Business and government policies curb Japans nationwide fiber network

Business and government policies curb Japan`s nationwide fiber network

Paul Mortensen

According to recent studies in Japan, the high cost of connecting fiber to the home is projected at nearly $5000 per subscriber. These forecasts have prompted the Ministry of Posts and Telecommunications to backpedal on its original plans to connect 50 million Japanese households with fiber by the year 2010.

Kenichiro Aritomi, director of policy at MPT, calls fiber to the home "a desirable goal that we must strive for, but that does not necessarily mean it will be established by 2010." Commented another government official, "[The ministry] is trying to admit it made a mistake." The ministry`s new plans anticipate the use of fiber-to-the-curb technology and the cost of curb-to-home connections paid by users.

Although the new goals should have no immediate effects because final network implementation is approximately 15 years away, the cost issues of a national fiber-optic network is raising industry concerns. Electronics company executives comment that the ministry has a history of embarking on ambitious long-term technology projects that are deemed obsolete by the time they are finished (see Lightwave, February 1992, page 12).

Business influence

A powerful group of Japan`s business leaders, known as Keidanren, is urging the ministry to hold up policies that are technologically neutral. The group contends that the government agency should not focus exclusively on a national fiber-optic network. It insists that telecommunications technology is changing rapidly and that other such transmission platforms as satellite, wireless cable, cable TV, integrated services digital network and radio, are already able to provide multimedia services without incurring the expense of a national fiber-optic subscriber network.

Keidanren has had some success in pushing the ministry to speed the pace of deregulation, which would allow private companies more freedom in installing a variety of telecommunications infrastructures and services in competition with Japan`s Nippon Telegraph and Telephone Co.

Another Keidanren concern deals with lower projected revenues for NTT. The company is experiencing decreased revenues from its basic telephone services. Consequently, NTT is increasingly reluctant to promote fiber to the home as a universal service because of the higher predicted costs. Another related issue focuses on the extent of personalized services delivered by fiber that will take root in Japan`s group-oriented society.

"Families today use the telephone an average of 3.7 times daily for an average of 10.5 minutes [per call]. Just because they get connected to fiber doesn`t mean they will suddenly start using the phone for 10 hours daily," says an investment analyst at Nomura Research Institute in Tokyo. In addition, a ministry survey indicates that to obtain multimedia services, people are only prepared to pay 1.3 to 1.5 times more than their present telephone bills.

Ministries argue

NTT`s enthusiasm for fiber installation has been blunted by the Ministry of Finance`s decision to whittle down the MPT`s proposal of a 66.5 billion yen ($0.7 billion) no-interest loan in 1995 to construct a national fiber-optic network to a 2.5%-per-annum loan of 30 billion yen ($0.3 billion).

By far, a greater industry concern this year is the MPT`s desired breakup of NTT. Plans have been aired by the government to divide NTT (a decision--if only to maintain the status quo--is expected this year) into regional companies--similar to the division of the Japan National Railways into six regional companies in the mid-1980s. To this end, the MPT has mandated that starting with fiscal year 1992, NTT begin disclosing financial information along operating lines.

As a warning of stronger action to come, the MPT issued a "linking order" to NTT last December to partially open monopolized telecommunications circuits to three new common carriers--Teleway Japan Corp., Japan Telecom and Dainidenden Inc. The order called for NTT to allow common carriers to use its public telephone network for virtual private network services. It is customary for Japanese companies to connect their offices inside and outside cities via private circuits. To date, only NTT is able to offer private services.

Significantly, this was the first time since telecommunications services were liberalized in 1985 that the MPT has taken such forceful action. As a result, NTT will open its network and face greater competition to stave off for a while longer any decision to break up the company. It, however, is balking at letting common carriers freely set their own prices for virtual private services. The common carriers counter that NTT has used its monopoly over local network services to reduce the profitability and competitiveness of its rivals in the long-distance market.

As for the present status of NTT`s fiber networks, the company has managed to install only 15,000 kilometers of optical cable in its network (as opposed to the United States` 10 million miles of fiber), and no fiber is emplaced in the local loop. Furthermore, only 60% of NTT`s switches are digital. Digital switches and digital data transfers lower operating costs because they facilitate remote diagnostic and record-keeping procedures.

The virtual absence of widespread fiber-optic networks has resulted in higher operating costs for NTT as compared to telephone companies in the United States, according to an analyst at investment company Jardine Fleming, Japan. In its defense, NTT claims its operating capacity has improved at a rate of 10 times every three years, more services are being offered at lower prices and switching capacity has quadrupled during the past five years.

Cable cost expected to decline

Although the price of one meter of fiber cable is still approximately 10 times that of copper cable, it has fallen from 650 yen-per-meter ($6.50) in fiscal year 1980 to 27 to 30 yen-per-meter ($0.30) this year, according to Furukawa Electric Co. Fiber cable cost is expected to fall to approximately 14 yen-per-meter ($0.14) by 1996.

To accelerate deployment of optical access networks, NTT is trying to drive down the cost of optical transmission equipment and fiber-optic cable systems. The company believes it can achieve cost parity with conventional copper access between the years 2000 and 2005.

Assuming that current industry plans for deploying fiber-optic networks remain intact (but most likely will not), industry spending for fiber communications is predicted to reach 5000 billion to 6000 billion yen ($60 billion) during the next 10 years. The company most likely to benefit is Sumitomo Electric Industries--Japan`s largest diversified cable and wire maker. It has a production capacity of nearly 1 million miles of fiber. The total national production stands at nearly 3 million miles. Other leading makers are Fujikura Ltd. and Furukawa Electric.

According to the Keidanren group, NTT`s control over local networks, upon which all common-carrier, long-distance companies are dependent, is a major deterrent to competition in the Japanese telecommunications market. The breakup of NTT along local, long-distance and cellular lines, as advocated by the MPT and the Keidanren group, would help to create a business climate in which competition would flourish.

Under current conditions, however, NTT has enough influence to deter the MPT from deregulating markets for some time. In this environment, Japan`s nationwide fiber-optic network will endure slow and uneven deployment. q

Paul Mortensen writes from Tokyo.

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