sony's Third-Quarter Profit Soars to New Heights

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++ Viewpoint: Booming IP Telephony Challenges NTT's Telecom Empire

In Brief: Nippon Telegraph and Telephone (NTT) Group has held a de
facto monopoly in the fixed phone business over the past 100 years.
Despite the keitai boom, as well as the coming of the broadband age,
the Japanese still need NTT's connections for their fixed phones even
if they use other fixed line providers such as Heisei Denden and
Cable & Wireless IDC for intermediary connections. But the recent
expansion of voice communications via IP telephony in Japan may
change the whole picture.

IP telephony services, using VoIP (Voice over Internet Protocol)
technology that divides voice data into IP packets for transmission
across the Internet, have been on the rise over the past two years.
According to Yano Research Institute (YRI), the number of IP phone
subscribers increased from 304,000 to 1.58 million from 2000 to 2001.
YRI estimate the number to reach 2.42 million in 2002 and 3.64
million in 2003.

So far, the expansion of IP phones in Japan has been closely
connected to that of ADSL. Yahoo! BB, for example, provides BB Phone
IP phone service as a package deal for its ADSL subscribers. BB Phone
is much cheaper than NTT's station-to-station phone calls: 7.5 yen
per every three minutes for domestic calls and international calls to
major countries such as the US or England, plus minimum ADSL monthly
connection fees of 3,143 yen.

Electronics firms are also entering the space. NEC and Oki Electric
Industry said Tuesday that they have agreed to cooperate in
developing an IP telephony business in Japan. The firms will
initially construct an IP telephony system targeting corporate users.

This must be scary enough for NTT, but what is worse is the recent
entry of electric companies into this space. Telecommunication
Network (TTNet), in which Tokyo Electric Power Co. (Tepco) has a 36
percent equity stake, is planning to launch fiber-to-the-home (FTTH)
based IP phone services by the end of March, while Osaka-based
k-opti.com -- 100 percent owned by Kansai Electric Power Co.(Kepco)
-- has just completed a deal with KDDI to jointly provide FTTH-based
IP phone services.

ADSL-based IP phone services in Japan still depend on NTT phone lines
for the "last mile" -- the distance from the nearest NTT connection
point to the phone -- and subscribers still pay the same NTT monthly
basic connection fees of between 1,500 yen and 2,500 yen for home
phones and slightly more for office phones. But, FTTH-based IP phone
services are theoretically free from that restriction and could
bypass NTT phone lines all together, says a TTnet spokesperson,
although she adds that some calls -- such as emergency toll-free
calls with the prefix 0120, still require NTT lines. Although the
details of the services are still under discussion, the new service
will be available for the company's broadband connection subscribers
by attaching a modem to the phone they are using.

Although it's too early to predict whether FTTH-based IP phones will
boom in Japan, electric power companies with their rich fiber
networks may become a major threat to other ISPs, including Yahoo!
BB, which is in the middle of a fierce price war for ADSL
subscriptions. Yahoo! BB is now giving out two months of free
connections, including IP phone services, until the end of January.

The NTT Group may suffer a lot too, as its regional companies are
already hurting from a decline in revenue from phone service
businesses. As these companies are struggling from the decline in
fees for calls made, the basic monthly connection fees are providing
stable revenue. In the case of NTT East, revenue from basic fees
declined only by 2 percent between April and September 2002 compared
to the same period in the previous year, while income from fees for
calls made dropped by 20 percent, according to the most recent
mid-year financial statement from NTT. NTT East's revenue from phone
services declined by 11 percent to 806.2 billion yen, while NTT
West's phone-service revenue also dipped by 11 percent to 853.8
billion yen.

-- Sumie Kawakami

Sources:
NTT East and West financial statement (in Japanese)
http://www.ntt.co.jp/ir/pdf/report2/03/hosoku10.xls

Yahoo! BB promotion (in Japanese)
http://bbpromo.yahoo.co.jp/promotion/campaign/muryou.html

Yano Research Institute (in Japanese)
http://www.yano.co.jp/

"NEC, Oki -3: Demand For IP Telephony Expected To Increase," Dow
Jones, January 28,2003
http://sg.biz.yahoo.com/030128/15/36waz.html

Links:
"Tepco's Power Play," J@pan Inc September 2002
http://www.japaninc.com/article.php?articleID=892

"2.5 Yen a Minute to Call the US Doesn't Sound Too Bad," The J@pan
Inc Newsletter, May 29, 2002
http://www.japaninc.net/newsletters/?list=jin&issue=188

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++ NOTEWORTHY NEWS
(Long URLs may break across two lines, so copy to your browser.)

** Exodus Communications To Transfer GOL to Fusion

In Brief: Exodus Communications, a ISP provider, announced that it
will transfer its Global Online Japan (GOL) unit to a subsidiary of
Fusion Communications, a leading IP phone service provider as of
February 1.

Fusion Communications, which pioneered Internet Protocol telephony in
Japan, offers nationwide "Voice Communication Services" providing a
low, flat-rate, long-distance telephone fee, which has attracted more
than two million subscribers, the press release says. The company
also provides combined voice and data communication services over an
IP network. GOL, with years of Internet service experience, will fuse
with the innovators of the nationwide voice IP network, Fusion, it
says.

Sources:
GOL's press release
http://home.gol.com/golnews/fusion_e.html

Fusion Communications' Press Release
http://www.0038.net/press/nw030128.html

Links:
"A Vibrant Career Cut Short" from J@pan Inc, December 2001
http://www.japaninc.net/article.php?articleID=537

"Exodus Buys Global Online" from J@pan Inc, February 2000
http://www.japaninc.net/article.php?articleID=271

"Daring to be Different" from J@pan Inc, November 1999
http://www.japaninc.net/article.php?articleID=188

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** KDDI to Offer Brew-Capable Cellphone Service from Spring

In Brief: KDDI said today that it is planning to offer this spring a
mobile service for wireless downloading of applications via
Qualcomm's Brew platform. KDDI will also unveil a Brew-capable
cellphone -- users would be able to download software to their
phones.

KDDI also plans to target the corporate market, launching a Brew
Business Profile service that would allow workers to access company
networks from their keitai. Brew stands for binary runtime
environment for wireless.

Commentary: After years of relying on the youth culture for sales,
KDDI, J-Phone and NTT DoCoMo are getting more serious about corporate
users. Check out this week's Wireless Watch (link below) to see what
J-Phone's up to.

Source:
Nikkei Net (subscription required)
http://www.nni.nikkei.co.jp/AC/TNKS/Nni20030129D29JF357.htm

Link:
Wireless Watch Japan Mail Magazine No. 86
http://www.japaninc.com/newsletters/index.html?list=WW&issue=86

** Sony's Third-Quarter Profit Soars to New Heights

In Brief: Sony unveiled some unexpectedly robust numbers today as the
company reported record third-quarter profit fueled by the strong
performances of its movies ("Spiderman," "Men in Black II") and
PlayStation 2. Group net income was up 96 percent year on year to
125.4 billion yen, Bloomberg reported. The movie division of Sony had
a record year, with $2.75 billion in ticket sales, and the game
division sold 8.5 million PlayStation 2 consoles during the holiday
season. Year-end sales of plasma display TVs and digital cameras
helped bolster the bottom line; only the music division saw declines
in both sales and profit. Sony's third quarter ended on Dec. 31.

Source:
Bloomberg news
http://quote.bloomberg.com/fgcgi.cgi?ptitle=Top%20Financial%20News&s1=bl....
ht&s2=ad_right1_topfin&bt=ad_position1_topfin&box=ad_box_all&
tag=financial&middle=ad_frame2_topfin&s=APjd7pRQrU29ueSdz

Link:
"This Phone's for You: It's Sony's EverQuest" from the Wireless
Gaming Review (in the February issue of J@pan Inc)
http://www.japaninc.net/inc/login.html?articleID=1024

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STAFF
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