Business | INDUSTRY TRENDS

Web surfers turn to fiber optics

ADSL, dialup users beginning to defect to faster system

Japan boasts some of the fastest and cheapest broadband services in the world, thanks to fierce competition waged by new entrants like Softbank Corp. against telecommunications behemoth NTT Corp.

While today ADSL (asymmetric digital subscriber line) is the dominant form of high-speed Internet access here, much faster fiber-optic services are seeing a rapid rise in subscribers.

Unlike Softbank’s success in attracting more than 4 million users to its ADSL service, no one has yet captured a significant chunk of the fiber-optic service, called FTTH (fiber to the home), from NTT, which has a dominant market share.

But operators are setting bullish subscription targets and beefing up their marketing offensives.

Tokyo Electric Power Co., which started fiber-optic service in March 2002, said it hopes to attract 1 million users over the next four years. The country’s largest power utility would not supply current subscriber figures but implied the total is substantially less than 100,000.

“Fiber optics will have a significant share over the next few years, and we are working to encourage switch-over from ADSL and dialup users,” said Tetsuhiko Tashiro, head of Tepco’s fiber-optic service.

He said ADSL, with download speeds of up to 45 megabits per second, may be sufficient for heavy content like movies, but its upload capacity will prove too limited for interactive operations, such as TV phones.

ADSL, which uses existing copper telephone lines, is called “asymmetric” because its capacity for downstream data transmission is far greater than for upstream.

For instance, Softbank’s Yahoo BB ADSL offers up to 45 Mbps for downstream, or receiving data, but a mere 1 Mbps for upstream. FTTH’s maximum speed is 100 Mbps for both directions.

Yet even before consumers become fully aware of the merits of a fiber-optics connection, many households are already switching to FTTH, thanks to reductions in fees.

“When we first started offering the B Flet’s fiber-optic services, the version with up to 10 Mbps was priced at 5,000 yen per month, but now the one with up to 100 Mbps is offered for 4,500 yen,” said Toshiyasu Himori, senior manager of broadband business at NTT East Corp., the telecom giant’s regional unit in eastern Japan.

This is not much more expensive than Softbank’s monthly rate of 4,100 yen for its 45-megabit ADSL service, while rates for other ADSL services vary depending on access speed. Softbank has yet to enter the FTTH market.

NTT East and NTT West together have 840,000 users for their FTTH services.

“At first, (the) fiber-optics (option) was limited to business and heavy users, but now even people who have never used the Internet at home sign up for it as their initial choice,” Himori said.

Competition is especially intense for apartment buildings in urban areas, where FTTH operators offer deep discount rates to excel in the potentially lucrative market.

Installing fiber optics in existing apartments is often a cumbersome affair, as operators have to secure approval from a majority of residents in a given building.

Even though residents are given a choice between using the new fiber-optic network or other existing services, operators often face uninterested residents’ committees.

Yet fiber-optic operators say the rewards for providing services in apartments are greater than individual households both in terms of marketing and installation costs, because they can reach a number of potential users in a single building.

Cable music provider Usen Corp. has just launched a cut-rate fiber-optic service for apartment dwellers at 2,980 yen a month. The company said such a discount is possible because, instead of hooking up each apartment with fiber optics, the new service uses the building’s existing copper telephone lines.

The cross-over technology of using fiber optics outside the building and telephone lines inside cuts costs and can still provide a download speed of up to 100 Mbps, though the maximum upstream speed is half that, the company said.

Usen has been marketing fiber optics exclusively to urban apartment residents since it started the service in 2001.

“The apartment market is profitable,” said Joichiro Suzuki, Usen’s general manager of public relations. “It is cost-efficient.”

KDDI Corp., the second-largest telecom company in Japan, is also gearing up to grab a bigger slice of the growing market by targeting apartment residents.

Relatively slow to enter the fiber-optic race compared with its rivals, KDDI had only 21,000 subscribers as the end of March, yet it is aiming for 3 million users over the next few years.

Koichi Kataoka, general manager of KDDI’s broadband planning department, said latecomers can still catch up, as apartments have come to accept second providers as a way to offer residents a choice.

“The first one used to win everything, but today there is a spot for coming in second,” he said.

Shinji Moriyuki, a telecommunications analyst at Daiwa Institute of Research Ltd., said fiber optics will be the dominant form of Internet access within the next three to four years.

“There is not much price difference between fiber optics and ADSL when you include optional services in ADSL, like IP phone,” he said.

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