In the past 10 years, the Japanese communication industry has seen enormous change. It has transformed itself from a monopoly to a competitive industry and has seen the establishment of a new wireless industry dominated by NTT Docomo. Until the mid-'80s, Japanese telecommunications was a monopoly run by the public corporation Nippon Telegraph and Telephone (NTT). Since then, the industry has weathered a number of major turning points, including: 1) The privatization of the telecommunications industry in the mid-'80s
2) The competition between pager, Personal Handyphone and keitai (cell phones) in the mid-'90s
3) The establishment of a successful NTT Docomo business model in the late '90s 1985 was a turning point in Japanese telecommunications with the privatization of NTT and the acceptance of new common carriers into the communications industry. Until then, the Japanese communication market was a complete monopoly of NTT. It would not be an exaggeration to say the NTT family of companies virtually controlled the entire telecommunications industry in Japan. Under such conditions, wireless communication was an unusual case. Within NTT, wireless was a minor player. In this era, before the introduction of pagers and mobile phones, wireless communications were used as one element of hybrid wired/wireless long-distance relay infrastructures. Using a microwave relay system, wireless communications comprised approximately 50 percent of the connections for long distance calling.
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"When the keitai was introduced in 1990, business use dominated. It was a luxury item, an executive tool supplied by the corporation to a select few." |
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However, this ratio was not fixed and the competition in both cost and transmission capacity between these two types of communication was a site of industry-wide struggle.At that time, the wireless spectrum was primarily used for broadcast media. The defense system, police, local governments, electric companies and railways all have their own wireless communication facilities. In other words, from the point of view of radio systems, NTT's wireless system was by no means a monopoly. Furthermore, communication over radio wave systems requires government authorization, and wireless operators needed access to the spectrum in order to conduct their business. The government's influence in regulating the spectrum was considerably stronger than its influence in regulating a monopolistic public corporation like NTT. In short, in its monopolistic days, NTT was not a major player in the wireless communication market, faced with various competitors as well as government regulation. The birth of NTT Docomo and new common carriers Mobile communication also has a different history than fixed-line communication in relation to new common carriers. In fixed-line communication, new companies entered the market by setting up long-distance relays. Historically, charges were set high for long-distance calls, and charges for local calls were kept low by internal subsidization. This suggests that customers were being charged much more than the actual cost for long-distance calls. This long-distance market thus held the promise of profit for new companies entering the market. New operators rapidly increased their market share, focusing on the dominant communications market connecting the urban hubs of Tokyo, Nagoya and Osaka. The competition they introduced drastically reduced charges for long-distance calls.
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"Providers needed to create an independent network, and further, this network had to be nationwide." |
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However, 15 years after new common carriers were approved, most subscription lines are still owned by NTT. In other words, there were no new operators that put serious effort into the more challenging business of building subscription lines.In the meantime, in 1992, when new common carriers were accepted into the mobile communication industry, the primary use was the car phone. Although there were large hopes for the future, at the time there were only approximately 1 million subscribers. Nobody anticipated the adoption rates that we see today. NTT Docomo did have an advantage over new operators because of assets brought over from NTT. This advantage was not as large, however, as those associated with fixed-line communication. In fact, NTT Docomo saw its market share drop sharply at one point after new operators started entering the market. The new common carriers in mobile communication had a different strategy for entering the wireless market in comparison to the fixed-line market. Their services involved subscriptions to networks, with service areas encompassing the entire country. The main objective of a mobile communication business is to build a base of subscribers. Mobile subscribers tended to desire access to the whole country, in contrast to fixed-line communication that focused on urban centers. For cellular services, this meant providers needed to create an independent network, and further, this network had to be nationwide. It is not possible to focus only on profitable urban regions since the size of the service area is an important draw for potential customers. Given these conditions, the new common carriers entered the mobile communication market with a more level playing field than the one they encountered with the fixed-line market. Keitai handset and component manufacturers How did privatization and competition affect handset manufacturing? The specifications of NTT handsets before its privatization were extremely rigid. They even included NTT-exclusive specifications that were incompatible with other standards anywhere else in the world. While it is true that such rigid standards helped maintain reliable service, they also raised costs and functioned as trade barriers for foreign manufacturers.
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"NTT Docomo established their own Docomo Shops, a retailing operation managed jointly with trading houses and other companies that exclusively sold Docomo terminals." |
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Competition in the keitai handset industry is unlike fixed-line communication. The lifespan of the keitai is short, and while it takes advanced technology to develop a product, price wars push prices down.Due to such conditions, handset manufacturers collect low-price, high-quality and high-performance components from around the world, producing only key parts internally. The overall landscape is of major device manufacturers holding onto a stable global market share and assembly manufacturers locked in fierce competition. This situation is not specific to Japan; low-price, high-performance components can now be purchased from anywhere in the world. Costs are kept low through larger-scale production.
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