Rapid Spread of Digital Subscriber Line (DSL)

By Hajime Yamada (GLOCOM)

Digital Subscriber Line (DSL) is spreading rapidly in Japan as a new telecommunications service. DSL is a technology of transmitting digital signals through present metal cables between telephone operators and each subscriber's home. The maximum data transmission speed with DSL is about eight megabit per second, a satisfactory speed for broadband transmission.

The Ministry of Public Management, Home Affairs, Posts and Telecommunications publishes the number of DSL subscribers at the end of every month. The table below shows the figure in each quarter after 2000.

The rapid spread of DSL after 2001 is well illustrated in this table. What are the causes?

One cause is government policies that have promoted interconnections between the existing telecommunications operators and DSL operators. As I have explained, DSL services utilize present metal cables, which have long been properties of telecommunications operators. DSL operators attach equipment at the operators' end of the cable to connect with the Internet. Therefore, an issue of interconnection occurs at the connecting point of the existing telecommunications operators and DSL operators.

In the latter half of 2000, the ministry gave a series of administrative instructions to Nippon Telegraph and Telephone Corporation (NTT), one of the largest existing telecommunications operators, to promote interconnections with DSL operators. Afterward, the environment for the spread of DSL was prepared.

Second, subscriber terminal devices for DSL were offered for sale in the beginning of 2001. In Japan, mobile terminals were offered for sale at unfixed prices in April 1994, when mobile phones started to spread widely. The same thing happened with DSL.

The third cause is a sharp decrease in DSL service charges. In June 2001, Softbank Group announced the start of a service called "Yahoo! BB." This service provides data transmission speed of eight megabits per second maximum, with a monthly fee of less than four thousand yen, including connection fees with the Internet. This stimulated other DSL operators and started a price war.

At present, all DSL operators provide service at a monthly fee between two and three thousand yen. This is less than half the cost of similar service in the United States, which would cost about 50 dollars. In the past year, DSL service fees rose in the U.S., while there was a price war in Japan, and as a result, DSL service fees reversed in the U.S. and Japan.

The lowered fees invited rapid increase of subscribers in Japan. An estimate has been published claiming that the penetration rate of DSL in Japan is already ahead of that of the U.S.

In the United States, local call fees have operated under flat-rate systems. Therefore, many subscribers can enjoy always-on connections by only purchasing modems. If an operator tries to promote DSL in such an environment, the target should be limited to users who want connections at an especially high speed.

On the other hand, Japanese local calls have been charged ad valorem. The monthly cost would become tremendous if a user connects to the Internet via modem. Therefore, there were even times when telecommunications operators took measures of introducing a flat-rate charging system limited for a late-night slot when traffic slows down, and this was welcomed by subscribers. Then, DSL service appeared as an unlimited flat-rate system. Moreover, transmission speed improved considerably. These are possible reasons why the market accepted the system all at once.

Meanwhile, cable TV is not so widely spread in Japan. The Internet connection utilizing cable TV network had 625 thousand subscribers at the end of 2000, which merely doubled to become 1303 thousand subscribers at the end of 2001. Reversed market share between DSL service and cable Internet is one of the characteristic events in 2001. Also, the number of private homes connected with optic fiber as of the end of January 2002 was 12,337, quite a low level. At the present stage, utilization of optic fiber can be said to be limited to businesses.