Roused into action by Softbank Corp.’s foray into Internet Protocol telephony last April, major telecommunications carriers and Internet service providers soon plan to launch their own commercial end-to-end IP phone services via broadband lines.

Internet service providers, including NTT Communications Corp.’s OCN, NEC Corp.’s Biglobe, Sony Corp.’s So-net, Japan Telecom Co.’s ODN and Matsushita Electric Industrial Co.’s hi-ho, will start offering IP phone services to subscribers in March.

Others, including KDDI Corp.’s Dion, Fujitsu Ltd.-affiliated @nifty and Tokyo Telecommunications Network Co.’s Tokyo Denwa Internet, will do so by the end of May.

Although IP telephony is just a broadband application, industry experts say it could trigger drastic changes in telecommunications services.

Kenshi Tazaki, managing director and principal analyst at Gartner Japan Ltd., said advancement of IP technology will lead to various broadband services, including real-time TV phones and simultaneous transcription of conversation content.

“An environment to promote such services is currently being created” with the start of broadband-based IP phone services, he said.

For the time being, IP phone operators are using the new service, even if it does not make money, to attract more broadband subscribers, as they believe the profitability of IP telephony lies in its future rather than the present.

Last April, the Softbank group launched its BB Phone IP phone service via asymmetrical digital subscriber line technology, which enables data to be transmitted over conventional telephone lines at a high speed.

So far, it has been successful. Softbank said it had 1.29 million subscribers to its IP phone service as of December. They are seen as the major reason behind the jump in its ADSL broadband users from 410,000 in January 2002 to 1.69 million in December — roughly 30 percent of Japan’s 5.65 million DSL subscribers at that time.

The surge in Softbank subscribers was due largely to its aggressive promotional tactics — giving away modems for IP telephony and offering a free two-month trial, according to company spokeswoman Chitose Nii.

Softbank’s strategy and its success shocked other broadband service companies and pushed them into offering IP phone services, realizing that they may lose potential broadband subscribers.

“We don’t think so many people will switch (from dial-up) to broadband just to gain access to IP phone services,” said Kiyoshi Shinano, a consumer business unit manager at Japan Telecom. “But if we don’t offer it, we won’t be selected by consumers thinking of subscribing to broadband services.”

Rising to the challenge, major telecom carriers and Internet service providers have formed alliances to increase their combined shares of the broadband service market. As IP phone calls between subscribers in the same group are free, they believe the bigger they make the group, the more subscribers will be attracted to their service.

IP telephony’s major attraction is low calling rates, largely made possible by the low cost involved in building and maintaining networks. For instance, the charge for a three-minute local or long distance call, as well as a three-minute call to the United States, is 7.5 yen under the BB Phone service.

Conventional services charge about 8.5 yen for a three-minute local call, 20 yen to 80 yen for a three-minute long distance call and 15 yen to 60 yen for a one-minute call to the U.S.

Experts say the low call rates are probably more attractive to corporate users than individual consumers.

“Companies can reduce dialing costs by switching phone lines for toll-free numbers to IP telephones and outsourcing extension telephone management to IP telephone operators,” Gartner’s Tazaki said, noting that they can keep their NTT phone lines in case of emergencies. Some telecom carriers have already launched such businesses to meet the needs of corporate clients.

But for the time being, industry experts say, technical problems will relegate IP telephony to “second telephone” status. For instance, calls to emergency numbers such as 110 and 119 and toll-free numbers are transmitted through conventional lines, and such services as displaying the caller number are not available.

In addition, IP phone services cannot link mobile phones without an agreement on mutual access between IP phone firms and mobile phone carriers.

Given such technical obstacles, it is difficult to predict the pace at which IP telephony will proliferate. But such problems are being addressed, and an optimistic estimate shows that about 6 million people might be hooked up to IP phones by around 2005 or 2006, when broadband subscribers reach some 20 million, according to Tazaki.

In fact, beginning this summer, when NTT’s two regional carriers finish revamping their systems, IP phone users will be able to receive calls from conventional phone users through IP networks.

KDDI Corp. President Tadashi Onodera recently said the penetration of IP phones will reduce conventional phone traffic, and experts say this in turn will accelerate competition among telecom carriers.

“Carriers’ dial call revenues could fall by as much as 20 percent to 30 percent” in a few years due to advances in telecommunication services, Tazaki said, adding that in such a rapidly changing market, the key to survival is to create value-added broadband programs that meet consumer and corporate demands.

As part of carriers’ efforts, for example, Japan Telecom is developing a “stereo telephone” service, which would enable IP phone users to feel as if they were talking face to face.

Because broadband will make the fusion of telecommunications and broadcasting services possible, telecom firms may be able to enter new businesses, including advertising and on-demand video services, said Masato Mori, general manager at Japan Telecom’s marketing strategy department.

“Since price competition (stemming from low-rate IP phone services) can only end up as a war of attrition, we have to create new broadband services (to secure profits),” Mori said. “We’ll try to incorporate services from different industries to come up with businesses (that meet customer demand).”

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