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NTT East, NTT West, and NTT Communications recently announced plans to spend an estimated JPY800bn (US$7.4bn) over the next five years to create the world’s largest fiber optic network. Specifically, the NTT companies will upgrade 30m connections nationwide to fiber thereby allowing them to offer a wider array of value-added services on top of traditional voice. As Japan analyst Jane Buenaventura states, “the justification for this expense is simple: survival in the increasingly competitive Japanese broadband market.”
As in many competitive markets, emerging alternative operators are presenting serious threats to the incumbent in Japan, NTT. Among the strongest competitors to NTT is Softbank’s Yahoo! BB, which controls 25% of the broadband market with its 4.7m lines, compared to NTT’s 27% (5m lines). States Buenaventura, “this is a poor showing for the incumbent given that it currently has a 50m-strong fixed line subscriber base.” Given that non-traditional players such as Tokyo Electric Power Company (TEPCO) and Kansai Electric Power Company (KEPCO) are also throwing their hat into the ring, the pressure is only getting stronger. Self-preservation is at the root of NTT’s decision to invest more heavily in its network as these operators steal share not only in high-speed Internet access, but also, increasingly, in traditional voice. Their tactics include innovative pricing plans that combine flat-rate high-speed connection charges with low-to-flat rates for IP telephony and video on demand (VOD). KDDI, which has also recently gained entrée, is bundling broadband services with mobile.
As Buenaventura states, “there are some US$40bn in revenues at stake in the residential broadband market alone.” Through the extension of its fiber optic network NTT hopes to dramatically increase its share of this sizeable opportunity (see Exhibit 1).
Exhibit 1: Residential Broadband Access Revenues in Japan, 2000-2009 (US$bn)
Source: Pyramid Research
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