Tokyo Forum; November 21, 2002

"Broadband & Ubiquitous" Success for Hotspot Business

Shuji TOMITA (Senior Executive Vice President, CTO, NTT Communications)

This is a summary of Dr. Tomita's presentation at the Tokyo Forum on November 21, 2002.

I will talk about two things today. First, I will talk business models of hot spot and related services. Second, I will talk how we would like to become a good healthy operation company to provide services accepted by customers and that is the key for us to build a profitable business not with the stupid network but with an intelligent and wise network.

Having said that, I am going to present some idea as to how wireless LAN-based communications services can successfully be accepted by customers and how business itself can succeed as one of the leading hotspot based Internet access providers using wireless LAN technology under a unlicensed frequency.

Growth of Home Broadband Usage

Then, what is broadband? My definition of broadband is that it operates at much higher speed than dial-up and always on access service, accessing to the Internet with the open Internet protocol standard. It is growing rapidly in terms of the number of subscribers and the volume of traffic on a global basis, and it provides application and information sources for business and consumers.

Let me review some of the demography. We look at home broadband usage of Japanese market. Thanks to aggressive deregulation (deregulation is one of the important factors for the growth of our business) broadband started in the Japanese market in a serious way at the beginning of the year 2002. Broadband access means always providing own Internet access using ADSL technology over copper wire, fiber access to the home, and access over new CATV networks.

So, it is expected that there will be around five million ADSL access users toward the end of the year 2002. Actually in Japan a monthly increase in ADSL subscribers is between 400,000 to 500,000, which is a very big number. Also NTT East and West are now making their maximum efforts to provide the fiber-to-the-home solution in addition to ADSL service over their copper network.

Wireless LAN Market in Japan

Let me review the wireless LAN marketing in Japan. This is mostly hardware side. In addition to the wired broadband access introduced, wireless access using IEEE802.11b and as a next step 11a technology are also emerging in the consumer and corporate markets, because it is easy to install and convenient to move from location to location. The wireless market in terms of hardware is around 220 million. This is a Japanese market figure. And around 60% of that figure is for PC LAN IC cards.

Thanks to the development of service incorporating (1) the establishment of good standards and interoperability of systems, (2) cost reduction and (3) increasing functionality, wireless LAN has become ever more popular both at home and in the office use. What is more, the development of the new system based on 802.11a standards using 5.2 GHz bandwidth range with strong anti-interference and higher speed characteristics will further attract a number of users. We are already installing double stack hardware for both 802.11a and 11b bandwidth and protocol.

Many companies in Japan and traditional mobile and fixed line carriers started wireless LAN based hotspot services in Japan at the beginning of the year 2002. And five providers started commercial service in 2002, including my company, NTT Communications. In fact, within NTT group companies, two regional companies, NTT East and West, NTT DOCOMO, NTT Communications are now providing services. So, there is a strong internal competition in our group companies.

NTT Com's Hotspot Service

The term "hotspot" is a registered trademark of NTT Communications in Japan, even though it has become a very popular generic term for narrow area Local LAN services. Somebody told me that in US, the term "hotspot" is registered by Sun Microsystems.

NTT's hotspot service is distinguished in several ways, which I will explain. The first is its broader service coverage. We cover around 250 service locations at airports, hotels, restaurants and cafes, and plan to expand to1,000 by the end of the year 2003. The second is our low pricing. We charge a flat fee, only 1,600 yen. It is approximately 13 dollars per month. Customers are not required to belong to any ISP. The third is that our hotspot service is distinct in the sense of expandability to 11a at 5.2GHz bandwidth. As I explained, 11a provides much higher access speed than 11b, probably 30 to 40 megabits per second.

NTT Communications currently provides hotspots as a company branded service, but we provide this service on a wholesale basis to major ISPs in Japan and also OCN, that is NTT Communications' ISP business.

Key Issues for Hotspot Business

There are three major issues to consider for companies wanting to provide successful hotspot services. The first is a trade off between broader coverage and cost. The second is broader usage and easier accessibility versus retaining high customer security. The third is a higher value added services versus simple access to the Internet.

I will discuss one by one. First, broader coverage means that a larger Investment must be made and return to investment takes a longer time to recover. But service providers are now forced to offer services at relatively low prices, because of fierce competition among service providers and with other mobile base data and Internet services. So, the key is to provide wide coverage with low cost. For that purpose, we are promoting roaming service with other wireless providers. And we try to increase the value of hotspot access to disseminate area-oriented contents or community oriented contents, advertisement and application offerings. We also try to cover other areas by seamless service with existing mobile service such as PHS as well as second and the third generation mobile devices.

Second, let me talk about our security policy in offering services. We define two kinds of services. One is for general and simple Internet access. We provide clients with software on PC Platform, which enables general roaming service with other providers. Here, a security protection mechanism can be implemented using generally accepted technology, and this ensures an equivalent degree of protection to the one generally used on the Internet and enables customers to use this protection mechanism without extra software. For business users and applications which need higher security we are developing two security measures. One is for the wireless section between the client terminals and access points, and the other is an end-to-end security pass over the Internet and companies' intranet. Here two levels of services are provided. First, we use generally accepted IP virtual pass network (VPN) technology. Second, we offer a more stringent security pass as Internet verification service using IC cards.

New Value Provided by IPv6

Next, let me talk about new value with key technologies. Another technology that we are developing is the IPv6 based wireless and Internet access service. The audience from the U.S; might not be so interested in IPv6, but in Japan IPv6 is really a hot issue, and the question is how we can develop more Internet oriented service based on IPv6.

NTT Communications has been making a great deal of effort to develop IPv6 Internet services and applications in cooperation with the government, other ISPs, and also equipment developers. IP version 6 protocol is a successor to IP version 4 protocol, and is also known as the next generation Internet.

NTT/Verio, which is 100% owned by NTT Communications and is a U.S. and European based Internet and hosting service provider, is already offering commercial IPv6 Internet service not only in Japan but also globally in the U.S., Europe, and most major cities in Asia. We provide IPv6 access using existing IPV for networks, IPv6 native and also dual stack, meaning that you can use both IPv4 and v6 on your access line. We have additionally started IPv6 based hosting service at Otemachi Data Center in Tokyo and also NTT/Verio Data Center in San Jose, USA. This is a kind of trial service.

We will aggressively apply this technology to the wireless LAN Internet, which provides much higher ubiquitous access for home and mobile users. There are a number of advantages that IPv6 has over its predecessor. First, its "plug and play" capability, which makes it easy to set up a new application software for clients. Second, there is very large address space incorporated in the protocol, which means that service provides can assign a unique global address to every terminal which in turn allows direct access to an end terminal, rather than to the gateway. Third, it also enables peer-to-peer interactive communications among end clients in addition to client-to-server communications. The fourth advantage is a new end-to-end security feature, including the wireless section that is provided to customers. So, our hotspot base station is already equipped with IPv4/IPv6 dual stack protocol along with 11a and 11b dual band, as I mentioned earlier. The chairman of Sony, Mr. Idei, has already said that all the future Sony equipment will be equipped with IPV6 protocol, which will provide us with great business opportunities.

Key Technology and a Ubiquitous World

Finally, I would like to talk about a ubiquitous world driven by key technology. Our understanding of what the future Internet will be is that a network will be versatile in combining both wired and wireless access. As I already mentioned, wired access by ADSL and FTTH is developing very rapidly in Japan and wireless LAN service is also prepared because of its high speed nature, easy use and relatively small investment cost. It is also worth noting that migration to the third generation of mobile access should also be carefully studied.

NTT/Verio, as one of the leading Internet service providers in the Japanese market and the global market, will provides a backbone service, which incorporates roaming, authentication and hosting service along with application management, decentralized computing, dissemination of contents for our ISP business as well as partner ISPs combining various access services as previously mentioned.

We believe that these facts increase the value of the Internet for home and business users and we will contribute greatly to bringing about a ubiquitous world. Thank you very much for you attention.