Broadband Development and Network Neutrality: Experiences and Challenges in Japan

Broadband Development and Network Neutrality
Experiences and Challenges in Japan
Toshiya JITSUZUMI, D.Sc.,
Kyushu University
jitsuzumi@econ.kyushu-u.ac.jp
T. JITSUZUMI@Workshop on ICT Developments in EastAsia (Aug. 28-30, 2016 / Chuncheon, Korea)

Purposes and agenda
Japan has become the world's most
advanced IT nation thanks to the
collaborative efforts between the government
and public sectors. These collaboration was
one of the key factors that prevent net
neutrality issues from being a hot issue in
2007.
However, due to the technological and
market developments, the Japanese
government has to introduce a new approach
for the “new” net neutrality issue.
The purposes of this presentation is to
summarize the past development in Japan’s
policy and describe its challenges Japan
currently faces.
Agenda
1. Development of Japanese broadband
and related policies
2. Net neutrality in 2006
3. Emerging issues
1. Popularity of mobile broadband
2. Fiber wholesale
3. Net neutrality 2.0
◦ Zero-rating

History of deregulation in the Japanese telecom market
Source: MIC (2015a)
1985-1995
Age of the Telephone
1995-2005
Age of the Internet
and the Mobile Phone
2005-present
Age of Broadband
and the Smartphone

Staged Evolution of the Japanese Telecom Policy
Stage 1: pre-1985
Primary Beneficiary:
1. POTS users
Main Policy Instruments:
 Quasi-state monopoly
 Financing from users
 Limited use of network
Stage 3: post-2004
1. Service providers
2. Enhanced users
 Pro-competition policy
・ Asymmetric regulation
・ Ex-post control
・ MVNO
・ Network neutrality
etc.
Stage 2: 1985－2003
1. Enhanced users
2. POTS users
 Pro-competition policy
 Asymmetric regulation
 De facto standard
 Liberalized use of network
Stage 2-1: 1985－1996
Main Target:
Introduction of competition
 Infant industry protection
Stage 2-2: 1997－2003
Main Target:
Fair & effective competition
 Asymmetric regulation
“Quasi- state monopoly” “Industrial policy” “Minimum regulation”
Source: Jitsuzumi (2009)

Deregulation ⇒ More players ⇒ Fiercer competition
0
2,500
5,000
7,500
10,000
12,500
15,000
17,500
Number of telecom operators
Type1
Type2, special
Type 2, general
Registerd
Notified
Source: MIC (2015a)

…, and more value
CAGR 5.26%
Source: MIC (2015a)

Changes in the industrial structure
Source: MIC (2015a)

Policy initiatives for ICT development

Development of broadband availability in Japan
Source: Created using the data in MIC whitepaper and http://www.soumu.go.jp/main_content/000371278.pdf
75%
80%
85%
90%
95%
100%
Household coverage of broadband
UltraBB
BB
Broadband coverage has become ubiquitous. Price level for fixed BB is among the best.
Source: OECD (2015)

On the demand side,
0%
25%
50%
75%
100%
Penetration in Japan
mobile handset for
HH
smartphone for
HH
PC for HH
Internet for
individual
65.8% of HH has fixed broadband and
52.7% of the population has LTE (assuming
each has only one connection).
Penetration of access equipment has been
saturated mostly.
10
0
10
20
30
40
50
60
70
BWA
LTE
0
10
20
30
40
50
60
70
Subscribers of broadband (in million)
FTTH
DSL
CATV
FWA
Source: MIC (2015b)

Internet usage in Japan has been exploding
189209224 259 295 351 398 447 494
574
655
769
835
741 715 693 640 658 666
770
834
905 929
1,0861,051
216241257344390459540629708799
939
1,102
1,2061,235
1,363
1,5161,600
1,730
1,905
2,275
2,584
2,892
3,549
4,582
5,423
0
1,000
2,000
3,000
4,000
5,000
6,000
Sep-04
Mar-05
Sep-05
Mar-06
Sep-06
Mar-07
Sep-07
Mar-08
Sep-08
Mar-09
Sep-09
Mar-10
Sep-10
Mar-11
Sep-11
Mar-12
Sep-12
Mar-13
Sep-13
Mar-14
Sep-14
Mar-15
Sep-15
Gbps
Estimated total traffic
Upload
Download
CAGR = 16.6%
CAGR = 33.5%
Source: MIC’s website and CISCO VNI (http://www.cisco.com/c/m/en_us/solutions/service-provider/vni-forecast-highlights.html#)

… which makes the pipe clogged.
0%
25%
50%
75%
0 10 20 30 40 50 60 70 80
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)
Japan (May 2016)
Case of fixed BB Case of mobile BB

Essence of net neutrality
Source: Adapted from Fig. 1 in Jitsuzumi (2015)
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

Industrial structure of 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)

Rules that discipline NTT in the fixed broadband market.
Interconnection rule of the TBA
Source：Created using material
provided by the MIC.
SMP rules on NTT East/West
Rules of the NTT Law

Resulted market share in the 2000s
78.6%
49.1%
29.1%
13.5%
5.8%
3.8%
0% 20% 40% 60% 80% 100%
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 in the US
RBOCs Cablecos
Others

Fixed ISP market in Japan vs. in the US
NTT
communications
19.0%
NTTpulala
7.4%
other NTT
0.6%
KDDI
8.5%
J:COM
8.3%
other KDDI
2.1%
SoftbankBB
10.9%
Softbank telecom
1.2%
other SB
0.2%
Biglobe
9.4%
nifty
6.3%
sonet
6.7%
other vendors
2.7%
PowerCos
6.3%
cableCos
2.4%
other
8.2%
Subscriber share
Source: MIC (2015c) and FCC (2016)

Japanese approach on net neutrality in 2006
Consumers are entitled to:
1. use IP-based networks flexibly and
access the content/application layer freely.
2. connect to IP-based networks freely
through terminals that comply with
technical standards provided by laws and
regulations and these terminals may
connect to each other flexibly.
3. use the communication layer and the
platform layer free from discrimination at a
reasonable price.
Basic viewpoints that ensure net neutrality
1. Fairness in network cost sharing of
network enhancements
2. Fairness in network use when market
power exists on a specified layer
ISPs and network operators presented the
“Guideline for Packet Shaping” in May 2008
1. Increased traffic must be primarily dealt
with by network investments
2. Packet shaping should be targeted solely
at network congestion.
3. “Clear” and “individual” consent of users is
required, unless the practice is a pursuit of
lawful business.
4. Packet shaping must be nondiscriminatory
and adequate.
5. ISPs must disclose their packet shaping
information beforehand.

Japan’s approach on Net Neutrality in the fixed BB
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
NTT
communications
19.0%
NTTpulala
7.4%
other NTT
0.6%
KDDI
8.5%
J:COM
8.3%
other KDDI
2.1%
SoftbankBB
10.9%
Softbank telecom
1.2%
other SB
0.2%
Biglobe
9.4%
nifty
6.3%
sonet
6.7%
other vendors
2.7%
PowerCos
6.3%
cableCos
2.4%
other
8.2%
Subscriber share

New factors
Source: https://upload.wikimedia.org/wikipedia/commons/thumb/9/9e/Wifi.svg/2000px-Wifi.svg.png, http://asia.nikkei.com/Business/Companies/NTT-going-wholesale-with-fiber-broadband

Transition to the mobile broadband
◦ Technologically speaking, mobile access has come to
be a true substitute to the fixed counterpart.
◦ According to the MIC’s a survey, not only has the user
share of mobile broadband become larger than that of
fixed broadband, but its usage time is now longer.

Rules for mobile giants are much less strict.
Interconnection rule of the TBA
Source：Created using material
provided by the MIC.
SMP rules on mobile giants
KDDI and Softbank are pure private.
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.

, resulting in a more oligopolistic mobile ISP market.

Fiber wholesale by NTT will complete the mobile dominance.
Source: Press release by NTT Docomo (Jan. 29, 2015). https://www.nttdocomo.co.jp/english/info/media_center/pr/2015/0129_00.html,
http://www.ntt.co.jp/news2014/1405eznv/ndyb140513d_01.html
Virtual integration of NTT DoCoMo and
NTT East/West has became possible.

Japan’s approach on Net Neutrality in the mobile BB
T. JITSUZUMI@Workshop on ICT Developments in EastAsia (Aug. 28-30, 2016 / Chuncheon, Korea) 26
Mobile migration
Less tight control
on mobile SMPs
Fiber wholesale of
NTT East/West
NTT’s expected dominance in
the overall ISP market
NTT’s Dominance in
the fiber market
NTT group KDDI group Softbank
0% 25% 50% 75% 100%
Fixed ISP
Mobile ISP
The MIC may need a
new regulatory tool
for solving net
neutrality “problems,”
because it cannot
rely on the market
dynamism in the
near future.

New aspect of net neutrality
 How to discipline the market power in the
broadband ecosystem?
 Who can control OTT giants and how?
 Will telecom operators remain to be the
focus of broadband regulation?
 How should the government
protect/maximize consumers’ welfare?
 To what extent do mobile operators
monetize subscribers’ information?
 How should the OTT innovation policy be
designed?
 What kind of international cooperation is
required?
 Internet governance
Focus of net neutrality

Net Neutrality 2.0
How to coordinate the use of DPI
with the “privacy of
correspondence”?
How to guarantee that the use of DPI
does not harm the “freedom of
expression”?
Protect the interest of end users
Leverage into the
neighboring market
Is it efficient?
How to restrain the anti-competitive
behaviors?
How to discipline the behaviors of
SMPs in the BIAS market?
Control the monopolistic leverage of SMP
Users
OTT player
(Content/application
provider)
Fixed
Mobile
ISP
Unique
business
practices
Monetize the eyeballs
by the access control
(e.g., zero-rating)
Where is the limit of zero-rating practice?
How will it affect the OTT development?
Impact on copyright?
Use of Deep Packet Inspection
High
switching
cost
High
barriers
to entry
Help the development of new innovations
Can all this setting maintain the vibrant
nature of the broadband ecosystem?
Vertically
Integrated
Network
Operator

Zero rating in Japan by MVNOs
J:com mobile
LINE mobile
FREETEL
DTI
JCI
• Can MVNOs offer zero-rating program
under the Japanese definition of “net
neutrality”?
 Should MVNOs have a same level of
responsibility as MNOs?
 Can the higher competitiveness of
the MVNO market make the
difference?
• To what extent should the usage of DPI
be allowed from the viewpoint of
communication secrecy?
 Is “opt-in” required, or is “opt-out”
allowed?
Issues to be solved ASAP

What does this change mean for the Japanese NN?
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.
As the focus of the broadband usage moves towards bandwidth rich contents and toward in
the mobile environment, conditions that guaranteed the appropriateness of the Japan’s net
neutrality approach cannot be hold any longer.
◦ Fiber wholesale of NTT and MVNOs’ zero-rating start disturbing the market even more.
◦ The mobile operators are much less disciplined in the current Japan’s framework than the fixed.
Also, core of the net neutrality is changing: once a simple congestion control problem with a
flavor of competition policy now covers much wider “issues.”
A new approach have to be designed, which has to include a case-by-case judgment in order
to deal with the ever-changing condition.
◦ In order to minimize the regulatory uncertainty, MIC has to move fast to come up with a ground
rule that accommodates the market requirement.

However, …
Whether the ground rule can be drafted in a timely fashion depends on how ordinary users
perceive the network neutrality in their daily lives.
Image source:
http://www.channel4.com/media/image
s/Channel4/c4-
news/2014/September/10/10_net_neutr
ality_march_g_w.jpg
Know
the
concept
very
well
7.3%
Only
know
the term
20.5%
Have
not
heard of
it
72.2%
DO YOU KNOW WHAT NET
NEUTRALITY MEANS?
Case of Japan

References
Federal Communications Commission (FCC) (2008a) “Local telephone competition: Status as of December 31, 2006,”
http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-279231A1.pdf.
FCC (2008b) “Local telephone competition: Status as of June 30, 2007,” http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-280906A1.pdf.
FCC (2016) “2016 BROADBAND PROGRESS REPORT,” https://www.fcc.gov/document/fcc-releases-2016-broadband-progress-report
Jitsuzumi, T. (2009) “Conditions contributing to the success of the Japanese telecom policy over the past five decades,” Studies in Regional
Science, 38(4), 99101005.
Jitsuzumi, T. (2015) “Network neutrality and QoS transparency: An economic perspective,” IEICE Transactions on Communications, J98-B(10),
1030-1037.
Ministry of Internal Affairs and Communications (MIC) (2008) “Competition review in the telecommunications business field in FY 2007” (in
Japanese), http://www.soumu.go.jp/menu_news/s-news/2008/080905_3_bt.html.
MIC (2015a) “White Paper 2015: Information and Communications in Japan,”
http://www.soumu.go.jp/johotsusintokei/whitepaper/eng/WP2015/2015-index.html
MIC (2015b) “White Paper 2015: Information and Communications in Japan” (in Japanese),
http://www.soumu.go.jp/johotsusintokei/whitepaper/ja/h27/pdf/index.html
MIC (2015c) Evaluation of competition in the telecom business sector 2014 (in Japanese), http://www.soumu.go.jp/main_content/000392652.pdf.
Noam, E. M. (2009) “Media Ownership and Concentration inAmerica,” New York, NY: Oxford University Press.
OECD (2015) “OECD Digital Economy Outlook 2015,” OECD Publishing, Paris. DOI: http://dx.doi.org/10.1787/9789264232440-en

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