Inside Eye

Back to Contents of Issue: June 2000

by Steven Herman

Hiroaki Kobayashi could very well be one of the most dangerous threats to the old Japan Inc. A former wordprocessor seller, he's begun a single-handed revolution that threatens to crash the closed and cozy status quo of telecommunications in Japan.

His weapon is old-fashioned copper wire and a souped-up modem. They add up to a DSL service that he's offering directly to consumers starting at a flat ¥5,500-a-month rate.

Kobayashi's company is Tokyo Metallic, which sounds more like a rock band than a broadband communications revolution. In spite of the funky name, however, ten Japanese investors, including JAFCO, Sanwa Finance, and Orix Capital, each gave him ¥100 million in first-round financing after looking at his business plan. The pre-IPO second round is raising the equivalent of $40 million from the likes of J.P. Morgan, J.H. Whitney, and Jardine Fleming. Kobayashi has initiated discussions with both the TSE's Mothers board and Nasdaq Japan before deciding where to list Tokyo Metallic.

"We're very low risk," he says, as a kimono-clad waitress dips shabu-shabu in a private room in an upscale Ginza restaurant.

What the money boys saw is that despite a number of costly obstacles that NTT has thrown in Kobayashi's path, he will hit positive cash flow and a $38 million profit before taxes when he signs up subscriber No. 305,000, which should happen within two years. The subscriber target looks like a no-brainer. Branching out from the Yotsuya area of Tokyo, the firm has been achieving a 5 percent penetration rate within two months of offering initial service. His DSL service is already available in parts of six Tokyo wards. (Potential subscribers can see a demonstration of DSL on the first floor of the Shinjuku Yusu Bldg., across the street from the south exit of Shinjuku station; also, the latest service-area map is viewable at

NTT, which has staked its telephone future on ISDN, which streams at a tenth of the speed of DSL, seems intent on keeping the brakes on the growth of DSL upstarts like Tokyo Metallic.

"NTT is still trying to sell ISDN. It's crazy," says Kobayashi as he laps up his shabu-shabu.

His DSL equipment is colocated within NTT's central offices. The phone company charges DSL operators a ¥5 million installation charge for each bundle of 750 lines (hopefully 1,000 in the future) and ¥1,000 per month for each line. "In Tokyo there are 110 NTT central offices, so we need a million dollars for each office," Kobayashi explains as he switches over to the post-shabu shabu noodles.

Even though he's willing and able to throw ¥100 million at NTT for each central office, it can take weeks to get the phone company to sign approvals and allow his installers into a single central office. What the customer finally gets, through a splitter hooked up to their telephone and a DSL modem to their computer, is data down-streaming at 640 Kbps and going back out the copper at 250 Kbps around the clock for a flat rate.

A similar system that Kobayashi has built in the Kawanakajima area of Nagano Prefecture offers a 1.5-Mbps downstream and 272-Kbps upstream, which, at ¥5,500 a month, makes it one of the world's cheapest ways to get high-speed Internet access. A stark contrast to NTT rates, which are among the world's most expensive.

Kobayashi sees his service providing more than just phone lines and high-speed Internet access. He points out that the line will be able to offer video-on-demand and an array of interactive services, like shopping.

When Tokyo Metallic has 125,000 subscribers a year from now it will actually have more than all but one cable TV service. DSL also has a great advantage over cable systems. To expand their reach, cable operators have expensive construction costs to lay down cable. And already-built analog cable systems have to replace their coax with fiber to get the speed and capacity DSL can offer.

Kobayashi says he's thrilled to see more salarymen ditching their lifetime employment guarantees and striking out on their own.

"If you want to run your own business, it's a good time to do it," he says. "There's venture capital all around now. When I started in 1981, there was no one around to help me."

Steven L Herman is a veteran broadcast journalist in Asia.

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