Broadband in Japan: The Brawl Begins

Startups take on NTT as the fledgling market takes off

Next to South Korea's sizzling 4-million-subscriber broadband market, Japan's high-speed Internet industry is embarrassingly lethargic. Companies generally lease expensive dedicated lines for high-speed data transmission, while individuals pay high fees for slow, dial-up service. Japan does have 570,000 broadband users, but the majority are cable-TV subscribers with Internet service. As a result, few Japanese have experienced broadband cyber-bliss, with its superfast downloads, always-on access, streaming video, and cool interactive features.

Now, however, Japan seems poised to catch up. When Tokyo Metallic Communications Corp. initiated service a year ago, it was the nation's sole provider of digital subscriber line, or DSL, service. Today, there are 11 providers, including all the major carriers. NTT East and NTT West, the dominant phone companies, provide DSL for $42 a month, or 23% less than what Tokyo Metallic charges. Japan Telecom Co., the third-largest phone company, has launched a competitively priced DSL service in major urban areas, while KDDI, the No. 2 carrier, is testing services in Tokyo and two other cities.

"This is going to be the year of DSL," says Sachio Semmoto, a former NTT engineer who co-founded eAccess, one of several startups that provide broadband access through ISPs or directly to subscribers. "Just like we had a fever for [Internet-enabled] cell phones, the same will happen for DSL."

Carriers and new providers alike are betting on projections showing that by 2004, the number of DSL subscribers in Japan will exceed 12 million. And DSL, which uses compression technology to soup up ordinary copper phone wire, is just part of the picture. The coaxial lines used in cable television can be adapted for the broadband delivery of interactive digital TV and Net access, while fiber optic broadband services also are expected to surge in coming years. By 2005, says the government's IT Strategy Council, Japan's broadband population should hit 30 million, or 50% of its total Internet population (chart).

The question is: How many players will still be around by the time the market matures? In these lean economic times, only big and rich players like NTT may be left standing after the inevitable shakeout. That's what's happening in the U.S., where entrenched telecoms are snapping up failed DSL startups. "It's a tough survival game," says Keizo Kawamura, a director at Tokyo Metallic. "Companies like ours lack sufficient financial backing."

Although Tokyo Metallic commands a 50% share of the fledgling DSL market, it is struggling to raise funds to expand services beyond the capital. The company plans to go public later this year, but it will be competing in a market that has lost much of its appeal for investors. Whether they'll find any Japa-nese offerings attractive is unclear. Still, according to industry projections, fixed-line broadband services are expected to generate $15 billion in revenue by 2005.

GREAT GAME. Indeed, boosters see broadband taking off in Japan much the way it has in Korea. Already, E-Samsung Japan, a subsidiary of Korea's Samsung Group, has started opening Net cafes styled after Korea's PC Bang outlets. Japanese companies are starting to jump in, too. Everyone from Internet service providers to entertainment companies is lining up to tap the new high-speed services. A major ISP, Fujitsu's @nifty, now offers multimedia content, such as Bloomberg Television, aimed at its broadband service subscribers.

All of this is great news for the millions of Japanese gamers who live for their next fix of PlayStation or Nintendo. Ken Kutaragi, head of Sony Computer Entertainment Inc., announced plans in late February to tap the new broadband services by setting up online gaming communities. SCE will form an alliance with former rival Sega and game-software house Namco to develop a new PlayStation-based terminal that will be rigged up to super-wired entertainment centers. "The broadband environment here is improving at revolutionary speed," raves Kutaragi. He says Japanese companies will soon launch their own version of PC Bang cafes. Sounds exciting. But first those fabulous broadband networks must be built--and paid for.

By Irene M. Kunii in Tokyo

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