Download pdf - Broadband Development and Network Neutrality: Experiences and Challenges in Japan

Broadband Development and Network NeutralityExperiences and Challenges in Japan

Toshiya JITSUZUMI, D.Sc.,Kyushu [email protected]

T. JITSUZUMI@Workshop on ICT Developments in East Asia (Aug. 28-30, 2016 / Chuncheon, Korea)

Purposes and agendaJapan has become the world's most advanced IT nation thanks to the collaborative efforts between the government and public sectors. These collaboration was one of the key factors that prevent net neutrality issues from being a hot issue in 2007.

However, due to the technological and market developments, the Japanese government has to introduce a new approach for the “new” net neutrality issue.

The purposes of this presentation is to summarize the past development in Japan’spolicy and describe its challenges Japan currently faces.


Agenda

1. Development of Japanese broadband

and related policies

2. Net neutrality in 2006

3. Emerging issues

1. Popularity of mobile broadband

2. Fiber wholesale

3. Net neutrality 2.0

◦ Zero-rating

History of deregulation in the Japanese telecom market


Source: MIC (2015a)

1985-1995Age of the Telephone

1995-2005Age of the Internet

and the Mobile Phone

2005-presentAge of Broadband

and the Smartphone

Staged Evolution of the Japanese Telecom Policy


Stage 1: pre-1985Primary Beneficiary:1. POTS usersMain Policy Instruments: Quasi-state monopoly Financing from users Limited use of network

Stage 3: post-2004Primary Beneficiary:1. Service providers2. Enhanced usersMain Policy Instruments: Pro-competition policy

・ Asymmetric regulation・ Ex-post control・ MVNO・ Network neutrality

etc.

Stage 2: 1985－2003Primary Beneficiary:1. Enhanced users2. POTS usersMain Policy Instruments: Pro-competition policy

Asymmetric regulation De facto standard

Liberalized use of network

Stage 2-1: 1985－1996Main Target: Introduction of competition

Main Policy Instruments: Infant industry protection

Stage 2-2: 1997－2003Main Target: Fair & effective competition

Main Policy Instruments: Asymmetric regulation

“Quasi- state monopoly” “Industrial policy” “Minimum regulation”

Source: Jitsuzumi (2009)

Deregulation ⇒ More players ⇒ Fiercer competition


0

2,500

5,000

7,500

10,000

12,500

15,000

17,500

Number of telecom operators

Type1

Type2, special

Type 2, general

Registerd

Notified

Source: MIC (2015a)

…, and more value


CAGR 5.26%

Source: MIC (2015a)

Changes in the industrial structure


Source: MIC (2015a)

Policy initiatives for ICT development


Development of broadband availability in Japan


Source: Created using the data in MIC whitepaper and http://www.soumu.go.jp/main_content/000371278.pdf

75%

80%

85%

90%

95%

100%

Household coverage of broadband

UltraBB

BB

Broadband coverage has become ubiquitous. Price level for fixed BB is among the best.

Source: OECD (2015)

On the demand side,

0%

25%

50%

75%

100%Penetration in Japan

mobile handset forHHsmartphone forHHPC for HH

Internet forindividual


65.8% of HH has fixed broadband and 52.7% of the population has LTE (assuming

each has only one connection).

Penetration of access equipment has been saturated mostly.

10

0

10

20

30

40

50

60

70

BWA

LTE

0

10

20

30

40

50

60

70

Subscribers of broadband (in million)

FTTHDSLCATVFWA

Source: MIC (2015b)

Internet usage in Japan has been exploding


189 209 224 259 295 351 398 447 494 574

655 769 835

741 715 693 640 658 666 770 834 905 929

1,086 1,051

216 241 257 344 390 459 540 629 708 799 939

1,102 1,206 1,235 1,363 1,516 1,600 1,730

1,905

2,275 2,584

2,892

3,549

4,582

5,423

0

1,000

2,000

3,000

4,000

5,000

6,000

Sep

-04

Mar

-05

Sep

-05

Mar

-06

Sep

-06

Mar

-07

Sep

-07

Mar

-08

Sep

-08

Mar

-09

Sep

-09

Mar

-10

Sep

-10

Mar

-11

Sep

-11

Mar

-12

Sep

-12

Mar

-13

Sep

-13

Mar

-14

Sep

-14

Mar

-15

Sep

-15

Gbp

s

Estimated total traffic

Upload

Download

CAGR = 16.6%

CAGR = 33.5%

Source: MIC’s website and CISCO VNI (http://www.cisco.com/c/m/en_us/solutions/service-provider/vni-forecast-highlights.html#)

… which makes the pipe clogged.


0%

25%

50%

75%

0 10 20 30 40 50 60 70 80

Actual Speed/Advertised Speed

Average Actual Download Speed（Mbps）

USA (2009)

UK (May 2010)

Australia (2008 Q4）

Ireland (2008)

Note: Due to the inconsistency between individual nation’s estimates, this graph is for reference only. Source: Created on the basis of Akamai, Epitiro, FCC, and the author.

Japan (Mar. 2014)

Japan (Mar. 2013)

Japan (Mar.-Apr. 2012)

Japan (Jan. 2011)

Japan (Nov. 2009)

Japan (Apr. 2015)

Japan (May 2016)

Case of fixed BB Case of mobile BB

Essence of net neutrality


Source: Adapted from Fig. 1 in Jitsuzumi (2015)

Low barriers to entry

High barriers to entry

Demand management

Capacity development

Short-term solution

Long-term solution

How to achieve efficient and fair traffic management in the dynamic condition?

How to calculate the optimal capacity and how to finance it?

Congestion control over the Internet backbone facing the exaflood of network demand Controlled by vertically

integrated network providers

Leverage into the neighboring market

How to discipline the behaviors of SMPs in the communication market?

Is it efficient?How to restrain the anti-competitive behaviors?

Control the monopolistic leverage of SMPs

ISPs

Network operators

UsersContent providers

Application providers

Natural monopoly

Unique business practices

Industrial structure of fixed broadband


Local Loop Unbundling(dark fiber, dry copper, and line-sharing)

Service-based

Operator

ISP

Facility-basedOperator(cableco)

ISP

Local Loop Unbundling (dry copper)

The USJapan

Wholesale or Interconnection

NTT-east/west

AccessWholesaler

Independent ISP

Service-based

Operator

Facility-basedOperatorNTT East/West

ISP

PhysicalFacility

BroadbandAccess

ISPRetail

Service

Facility-based Operator(telco)

Rules that discipline NTT in the fixed broadband market.


Interconnection rule of the TBA

Source：Created using material provided by the MIC.

SMP rules on NTT East/West

Rules of the NTT Law

Resulted market share in the 2000s


78.6%

49.1%

29.1%

13.5%

5.8%

3.8%

0% 20% 40% 60% 80% 100%

BB access line wholesale market

BB access market

BB ISP market

NTT Group

Powercos

Other telcos

Cablecos

Others

Municipalities

Estimated market share in Japan

Source: Created on the basis of MIC (2008), FCC (2008a, 2008b), and Noam (2009)Note 1: ISP shares in the US are based on revenues in 2006 (Noam, 2009), which include satellite Internet; the shares in other markets are based on

the FCC’s line count and include fixed lines only.Note 2: RBOCs stand for Regional Bell Operating Companies, telcos for telecommunications companies, powercos for power companies, and cablecos

for cable companies.

43.6%

36.7%

36.3%

53.9%

53.9%

44.2%

0% 20% 40% 60% 80% 100%

Estimated market share in the US

RBOCs Cablecos

Others

Fixed ISP market in Japan vs. in the US

NTT communications

19.0%

NTTpulala7.4%

other NTT0.6%

KDDI8.5%

J:COM8.3%

other KDDI2.1%

SoftbankBB10.9%

Softbank telecom1.2%

other SB0.2%

Biglobe9.4%

nifty6.3%

sonet6.7%

other vendors2.7%

PowerCos6.3%

cableCos2.4%

other8.2%

Subscriber share


Source: MIC (2015c) and FCC (2016)

Japanese approach on net neutrality in 2006Consumers are entitled to:

1. use IP-based networks flexibly and access the content/application layer freely.

2. connect to IP-based networks freely through terminals that comply with technical standards provided by laws and regulations and these terminals may connect to each other flexibly.

3. use the communication layer and the platform layer free from discrimination at a reasonable price.

Basic viewpoints that ensure net neutrality

1. Fairness in network cost sharing of network enhancements

2. Fairness in network use when market power exists on a specified layer


ISPs and network operators presented the “Guideline for Packet Shaping” in May 2008

1. Increased traffic must be primarily dealt with by network investments

2. Packet shaping should be targeted solely at network congestion.

3. “Clear” and “individual” consent of users is required, unless the practice is a pursuit of lawful business.

4. Packet shaping must be nondiscriminatory and adequate.

5. ISPs must disclose their packet shaping information beforehand.

Japan’s approach on Net Neutrality in the fixed BB


Interconnection rulesSMP Regulations

NTT Law

• Guidelines for Consumer Protection Rules for the TBA

• Measurement of mobile QoS

• Anti-DoS/DDoS Guideline

• Packet Shaping Guideline

Co-regulation?

Create Competitive Conditions

NTT communications

19.0%

NTTpulala7.4%

other NTT0.6%

KDDI8.5%

J:COM8.3%

other KDDI2.1%

SoftbankBB10.9%

Softbank telecom1.2%

other SB0.2%

Biglobe9.4%

nifty6.3%

sonet6.7%

other vendors2.7%

PowerCos6.3%

cableCos2.4%

other8.2%

Subscriber share

New factors


Source: https://upload.wikimedia.org/wikipedia/commons/thumb/9/9e/Wifi.svg/2000px-Wifi.svg.png, http://asia.nikkei.com/Business/Companies/NTT-going-wholesale-with-fiber-broadband

Transition to the mobile broadband


◦ Technologically speaking, mobile access has come to be a true substitute to the fixed counterpart.

◦ According to the MIC’s a survey, not only has the user share of mobile broadband become larger than that of fixed broadband, but its usage time is now longer.

Rules for mobile giants are much less strict.


Interconnection rule of the TBA

Source：Created using material provided by the MIC.

SMP rules on mobile giants

KDDI and Softbank are pure private.

NTT DoCoMo is one of the major members of the NTT group and 59.27% of its shares is owned by NTT holding company; however, it is free to expand its business domain.

◦ NTT DoCoMo provides Internet access services on its own.

, resulting in a more oligopolistic mobile ISP market.


Fiber wholesale by NTT will complete the mobile dominance.


Source: Press release by NTT Docomo (Jan. 29, 2015). https://www.nttdocomo.co.jp/english/info/media_center/pr/2015/0129_00.html, http://www.ntt.co.jp/news2014/1405eznv/ndyb140513d_01.html

Virtual integration of NTT DoCoMo and NTT East/West has became possible.

Japan’s approach on Net Neutrality in the mobile BB

T. JITSUZUMI@Workshop on ICT Developments in East Asia (Aug. 28-30, 2016 / Chuncheon, Korea) 26

Mobile migration

Less tight control on mobile SMPs

Fiber wholesale of NTT East/West

NTT’s expected dominance in the overall ISP market

NTT’s Dominance in the fiber market

NTT group KDDI group Softbank

0% 25% 50% 75% 100%

Fixed ISP

Mobile ISP

The MIC may need a new regulatory tool

for solving net neutrality “problems,”

because it cannot rely on the market dynamism in the

near future.

New aspect of net neutrality


How to discipline the market power in thebroadband ecosystem? Who can control OTT giants and how? Will telecom operators remain to be the

focus of broadband regulation? How should the government

protect/maximize consumers’ welfare? To what extent do mobile operators

monetize subscribers’ information? How should the OTT innovation policy be

designed? What kind of international cooperation is

required? Internet governance

Focus of net neutrality

Net Neutrality 2.0


How to coordinate the use of DPIwith the “privacy of correspondence”?How to guarantee that the use of DPI does not harm the “freedom of expression”?

Protect the interest of end users

Leverage into the neighboring market

Is it efficient?How to restrain the anti-competitive behaviors?How to discipline the behaviors of SMPs in the BIAS market?

Control the monopolistic leverage of SMP

Users

OTT player(Content/application

provider)

FixedMobile

ISP

Unique business practices

Monetize the eyeballs by the access control

(e.g., zero-rating)Where is the limit of zero-rating practice?How will it affect the OTT development?Impact on copyright?

Use of Deep Packet InspectionHigh

switching cost

High barriers to entry

Help the development of new innovations

Can all this setting maintain the vibrant nature of the broadband ecosystem?

Vertically Integrated Network Operator

Zero rating in Japan by MVNOs


J:com mobile

LINE mobile

FREETELDTI

JCI

• Can MVNOs offer zero-rating program under the Japanese definition of “net neutrality”? Should MVNOs have a same level of

responsibility as MNOs? Can the higher competitiveness of

the MVNO market make the difference?

• To what extent should the usage of DPI be allowed from the viewpoint of communication secrecy? Is “opt-in” required, or is “opt-out”

allowed?

Issues to be solved ASAP

What does this change mean for the Japanese NN?


Till the recent past, the MIC could let the market dynamism deal with the net neutrality issue without introducing any special rules, because the Japanese broadband market was very competitive.

As the focus of the broadband usage moves towards bandwidth rich contents and toward in the mobile environment, conditions that guaranteed the appropriateness of the Japan’s net neutrality approach cannot be hold any longer.◦ Fiber wholesale of NTT and MVNOs’ zero-rating start disturbing the market even more.◦ The mobile operators are much less disciplined in the current Japan’s framework than the fixed.

Also, core of the net neutrality is changing: once a simple congestion control problem with a flavor of competition policy now covers much wider “issues.”

A new approach have to be designed, which has to include a case-by-case judgment in order to deal with the ever-changing condition.◦ In order to minimize the regulatory uncertainty, MIC has to move fast to come up with a ground

rule that accommodates the market requirement.

However, …Whether the ground rule can be drafted in a timely fashion depends on how ordinary users perceive the network neutrality in their daily lives.


Image source: http://www.channel4.com/media/images/Channel4/c4-news/2014/September/10/10_net_neutrality_march_g_w.jpg

Know the

concept very well

7.3%Only know

the term20.5%

Have not

heard of it

72.2%

DO YOU KNOW WHAT NET NEUTRALITY MEANS?

Case of Japan

ReferencesFederal Communications Commission (FCC) (2008a) “Local telephone competition: Status as of December 31, 2006,”

http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-279231A1.pdf.

FCC (2008b) “Local telephone competition: Status as of June 30, 2007,” http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-280906A1.pdf.

FCC (2016) “2016 BROADBAND PROGRESS REPORT,” https://www.fcc.gov/document/fcc-releases-2016-broadband-progress-report

Jitsuzumi, T. (2009) “Conditions contributing to the success of the Japanese telecom policy over the past five decades,” Studies in Regional Science, 38(4), 99101005.

Jitsuzumi, T. (2015) “Network neutrality and QoS transparency: An economic perspective,” IEICE Transactions on Communications, J98-B(10), 1030-1037.

Ministry of Internal Affairs and Communications (MIC) (2008) “Competition review in the telecommunications business field in FY 2007” (in Japanese), http://www.soumu.go.jp/menu_news/s-news/2008/080905_3_bt.html.

MIC (2015a) “White Paper 2015: Information and Communications in Japan,” http://www.soumu.go.jp/johotsusintokei/whitepaper/eng/WP2015/2015-index.html

MIC (2015b) “White Paper 2015: Information and Communications in Japan” (in Japanese), http://www.soumu.go.jp/johotsusintokei/whitepaper/ja/h27/pdf/index.html

MIC (2015c) Evaluation of competition in the telecom business sector 2014 (in Japanese), http://www.soumu.go.jp/main_content/000392652.pdf.

Noam, E. M. (2009) “Media Ownership and Concentration in America,” New York, NY: Oxford University Press.

OECD (2015) “OECD Digital Economy Outlook 2015,” OECD Publishing, Paris. DOI: http://dx.doi.org/10.1787/9789264232440-en


http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-279231A1.pdf

http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-280906A1.pdf

https://www.fcc.gov/document/fcc-releases-2016-broadband-progress-report

http://www.soumu.go.jp/menu_news/s-news/2008/080905_3_bt.html

http://www.soumu.go.jp/johotsusintokei/whitepaper/eng/WP2015/2015-index.html

http://www.soumu.go.jp/johotsusintokei/whitepaper/ja/h27/pdf/index.html

http://www.soumu.go.jp/main_content/000392652.pdf

http://dx.doi.org/10.1787/9789264232440-en