Tokyo Forum; November 21, 2002
Mobile Communications Market from the Perspective of Competition Policy
Hajime YAMADA (Toyo University and GLOCOM)
1. Two Categories of Competitions
In many nations, competition was introduced to telecommunication markets in the late 1980s. Competitions are divided into two categories according to their forms. The first is facilities-based competition. In this type, each telecommunication operator prepares its own telecommunication facilities to compete in services against each other. Preparation of telecommunication facilities requires a large scale of investment and time. That is the biggest characteristic of facilities-based competition.
The other category of competition utilizes other companys' facilities. For example, let us suppose that an enterprise leases long-distance circuits in bulk from a telecommunication operator and divides them into many small circuit groups for resale. If the first bulk leasing can get a discount, the enterprise can get armed to compete against others by providing the divided services at low prices. That is competition by utilizing facilities of other companies. In this way, an enterprise can start services as soon as it leases the other company's facilities. Moreover, not much investment is required. This kind of competition can be started within a shorter period of time and with smaller amount of investment than facilities-based competition.
It was Tokyo Denwa of Tokyo Telecommunication Network Co., Inc. (TTNet) that started competing by utilizing other company's facilities in the local network. The company had originally promoted facilities-based business of providing services by connecting telecommunication cables for corporate users in the early 1990s. However, laying cables underground or above the ground through power-line poles required cost and time. Meanwhile, other strong telecommunication operators provided similar telecommunication services. Therefore, TTNet could not acquire a large portion of the market.
Then in 1998 TTNet decided to provide local services by leasing other operator's local loops that already existed. The number of subscribers of this service reached three million at the end of March, 2001. There are still 2.5 million subscribers as of the end of March 2002. The number, however, only consists of less than five per cent of all the telephone subscribers in Japan. Even in the metropolitan area in which TTNet provides the Tokyo Denwa services, the ratio is no more than ten per cent. Services utilizing other company's facilities had difficulty in presenting attractiveness other than price, users did not broadly accept them.
2. The Mobile Phone Challenge
Mobile phones challenged full-scale facilities-based competition in the local market. Having been special telecommunication services for business people in the beginning, mobile phones have acquired the market little by little. However, especially since April of 1994 when mobile phone sets could be sold for free, the market started to expand rapidly. In 2000 subscribers of mobile phones finally outnumbered those of conventional wireline telephones. Now it is beginning to be considered normal that young people in their teens and twenties use mobile phones without subscribing to conventional telephones.
Thus, mobile phones became the biggest competitor against the incumbent local telephone services. They have bigger impact than Tokyo Denwa, which utilizes other company's facilities. Providing mobile phone services also requires investment for facilities, but the amount is much smaller compared to cabling each subscriber's home one by one. That was the possible reason that mobile phones could challenge facilities-based competition.
3. DSLs: A Competition Utilizes Other Companys' Facilities
Digital subscriber lines (DSLs) are spreading remarkably as a means to connect to the Internet, and have already collected more than three million subscribers. However, the service is provided through the leased local loops of the existing operators. Therefore, DSLs cannot be provided if the existing operator has changed any part of its local loops into optical fiber. The existing local loops are aging because most of the cables were laid more than ten years ago, which would result in unstable DSL services. Also, because each DSL operator utilizes the same facilities, there is little difference in performance, resulting in competition against each other with lowered prices as the only weapon.
4. Wireless LANs Join the Game
In contrast, wireless local area networks (LANs) have started joining facilities-based competition. Wireless LANs have a possibility to grow as a reliable means of Internet connection just as mobile phones acquired a big market by challenging facilities-based competition. When it develops it will change the telecommunication market drastically. Facilities-based competition among wireless LANs, cable Internet, and fiber optics along with DSLs will create a healthy market in the future.
Operation of wireless LANs is available in various forms including charged services by telecommunication operators and spot services provided free of charge.
Facilities for wireless LANs can be prepared directly by telecommunication operators, but there are also other ways. Providers of Hot Spot services may prepare their own facilities. Local governments or individuals on a voluntary basis are possible providers. Actual operations utilizing those facilities can be carried out voluntarily by non-profit organizations (NPOs) besides telecommunication operators. Thus, a characteristic of wireless LANs is that they can be realized through various combinations of facility preparation and operation.
At present, Third Generation (3G) mobile communication services face a big problem. The number of subscribers is not growing. One of the reasons is expensive price for data communication. It would be difficult to acquire new users with the system of charging 150 yen for a data transmission of one megabyte. The transmission speed itself is another reason because it is not fast enough for communicating with moving images.
Wireless LANs are fast enough even for transmitting moving images, and their service fees are low. Therefore, they have possibilities to be evaluated higher in the market than 3G mobile communication systems. Through utilization of wireless LANs, it will become possible not only to exchange information within local areas but also to substitute the existing terrestrial broadcastings that utilize radio waves. The number of services on the menu provided by utilization of wireless LANs will increase in the future.
Experimental services utilizing wireless LANs for information exchange within local areas have already begun. One of these operators is MIAKO Network in Kyoto, through which users can obtain sightseeing information for the city of Kyoto. The Network is also conducting an experiment of guiding pedestrians with visual disabilities by its wireless LAN.
5. Wireless LAN Policy Considerations
There are several policy issues to be confronted in order to develop wireless LANs. One of them is abolition of regulations. The government should not intervene unnecessarily in order to let many players cooperate freely with each other in providing services in the market. Negotiations should be done among the relevant players. It would be an appropriate attitude for regulatory organizations to intervene only when some disputes unsolvable among the players arise.
In due course, regulatory organizations will need to consider new policies for public utility privileges. There used to be at most five or ten telecommunication operators who laid facilities such as cables along the road, and it was considered natural to give public utility privileges to those operators. However, anybody can prepare wireless LAN facilities today. The number of telecommunication operators may increase explosively. Under such circumstances, fair and thorough discussions are required for deciding whom to give the privilege.
Redistribution of frequencies will also be needed. At present, segmented spectrums are assigned to radio and television broadcasting, radio control for aviation, meteorological radar and others. Under such circumstances, assignment of only part of the bandwidth of 2.4GHz for wireless LANs is insufficient for many people to freely utilize the service. It will result in interference and deterioration of data transmission speed.
Although there is newer and more effective technology, business operators utilizing old radio technology such as radio and television broadcasting do not have much incentive to update their technology. It is necessary to remove these operators that depend on old technology in order to secure a broader bandwidth. According to a trial calculation, what is necessary for all the Japanese people to utilize wireless LAN with the speed of around 50 megabits per second is to secure only the bandwidth of around 1GHz. The government should start a daring change of policies concerning spectrum reshuffle.