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Emerging Technology Report #28: October 17, 2002

Capital Investment in FTTH Optical Access Networks to Expand in Japan

Global Emerging Technology Institute

FTTH (fiber-to-the-home) connectivity in the U.S. is growing at triple-digit rates and is forecast to expand to more than 14 times its present size by 2004, according to a report recently published by market research firm Render Vanderslice & Associates. While RBOCs and leading cable MSOs (multiservice operators) wait in the wings, developers of large housing projects, municipalities, carriers associated with public utilities, and small, independent service providers are undertaking ambitious fiber buildouts and offering services to go with them, the report says.

In Japan, broadband network users reached 4 million in March 2002, due to the rapid expansion of affordable ADSL services offered by independent service providers. ADSL also enables inexpensive IP phone services, making incumbent carriers' metallic cable fixed telephone service revenues to shrink further. In response to the drastic change of the business environment, NTT is now trying to shift to a new business model centered around broadband communications service offerings. NTT have deployed optical fiber networks nearly nationwide (except the last-miles to residential users) for more than 10 years and seriously started offering FTTH services in August 2001.

NTT plans to deploy more optical access network facilities to offer FTTH connectivity to customers quickly. According to its FY2002-2004 capital investment plan, NTT will keep the current annual capital expenditure level of about 2.2 trillion yen ($18.3 billion) through fiscal 2004. Of the 2.2 trillion yen, NTT will spend approximately 900 billion yen ($7.5b) on fixed communications equipment through NTT East, NTT West, and NTT Communications and about 1.3 trillion yen ($10.8b) on wireless communications equipment through NTT DOCOMO. The breakdown of NTT's FY2004 capital investment on fixed communications will include 20 billion yen ($166m) for fixed telephone exchange switches, 330 billion yen ($2.75b) for optical access networks for FTTH, and 590 billion yen ($4.9b) for other telecommunications infrastructure. As a comparison, NTT spent 105 billion yen ($875m) on fixed telephone equipment and 164 billion yen ($1.37b) on optical access networks in fiscal 2001. This means NTT's investment in optical access networks will double from FY2001 to FY2004. In other words, the market for relevant optical network equipment and components will double in Japan in the next 2 years.

NTT's FTTH (B Flets) subscribers increased to 41,000 in the first quarter of fiscal 2002, up from 18,000 in March 2002. The company expects the number to increase to 618,000 by March 2003. It could take longer for demand from residential users to rise to over 10Mbps, the amount required to run combined interactive video and related applications. However, NTT will make the strategic capital investment based on the 3-year plan in order to be more competitive. This will offer considerable business opportunities to optical network equipment and component suppliers.

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