Multiple system operators in Japan seek interactive services over fiber-optic networks

Multiple system operators in Japan seek interactive services over fiber-optic networks


Two new multiple system operators in Tokyo--Jupiter Telecommunications Co. Ltd. and Titus Communications Corp.--want to improve Japan`s unprofitable cable-TV industry by providing interactive services over fiber-optic networks. However, in their quest, these operators face considerable competition and obstacles.

A survey of the Japanese cable-TV industry undertaken last March by the Ministry of Posts and Telecommunications shows that since 1994, the number of subscribers has increased by 35%, to 2.2 million, while the number of operators rose from 140 to 153. Of these operators, only 48 posted single-year profits, up from 31 operators last year. The improvement can be traced in part to cable-TV deregulation in the past two years, allowing the creation of multiple system operators, the provision of telephony and interactive services, and 33% foreign-capital participation.

Multiple system operators hope to win the few remaining franchises from the Ministry and take over existing system operators. One obstacle confronting them is that most operators are running at a loss, and their debts will become the responsibility of the multiple system operators. In these cases, success depends on economies of scale to cancel that debt and to cut operational costs through network mergers.

Successful diffusion of services may depend on lower subscription prices to compete with existing satellite broadcasters, the offer of telephony and interactive services--for instance, home-shopping--on hybrid fiber/coaxial-cable systems or upgraded coaxial-cable systems, and additional Japanese-language programming, which may be difficult because there are few independent producers who can take on extra work.

Joint venture

Titus Communications Corp., set up last January, is a joint venture of Itochu, Toshiba, US West, and Time Warner Entertainment in Japan. Investment is spread equally among the four partners. The use of convertible bonds, according to a company spokesman, has overcome the Ministry`s 33% foreign-participation limit. The company has won four franchises and submitted applications to the Ministry for 10 other areas. Its aim is to form a network of two million households by the year 2000. In the first year, Titus plans to have 60,000 households in Kashiwa connected to cable and by the year 2000, at least 200,000 households. This franchise plans to offer 30 channels of near video-on-demand on an interactive hybrid fiber/coaxial-cable system that will be imported from the United States--less expensive than a locally manufactured system. The trunk line will be broadband fiber operating at 750 megahertz, and feeder lines will be coaxial cables.

Jupiter Telecommunications, also set up last January, is a joint venture between Sumitomo Corp., which owns 60%, and Tele-Communications Inc. The US$56 million company operates four cable systems in Tokyo--Suginami, Nerima, Koganei and Fuchu--and has 25,000 subscribers.

Cable telephony is being tested on Suginami`s hybrid system which also offers 35 channels of satellite programming. The systems will offer Internet services in a few months. Jupiter has new franchises in Chigasaki, Kanagawa, and Hoya and Kokubuji, both in Tokyo, where it plans to install hybrid fiber/coaxial-cable systems. Jupiter`s overall target is 2 million subscribers in the year 2000, with possible network hook-ups of 5 million households.

A newcomer to the cable-TV industry is Secom Co. in Tokyo, a leading home-security company. In July 1996, Secom, in a joint venture with several other companies--Tomen Corp., Mitsui & Co., Fujitsu Ltd. and IBM Japan--will provide an interactive cable-TV service in two regions of western Tokyo. The new company, known as Musashino-Mitaka-Cable-TV Inc., will use a hybrid interactive or near video-on-demand system to offer 30 channels. Tomen is also talking with Continental Cable Vision Inc. with the aim of setting up an equally owned multiple system operator known as CT Telecom; their target is one million subscribers by the year 2000.

Subscriber lure

Multiple system operators hope to lure more subscribers by offering interactive home-shopping and telephony services. Charles Carrol, former senior vice president of Telewest Communications plc., the largest cable and telephony operator in the U.K., will be in charge of the installation of these services. For the necessary hook-up to Nippon Telegraph & Telephone`s network, Titus faces some competition from Jupiter, which has been talking with Nippon since August, although no deal has been announced.

Titus sees Jupiter as a partner, and not as a rival in negotiations. The companies share information, but they have no joint-negotiating position. Both operators intend to move as quickly as possible to reach an agreement with Nippon. Titus predicts that the negotiations for technical and operational matters will proceed quickly because it already has overseas models to present and discuss. Access charges have been the subject of a long-standing dispute between Nippon and new common carriers such as Japan Telecom for connecting the company`s long-distance lines to Nippon`s local lines.

Cable-TV suppliers, however, face different problems than long-distance carriers. For example, cable-TV companies will have their own local networks, but will need to access Nippon`s long-distance lines to link cable-TV networks. Sumitomo and Itochu have discussed interconnection of their cable networks and sharing of network hardware to reduce costs; such an effort would form the second largest local network after Nippon. But the companies need Nippon`s cooperation if they hope to roll-out interactive cable TV nationally. Issues to be resolved include the access charge, and the cost and time required for network modification. q

Paul Mortensen writes from Tokyo.

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