purple motes

In an infoworld article entitled "Government policies add to Japan's broadband success," Grant Gross led with this news:

A wide-ranging government policy on broadband and healthy competition among providers gives Japanese customers greater speeds at a much cheaper price than U.S. customers pay, a Japanese telecom executive said Wednesday.

Japanese customers pay about US$0.70 for each megabit per second of bandwidth, compared to $4.90 per megabit on average in the U.S., said Takashi Ebihara, senior director of the corporate strategy department at NTT East Corp. and a visiting fellow at the Center for Strategic and International Studies, a Washington, D.C., think tank.

In an article in Silicon Valley Watcher, Richard Koman had a similar article headlined, "Why broadband is 5x cheaper in Japan." Government policy is undoubtedly extremely important for the communications industry (and government bureaucrats deserve much more credit than they usually receive). A comparison between U.S. and Japanese bandwidth prices can be easily used to support conventional views about government policy and competition. Such a comparison can also be ignored if more convenient for a particular point of view.

Ebihara's presentation was much more interesting than these news reports indicate. Ebihara actually compared bandwidth prices across twelve countries. Moreover, he cited a source for the data quoted above. His source was ITU Internet Reports 2005.[1] The table below includes all the relevant data given in that source. Thinking about policy and competition with respect to this set of countries and the range of prices that exists suggests that bandwidth prices are not strongly correlated with objective industry structures.

NTT's current broadband service prices do not have a consistent bandwidth price level. ADSL has a price per megabit about three times higher than the price per megabit for Fiber To The Building (FTTB -- used for multi-tenant buildings). Fiber to the Home (FTTH) is about two-thirds more expensive than FTTB. NTT's ISDN, on a per megabit basis, is about two thousand times more expensive than its FTTB.

Bandwidth is more meaningful as a technical characteristic of a widely available service than as a good that users individually purchase. Most communications service users have little understanding of the concept of bandwidth. Most communication service providers do not guarantee the bandwidth of services purchased, nor define clearly what the nominal bandwidth of the service means. Moreover, the bandwidth of a "connection to the Internet" is no more meaningful than the bandwidth of a "connection to connections".

A communications service business can be insightfully divided into two important activities. Building more capable communications networks and migrating users to them is one important activity for a communications business. In Japan, that is what NTT has done in shifting subscribers from ISDN to ADSL and then to fiber. Acquiring funds is another important activity for a communications business. Prices per megabit do not provide a good connection between these two aspects of a communications business.

OPLANs provides a useful alternative perspective on bandwidth prices. OPLANs emphasizes charging for access, not bandwidth. Thus an OPLAN is meant to be:

a network of truly ‘broadband’ capacity - i.e. where the bandwidth capacity is dictated by nothing other than physical characteristics of the deployed technologies [2]

With an OPLAN, users get to use as much bandwidth as they can. With modern fiber optics, that's very high speed without any price. Moreover, that doesn't depend on any particular national government policy, nor depend on competition.

Notes:

[1] See Taka Ebihara, Understanding the Japanese Broadband Miracle, p. 6, citing ITU Internet Reports 2005, p. 15.

[2] Malcolm Matson, "So What is an OPLAN?"

Offer Comments

Good, large-sample data on Internet traffic is hard to find. However, an excellent study of Internet traffic in Japan [Cho et. al. (2006)] describes 42% of Japanese (public) Internet traffic for six one-month observations spanning Sept. 2004 to May 2006.

This study reports many important facts. The ratio of bytes sent to residential customers to bytes received from residential customers was 1.3 -- remarkably symmetric. Peer-to-peer applications using dynamic port assignment account for most of the traffic. The distribution of bandwidth use by users is a high-powered power law. Most importantly, specific users' positions in that distribution vary over time and are not well identified with demographic and other customer characteristics (other than fiber connection, i.e. bandwidth availability).

The residential traffic growth figures for Japan vary considerably across month intervals. From Sept. 2004 to Nov. 2004, total traffic (aggregated inbound and outbound) grew 180% on an annualized basis. In subsequent 6-month intervals, annualized traffic growth rates were 58%, 19%, and 37%. Data on growth in fiber-to-the-home (FTTH) connections and total connections also shows volatility, but this does not seem to explain the reported traffic growth volatility. Any ideas about what explains it?

According to my calculations, (public) Internet traffic in Japan from Sept. 2004 to May 2006 grew about 60% per year. This figure aggregates inbound and outbound traffic and includes residential broadband customers and non-residential broadband customers (leased lines, data centers, dialup). I estimated non-residential traffic for the 7-ISP sample using the reported residential/non-residential traffic figures from the 4-ISP sample in Nov. 2005, and the non-residential broadband growth rate for the 4-ISP sample from Sept. 2004 to May 2006.

This estimated annualized growth of Internet traffic in Japan is much higher than estimated annualized growth of (non-voice channel) bandwidth in use in the U.S. across the 1990s. From 1989 to 1999, total DDS, DS1, and DS3 channel termination bandwidth in the U.S. grew an estimated 27% per year (see Table P6 in U.S. Bandwidth Price Trends in the 1990s). The difference between a 60% growth rate and a 27% growth rate year becomes huge after only a small number of years.

The Japanese study does not encompass bandwidth deployed in private networks. The ratio of Internet bandwidth to total inter-office bandwidth may have been about 15% in the U.S. in 1998 (see Growth in the "New Economy", p. 6). The Japanese data show much a faster growth rate of non-residential bandwidth than residential bandwith, but the former is only about two-thirds the size of the latter. This is consistent with a large share of non-residential bandwidth not being incorporated into the public Internet.

An important point: the re-organization of network transmission protocols on existing networks tends to occur very slowly. Astonishing fact: in the U.S., about 90% of mobile-phone communications towers use traditional, copper-based TDM backhaul. Legacy networks hang around for a long time.

Reference:

Cho, Kenjiro, Kensuke Fukuda, Hiroshi Esaki, and Akira Kato, "The Impact and Implications of the Growth of Residential User-to-User Traffic," sigcomm 2006.

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