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Japan Moves Closer to Low-Cost Home Access

With yet another agile competitor giving challenge to lumbering NTT, it seems that low-cost, flat-rate home Internet connectivity is finally an idea whose time has come.

Softbank Corp., Tokyo Electric Power Co. (TEPCO), and Microsoft Corp. have announced formation of a joint venture (JV) company to provide Japanese Internet users with low-cost, high-speed wireless Net connections.

The three will each hold a 31 percent stake in the as-yet-unnamed JV, with Softbank-affiliate Yahoo Japan taking a 5 percent share and unspecified "others" holding the remaining 2 percent.

The company, which is to be established next month, will launch operational trials in October with an eye to beginning commercial service in the Tokyo area sometime next summer.

The venture will utilize TEPCO's installed fiber-optic infrastructure to completely bypass NTT telephone lines.

Wireless base stations will be placed on TEPCO electric poles and the roofs of buildings, and home and small office users will be able to link their PCs to the nearest base station for 5,000 yen (US$43.50) or less per month via a dedicated terminal unit likely to be priced in the 20,000 to 30,000 yen (US$175 to $260) range.

Softbank expects to eventually offer wireless Net-connectivity services nationwide through JVs with other local power companies, and has set a goal of "signing several million home users within three years."

NTT's time-based daytime phone rate of 10 yen (US$0.08) per 3 minutes has long been decried as hindering the growth of electronic commerce in Japan.

"The Japanese Internet industry will lag behind the US by 5 to 10 years if the rates remained at their current level," warned Softbank President Masayoshi Son.

In response to widespread criticism and mounting pressure from the Ministry of Posts and Telecommunications (MPT), NTT said in June that its two regional carriers will introduce flat-rate ISDN-based Internet connection services later this year.

In spite of the MPT's counsel that Japan needs nationwide flat-rate Internet connectivity at about 5,000 yen (US$43.50) per month to support the development of electronic commerce, however, NTT's announced service will cost double that and initially be limited to test areas in Tokyo and Osaka.

This heel-dragging by NTT has spurred other competitors to action.

Like the Softbank-led JV, Sony Corp., which obtained a Type 1 telecommunication license in June, also intends to begin wireless home connectivity services next summer.

Sony will rely on Crosswave Communications, its recently launched joint venture with Toyota Motor Corp. and Internet Initiative Japan, for the backbone portion of its services.

And on the non-wireless side, a JV named Tokyo Metallic Communications intends to offer flat-rate ADSL (asymmetric digital subscriber line) Internet connectivity services starting in Tokyo later this year.

All the competitors will offer transmission speeds much faster than NTT's service, and at half the price.

"Our plan is overwhelmingly better in terms of cost-performance than NTT. This will change the use of the Internet," declared Softbank's Son.

The unanswered -- and largely unasked -- question is what effect flat-rate connectivity will have on Japan's Internet service provider (ISP) industry.

"The effects will depend on whether the networks are designed to give bandwidth to other providers, or designed to compete against ISPs," said Roger Boisvert, founder and President of ISP Global OnLine Japan (GOL). "We don't really know that on any of these yet."

Whatever the effects, it is clear that home Internet connectivity in Japan will no longer be a one-horse race.

A primary aim of the solution financing program is reducing time-to-market for the shift from a traditional business model to an e-business model.

Parent firm Hewlett-Packard Co. will assist HP Japan by providing initial funding for the SFS leases and by buying back equipment returned at the end of a lease (for resale in other countries) to prevent potential used-equipment overstocks.

HP Japan reportedly expects to conclude at least five SFS lease contracts worth up to 5 billion yen (US$4.35 million) within the next three months (for the fiscal year ending Oct. 31), and will aim at signing 50 billion yen (US$435 million) of SFS lease contracts in the next fiscal year.



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