Recent development of net neutrality conditions in Japan

Recent Development of Net Neutrality
Conditions in Japan
Impact of Fiber Wholesale and Long-term Evolution (LTE)
Toshiya JITSUZUMI, D.Sc.,
Kyushu University
T. JITSUZUMI@The26th EuropeanRegionalITS (SanLorenzode El Escorial,Spain, June 24-27, 2015) 1

Purpose and agenda
Purpose of this study is to
- analyze the net neutrality issue from an
economic perspective,
- summarize the emerging challenges for
Japan’s regulator, MIC, and
- propose a set of policy options.
T.JITSUZUMI@The26th EuropeanRegionalITS (SanLorenzode El Escorial,Spain, June 24-27, 2015) 2
Agenda
1. Net neutrality from an economic perspective
2. Japan’s approach so far
3. Impact of fiber wholesale introduction and LTE
4. Required approach

Net neutrality from an economic perspective
It is nothing but a congestion problem with a little twist.
Three reasons that market dynamism does not
work and traditional transportation economics
cannot be applied.
1. Internet backbone is a collective commons
supported by many individual operators.
2. Prevalence of best-effort quality may inhibit
network investment while causing no damage
on ISPs if competition is insufficient.
3. There exists a serious information asymmetry
concerning network QoS between ISPs and end
users.

Twin problems
Low barriers
to entry
High barriers
to entry
Demand management
Capacity development
Short-term solution
Long-term solution
How to achieve efficient and fair traffic
management in the dynamic condition?
How to calculate the optimal
capacity and how to finance it?
Congestion control over the Internet backbone
facing the exaflood of network demand
Controlled by vertically
integrated network providers
Leverage into the
neighboring market
How to discipline the behaviors of
SMPs in the communication market?
Is it efficient?
How to restrain the anti-competitive
behaviors?
Control the monopolistic leverage of SMPs
ISPs
Network operators
Users
Content providers
Application providers
Natural
monopoly
Unique business
practices

Japan’s approach so far
Interconnection rules
SMP Regulations
NTT Law

Interconnection rule in the TBA
Article 32 (Interconnection with Telecommunications Circuit Facilities)
◦ Any telecommunications carrier shall accept a request from another telecommunications carrier to
interconnect the telecommunications facilities of the requesting telecommunications carrier with
the telecommunications circuit facilities that the requested telecommunications carrier installs,
except in the cases listed below:
i. Where the interconnection is likely to hinder telecommunications services from being
smoothly provided
ii. Where the interconnection is likely to unreasonably harm the interests of the requested
telecommunications carrier
iii. In addition to the cases listed in the preceding two items, where there are justifiable grounds
specified by an Ordinance of the Ministry of Internal Affairs and Communications

SMP regulations on NTT East/West
Telecommunications carriers installing Category I designated telecommunications facilities
Other facilities
Category I designated telecommunications facilities
Notification of tariff for designated telecommunications services
（FTTH, dedicated service)
Prohibited activity regulations
Regulationsregardingcarriers
withspecialrelations
Authorization of
interconnection tariff
Access lines and related
telecommunications facilities
Access lines
(More than 50% share)
（Copper cable, optical fiber）（NGN, PSTN, etc.）
（Wiring inside apartments, etc.）
Development of
interconnection accounts
Notification of plan for
change or addition of functionNon-regulation
Regulation of lending facilities to other carriers
Service regulations
Non-regulation
(ADSL, etc.)
Prohibition of abuse of
information obtained
through interconnection
Prohibition of unfairly
advantageous treatment
for specific carriers
Prohibition of undue
interference with
equipment manufacturers,
etc.
Firewall with
specified
carriers
Equal treatment in
interconnection and
consignation
Price cap regulation for specified telecommunications service
(voiceover copper lines, etc.)
Interconnection
regulations
Price regulations
Restrictions for
corporate behavior
Source：Created using material provided by the MIC.

NTT Law
NTT NTT East/West
Objectives of operation Control NTT East/West to properly secure
the telecom service and related R&D
Provide regional telecom services
Scope of business Exhaustively listed in the law.
Expansion of the business domain Must be for the accomplishment of the
original scope and needs pre-notification to
the minister (until 2011, the approval of
the minister was required instead)
Must be for the accomplishment of the
original scope, the provision of out-of-
bounds service, and the productive use of
its resources as long as it does not impair
fair competition; it needs pre-notification to
the minister (until 2011, the approval of the
minister was required instead)
Obligation Universal Service Obligation (USO) and promotion of public welfare
Obligatory shareholding by the
government
At least one-third must be owned by the
government, and foreign control must be
less then one-third.
NTT must own 100%
Appointment of directors and auditors Foreigners cannot be appointed and must be approved by the minister.
Business operating plan Must be pre-approved by the minister, subject to consultation with the Minister of Finance.
Financial report Must be submitted to the minister
Source: Adapted and translated by the author.

Industrial structure of the fixed broadband
Local Loop Unbundling
(dark fiber, dry copper, and line-sharing)
Service
-based
Operator
ISP
Facility-based
Operator
(cableco)
ISP
Local Loop Unbundling (dry copper)
The USJapan
Wholesale or Interconnection
NTT-east/west
Access
Wholesaler
Independent ISP
Service
-based
Operator
Facility-based
Operator
NTT East/West
ISP
Physical
Facility
Broadband
Access
ISP
Retail
Service
Facility-based Operator
(telco)

Share of the fixed broadband market, almost a decade ago
78.6%
49.1%
29.1%
13.5%
5.8%
3.8%
0% 20% 40% 60% 80% 100%
Estimated market share
NTT group Power company Cables
Other telcos Municipalities Others
BB access line
wholesale market
BB access market
BB ISP market
NTT Group
Powercos
Other telcos
Cablecos
Others
Municipalities
Estimated market share in Japan
Source: Created on the basis of MIC (2008), FCC (2008a, 2008b), and Noam (2009)
Note 1: ISP shares in the US are based on revenues in 2006 (Noam, 2009), which include satellite Internet; the shares
in other markets are based on the FCC’s line count and include fixed lines only.
Note 2: RBOCs stand for Regional Bell Operating Companies, telcos for telecommunications companies, powercos for power
companies, and cablecos for cable companies.
43.6%
36.7%
36.3%
53.9%
53.9%
44.2%
0% 20% 40% 60% 80% 100%
Estimated market share
RBOC Cables Others
Estimated market share in the US
RBOCs Cablecos
Others

Market share as of March 2014
19%
8%
1%
9%
8%
1%11%
2%
9%
7%
7%
4%
6%
2%
2%
6%
NTTcommunications
NTT pulala
other NTT
KDDI
J:com
other KDDI
SoftbankBB
other SB
Biglobe
nifty
Sonet
k-opticom
powerco
cableco
TOKAI communications
other
Source: Created based on MIC data (2014a).

Japan’s approach so far
Interconnection rules
SMP Regulations
NTT Law
• Guidelines for Consumer
Protection Rules for the TBA
• Measurement of mobile QoS
• Anti-DoS/DDoS Guideline
• Packet Shaping Guideline
Co-regulation?
Create Competitive Conditions

Impact of fiber wholesale introduction and LTE
https://farm4.staticflickr.com/3216/2883679931_c4f46b3ca4_o.jpg

Fiber range
ADSL range
Technological developments in mobile broadband
1,000
10,000
100,000
1,000,000
10,000,000
100,000,000
1,000,000,000
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Maximum download speed (bps)
Mobile PHS WiMax
2G 3G 3.5G 3.9G 4G
Source: Created using
data from NTT Docomo’s
website and Wikipedia.

Users are increasingly relying on mobile broadband.
According to a questionnaire survey
conducted by the MIC’s research institute, IICP,
not only has the user share of mobile
broadband become larger than that of fixed
broadband,but its usage time is now longer.
0
5
10
15
20
25
30
35
40
45
0% 10% 20% 30% 40% 50%
Usagetime(min.)
Share of users among respondents
PC
Smartphone
Feature phone
Tablet
Internet TV
Source: Created based on MIC data (2014b).

SMP rules on mobile BB cover wider but are less strict.
Telecommunications carriers installing Category I designated telecommunication facilities
Other facilities
Category I designated telecommunications facilities
Notification of tariff for designated telecommunications services
（FTTH, dedicated service)
Regulationsregardingcarriers
havingspecialrelations
Authorization of
Access lines
（Copper cable, optical fiber）（NGN, PSTN, etc.）
（Wiring inside apartments, etc.）
Development of
Notification of plan for
change or addition of functionNon-regulation
Service regulations
Non-regulation
(ADSL, etc.)
interference with
equipment
manufacturers, etc.
Firewall with
specified
carriers
Equal treatment in
interconnection and
consignation
Price cap regulation for specified telecommunications service
(voiceover copper lines, etc.)
Interconnection
regulations
Price regulations
Restrictions for
corporate behavior
NTT East
NTT West
Source：Created using the material provided by the MIC

SMP rules on mobile BB cover wider but are less strict.
Telecommunications carriers installing Category II designated telecommunications facilities
Other facilities
Category II designated telecommunications facilities
Notification of
Access lines
（Some servers, etc.）
Development of
Non-regulation
Non-regulation
interference with
equipment
manufacturers, etc.
Interconnection
regulations
Price regulations
Restrictions for
corporate behavior
Applied as necessary
when 25% of shares
on a revenue basis is
exceeded
NTT
Docomo
KDDI
Softbank
NTT
Docomo
Source：Created using the material provided by the MIC

No business domain control on NTT Docomo
KDDI and Softbank are pure private companies.
NTT Docomo is one of the major members of the
NTT group and 59.27% of its shares is owned by
NTT holding company; however, it is free to
expand its business domain.
◦ NTT Docomo provides Internet access services on
its own.

Fixed vs. Mobile
Dominant network operator in
the fixed market
(NTT East, NTT West)
Dominant network
operator in the mobile
market
(NTT Docomo, KDDI,
Softbank)
In-house
ISP function
Independent
ISP
Group
ISP
Fixed Broadband Mobile Broadband
Independent
ISP

Fiber wholesale by NTT East/West
Source: http://www.ntt.co.jp/news2014/1405eznv/ndyb140513d_01.html
NTT DOCOMO, INC. announced today that it will begin
offering "docomo HikariTM," a superfast optical-fiber
broadband service, combined with "docomo Hikari
PackTM" bundled discounts with mobile subscribers.
… By integrating ISP, wired and wireless services,
DOCOMO's one-stop service will simplify the subscription
process and customer support.
Source: Press release by NTT Docomo (Jan. 29, 2015).
https://www.nttdocomo.co.jp/english/info/media_center/pr/2015/0129_00.html
Virtual integration
of NTT Docomo
and NTT East/West

Competing Softbank has started similar services.
Source:
http://upload.wikimedia.org/wikipedia/c
ommons/c/c1/Masayoshi_Son_(boss_of_
Softbank)_and_Nobi_Hayashi_(Digital_A
dvisor).jpg

Possible outcome: Domination of BB by mobile carriers
Local Loop Unbundling
(dark fiber, dry copper, and line-sharing)
Pre “3G and Fiber Wholesale”
Wholesale or Interconnection
Fixed BB
Access
Wholesaler
Independent
ISP
NTT East/West
Physical
Facility
Broadband
Access
ISP
Retail
Service
Now
Fixed BBMobile BB
Mobile Operators
ISP
MVNO
Service
-based
Operator
Facility-based
Operator
ISP ISP
Service
-based
Operator
Facility-based
Operator
NTT East/West
ISP
Near future
Fixed BB
Mobile BB
Mobile Operators
MVNO
Facility-based
Operator
NTT E/W
Service
-based
Operator

Expected share of the Japanese ISP market: fixed BB
27.9%
38.0%
17.9%
17.9%
12.6%
12.6%
6.4%
4.8%
26.8%
20.3%
2.1%
1.6%
6.3%
4.8%
As of Mar'14
With fiber wholesale
(estimated)
NTT group KDDI group Softbank group powerco ISP
vender ISP cable ISP other
Assumptions for the estimation:
• Following JAIPA’s assumption, 4
million users start using NTT
Docomo’s ISPs.
• Before the introduction of fiber
wholesale, these users had used
ISPs that were not related with
mobile operators.

Share of the Japanese mobile BB market
40.2%
42.5%
40.2%
40.4%
28.4%
28.1%
25.8%
25.8%
2.6%
2.6%
31.4%
29.4%
22.9%
22.6%
2.8%
2.9%
0% 25% 50% 75% 100%
mobile phone, grouped
mobile phone
mobile ISP, grouped
mobile ISP
NTT group
NTT Docomo
KDDI group
KDDI
UQ
Softbank group
Softbank
eAccess
Willcom
Wireless City Planning
(as of the end of Mar. 14)
Source：Created based on in MIC （2014） data
The future market share of
the overall ISP market may
look like this, if Internet
usage becomes 100%
mobile-based.

Summary of the market change
Until very recently, owing to the competitiveness in the fixed broadband ISP market that had been
maintained by the TBA and the NTT Law, the MIC did not have imminent needs to introduce special
rules for network neutrality.
Japanese broadband users have enjoyed the competition in the ISP market thanks to the SMP regulations,
including the business domain rules on NTT East/West, as well as interconnection requirements of the
TBA.
However, now that the situation has started to change, the MIC must start examining its future policy
options.
The evolution of mobile technology, accompanied with the introduction of fiber wholesale by NTT
East/West, is changing the dynamism in the broadband ISP market and making the market increasingly
oligopolistic.

Japan’s BB ecosystem becomes very similar to that of the US?
Physical
Facility
Broadband
Access
ISP
Retail
Service
Service
-based
Operator
ISP
Facility-based
Operator
(cableco)
ISP
The US
Mobile
Facility-based
Operator
(telco)
Japan, Now
Fixed BBMobile BB
Mobile Operators
ISP
MVNO ISP
Service
-based
Operator
Facility-based
Operator
NTT East/West
ISP
Fixed BB
Mobile
BB

Options for Japanese telecom policymakers
Structural remedy: Increasing competitiveness
1. Introduce more competitors
A) Mobile network operators
B) Mobile virtual network operators
2. Lower switching costs
A) Mobile number portability
B) Unlock SIMs
C) E-mail address portability
D) Personal data portability
3. Regulate marketing hype
A) Put a cap on excessive cash rebates
B) Set a minimum transparency
Behavioral remedy: Restricting SMP players
1. Self-regulation
A) Guideline for packet shaping
B) Guidelines for QoS measurement
2. Re-regulation
A) Tightening of regulations on category II facilities
B) Introduce tariff regulations
3. New network neutrality rules
A) Set the minimum QoS
B) Introduce higher transparency
C) Set the bright-line rules while leaving much room
for case-by-case discretion

Track record of some structural remedies is poor.
MVNOs may not contribute to competition in the
mobile market
◦ As of the end of 2014, the MVNO subscription was
25.52 million, 16.5% of the total mobile market.
◦ 65% of them came mainly from sharing spectrum
resources among the group operators; thus does not
contribute to increasing competition among MNOs.
◦ SIM-based MVNOs are for the second-tiers.
MNP did not significantly change the competitive
structure.
◦ Since the MNP introduction in Oct. 2006, Softbank
has become a big winner, and NTT Docomo is a
constant loser. However, the ranges of market share
changes have remained almost the same.
Unlocking SIMs and regulating marketing hype
have not yet worked very well.Source：Created based on the data in http://www.soumu.go.jp/menu_news/s-
news/01kiban04_02000088.html; http://www.soumu.go.jp/menu_news/s-news/01kiban02_02000151.html

Guidelines for Consumer Protection Rules for the TBA
Article 26 (Accountability of Terms and Conditions for the Service
Provision)
When any telecommunications carrier or any person who engages in
acting as an intermediary, agency or agent for concluding a contract for the
provision of telecommunications services of a telecommunications carrier
(hereinafter referred to as "telecommunications carrier, etc.") intends to
conclude a contract, or to act as an intermediary, agency or agent for
concluding a contract, with a person …, they shall, …, explain to the person
an outline of the charges and other terms and conditions for the provision
of the telecommunications services.
In 2009, the MIC revised the Guidelines and started to require ISPs
to notify subscribers of the details of their packet shaping
practices.

The Japanese fixed broadband is not as great as it looks.
0%
25%
50%
75%
0 10 20 30 40 50
Actual Speed/
Advertised Speed
Average Actual Download Speed（Mbps）
USA (2009)
UK (May 2010)
Australia (2008 Q4）
Ireland (2008)
Note: Due to the inconsistency between individual nation’s
estimates, this graph is for reference only.
Source: Created on the basis of Akamai, Epitiro, FCC, and the author.
Japan (Mar. 2014)
Japan (Mar. 2013)
Japan (Mar.-Apr. 2012)
Japan (Jan. 2011)
Japan (Nov. 2009)
Japan (Apr. 2015)

Behavioral remedies seem more promising.
Since increasing competitive pressure through cultivating competing operators takes time, the MIC
should rely more on disciplining the behaviors of the existing mobile operators.
1. Self-regulation
◦ Easy to implement but lack of formal authority, thus lack of legal certainty.
2. Re-regulation
Regulation on broadband tariff
◦ Strengthen SMP rules on the Category II designated telecommunications facilities
3. New network neutrality rules
◦ Set the minimum QoS
◦ Set the bright-line rules while leaving much room for case-by-case discretion
EU-like approach
FCC-like approach• Introduce higher transparency
• Terms and conditions, network management
• Actual QoS
Considering their intrusive nature, behavioral remedies may harm overall efficiency.

Summary
◦ Till the recent past, the MIC could let the market dynamism deal with the net neutrality issue
without introducing any special rules, because the Japanese broadband market was very
competitive.
◦ However, technological developments in mobile broadband have made the broadband access
market far more oligopolistic than it used to be. The recently introduced fiber wholesale by NTT
East/West may accelerate this trend.
◦ Since the mobile network operators are much less disciplined in the current Japanese telecom
framework, the MIC cannot sit back and do nothing.
◦ In order to deal with this situation, the MIC must increase competitive pressure in the market,
complemented by behavioral remedies on dominant players.

Recent development of net neutrality conditions in Japan

Recommandé

Recommandé

Contenu connexe

Tendances

Tendances (20)

Similaire à Recent development of net neutrality conditions in Japan

Similaire à Recent development of net neutrality conditions in Japan (20)

Plus de Toshiya Jitsuzumi

Plus de Toshiya Jitsuzumi (20)

Dernier

Dernier (20)

Recent development of net neutrality conditions in Japan

Notes de l'éditeur