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Let’s digital. That’s the message in the Ministry of Posts and Telecommunications 1999 White Paper on Communications in Japan. The annual survey, released earlier this month, reveals a nation poised for the millennium, its finger firmly on the mouse, clicking its way into the 21st century

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The report highlights the fact that 17 million Japanese, nearly 13.4 percent of the population, use the Internet. Japanese domains recorded a 240 percent increase (in gigabytes) in their capacity last year. Only five years after commercial Internet services opened shop in Japan, more than 10 percent of households are logging on; it took 13 years for PCs and 76 years for telephones to reach the same penetration level.

More people online means more e-commerce. Sure enough, MPT estimates that the volume of Internet-related commerce hit 2.598 trillion yen in 1998, more than double the previous year. ISPs marked a 160 percent increase in revenues, and Net-related business revenue climbed 40 percent.

Sounds good, right? Some folks think it sounds too good to be true. IDC, a private information consultancy, puts the number of Japanese netizens at 8 million. Some attribute the discrepancy to the 2.7 million Nifty users, who are online, but not on the Net, but even adding that group doesn’t close the gap between the two estimates.

Access Media International estimates that 15 million people, about 12 percent of the population, were online last year. DSA Analytics concluded in its survey of surveys (covered here March 3, 1999), that 14 million Japanese, some 10 percent of households, were online in 1998. A peek at NUA‘s archives, perhaps the best single statistical reference site on the Web, shows that the MPT numbers are pretty high.

Industry insiders think MPT may have fudged a bit. (Ministry officials had no comment.) Why would they bother?

Maybe the answer lies in some comparisons at the end of the white paper. The study notes that telecommunications charges in Tokyo were similar to those in London, Paris and Dusseldorf; New York was a lot cheaper. That would seem to discredit claims that high connection charges discourage Net use. (DSAA notes that 70 percent of Japanese Net users complain about the high prices they pay.)

We’re not just talking national bragging rights here. Reports of bureaucratic infighting between MPT and the Ministry of International Trade and Industry have been rife for years. While MPT claims the Internet as part of its turf — “telecommunications” — MITI sees the Net as part of its rightful territory — industry, and international trade, too.

But now the stakes are more serious. A couple of reports have highlighted the role the Internet played in the stunning U.S. economic growth of the last decade. One showed that all Internet-related revenues generated $301 billion in revenue in 1998, close to that of auto-industry sales. An information consultancy estimates that business-to-business e-commerce will increase 30 times between 1998 and 2003, reaching $1.3 trillion.

Look at it another way: In Monday’s Japan Times, economist Iwao Nakatani argued that the electronic economy accounted for 6.5 percent of U.S. GNP, and grew 65 percent in a year. The traditional economy, which accounts for 93.5 percent of GNP, registered zero growth. None. Zip.

Nakatani estimates that the electronic economy accounts for 1 percent of Japan’s GDP. Now, bracket those numbers within the country’s economic situation, and MPT policies become very important.

MITI forecasts that the Japanese Internet-user population will reach 58 million and e-commerce consumer spending in Japan will reach 3.2 trillion yen by 2003. But this depends on successful development of the online marketplace. You can almost hear the knives being sharpened.

In a recent interview, Russell Hayward, vice president and chief technology officer of DSAA, argued that the MITI forecasts “grossly underestimate the consumer potential” of the Net. Hayward was in Japan to discuss “Release 1999.2,” an update of DSAA’s earlier study.

He is convinced that the methodology of the MITI study — which was subcontracted to Andersen Consulting — doesn’t capture the dynamics of the Japanese market. Moreover, he believes that the results “have been held hostage to government policy not addressed in the model.”

There are a couple of reasons why he thinks this has happened. First, MITI’s constituency includes the computer-industry manufacturers that would profit from Internet commerce. But it also includes the distribution companies that will be squeezed out as e-commerce takes off.

Second, MITI supports cybermalls, a very particular model for e-commerce that consumers have almost uniformly rejected. The ministry bureaucrats are focusing on their natural constituencies as they try, says Hayward, “to micromanage” the development of life in cyberspace. In other words, cybershoppers, don’t be fooled into thinking that MITI has your best interests at heart either. Consumer interests are still at the bottom of the bureaucratic barrel.

Hayward thinks that foreign companies have a window of opportunity here that is rapidly closing. “This is an historic opportunity for foreigners. They can dominate cybershopping, and only relatively modest steps are required.

“But foreigners must get into the market before the government shapes the way consumers act, before acculturation.”

For anyone to profit, though, connection charges must come down. Survey data show that the amount of time Japanese surfers spend online has flattened out; they have hit their budget ceiling. And on the Net, time is money. “No element is as important to the development of e-commerce as time,” says Hayward. Security is a concern, but above all, people need to be able to surf at their leisure to find what they want. That won’t happen when they are watching phone charges add up. Let’s digital? Not at those prices.

(Brad Glosserman)