Über die Autorin bzw. den Autor

Martin Fransman is Professor of Economics and Founder-Director of the Institute for Japanese-European Technology Studies at the University of Edinburgh. His books include Telecoms in the Internet Age: From Boom to Bust to . . . ? (2002), winner of the Wadsworth Prize for the best business history book published in the United Kingdom in 2002, and The Market and Beyond: Information Technology in Japan (1990), winner of the Masayoshi Ohira Memorial Prize.

Von der hinteren Coverseite

Aus dem Klappentext

Auszug. © Genehmigter Nachdruck. Alle Rechte vorbehalten.

Global Broadband Battles

Stanford University Press

Contents

Tables and Figures...........................................................................................................xiPreface......................................................................................................................xiii1 Introduction Martin Fransman..............................................................................................1PART ONE. ASIA: JAPAN, KOREA, AND CHINA......................................................................................592 Broadband, Information Society, and the National System in Japan Takanori Ida.............................................653 Broadband, the Information Society, and National Systems: The Korean Case Inho Chung......................................874 Broadband Access Development in China Manqiang Liu........................................................................109PART TWO. NORTH AMERICA: THE UNITED STATES...................................................................................1275 Broadband in the United States Johannes M. Bauer..........................................................................133PART THREE. EUROPE: FRANCE, GERMANY, ITALY, AND SWEDEN.......................................................................1656 Emergence and Growth of Broadband in the French Infocommunications System of Innovation Jackie Krafft.....................1727 Development of the Broadband Market in Germany Franz Bllingen............................................................1958 Broadband in Italy: Timing in Inter-modal Rivalry Cristiano Antonelli and Pier Paolo Patrucco.............................2199 The Swedish Broadband Market Sven Lindmark and Per Bjrstedt..............................................................240Conclusion: The Importance of Institutions Martin Fransman..................................................................267Contributors.................................................................................................................271Index........................................................................................................................275

Chapter One

Martin Fransman

GLOBAL BROADBAND BATTLES

THE BROADBAND Internet Era is often portrayed in the media as a battle. According to this portrayal the United States and Europe battle with Japan and Korea, which have taken a decisive lead in the broadband field. Battles within countries are depicted as just as intense as battles among them. In the 2004 American presidential election, George Bush and John Kerry vied with each other in their promises to speed broadband diffusion in the U.S. Comparative national performance in broadband is seen as being almost as important as GDP (Gross Domestic Product) as an indicator, not only of economic wellbeing but also of national pride. The top advisers of presidents and prime ministers are known to keep a close eye on the broadband performance league tables. The combatants in the broadband battles are seen to be not only politicians and policymakers but also companies and their regulators. According to this view, telecommunications (telecoms) companies battle with cable TV companies, incumbents battle new entrants, and regulators fight with all of them in one field or another. Furthermore, the battles pitch those living in sparsely populated rural areas against their urban counterparts and the digital have-nots against the digital-haves.

THE PURPOSE OF THIS BOOK

This book provides a deeper understanding of the forces driving the Broadband Era in two ways: first, through an analysis, undertaken in this introduction, of the dynamic forces of change in the Broadband Era that situates this era within the broader context of the evolution of the Internet; and, second, through a comparative analysis of the development of broadband infrastructure and services in nine key countries: in North America, the U.S.; in Asia, Japan, Korea, and China; and in Europe, France, Germany, Italy, Sweden and the UK.

THE THREE BROADBAND PUZZLES

The comparative analysis of these nine countries reveals three important puzzles, all of which are resolved in the second section of this chapter:

The U.S. Puzzle: Why is it that the U.S.-which gave birth to the Internet and leads the world in areas such as computing, software, and micro-processors-is lagging significantly behind in broadband? In 2004 an FCC (Federal Communications Commission, the U.S. regulator) commissioner complained that the U.S. was ranked eleventh in one of the key broadband league tables.

The Japan /Korea Puzzle: Why do these two Asian countries lead the world in broadband? They are not globally dominant in areas such as the Internet, computing, software, and microprocessors. Furthermore, since 1989 the Japanese economy has been in a state of recession, and Korea, although growing rapidly, is not yet one of the richer countries.

The European Puzzle: Why is Europe lagging behind not only the leading Asian countries but also the U.S.? The European Commission has created a new regulatory framework for Europe that it hopes will unleash new forces of competition. National regulatory authorities in the leading countries of the European Union (EU) claim to be broadly satisfied with the performance of their national systems. Yet, as this book will show, Europe is a laggard in the Broadband Era.

As these three puzzles imply, the broadband battles of the Broadband Era have thrown up some important questions that beg explanation. In order to deal with these questions it is necessary to understand more about broadband.

WHAT IS BROADBAND?

Broadband may be thought of as access to the Internet provided at speeds significantly higher than those used by the traditional method, namely narrowband, or dial-up. Although definitions of broadband speed vary (and are tending to increase over time), currently most definitions refer to speeds in excess of 128 kilobits per second (kbps).

THE BROADBAND ERA: THE LATEST STAGE IN THE EVOLUTION OF THE INTERNET

The Broadband Era represents the latest stage in the evolution of the Internet. Table 1.1 shows the evolution of the Internet and mobile communication from 1995 to 2006.

Commercialisation of the Internet

It was only in 1995 that Bill Gates, in an internal Microsoft memo, acknowledged the importance of the Internet and accepted that the Internet would drive Microsoft, rather than the other way round. From this time there was a massive global diffusion of the Internet, which in turn drove increasing demand for data capacity and services. The Internet radically transformed the telecoms industry, causing it to converge ever more closely with the computer industry, creating a new infocommunications-or ICT-industry.

Mobile Communications

From 1995 the Internet diffused rapidly around the world, however, from around 1997 it was mobile communications, rather than the Internet, that provided the main source of growth in revenue and profitability for the telecoms industry.

Although the origins of cellular mobile telephony can be traced back to research done in the early post-war years in AT&T's Bell Laboratories, by as late as the mid-1980s many were of the opinion that mobile communications would not become a mass market. Kurt Hellstrom, later to become President of Ericsson (the Swedish company that is one of the world's largest suppliers of mobile equipment), recalled that his mobile division was regarded by others in the company as "something strange happening on the outskirts of Stockholm." At that time the company was prioritising its digital switch for fixed-line communications. When AT&T in the mid-1980s asked the consultancy company McKinsey to predict the number of mobile phones that would exist in 2000, their answer was 900,000. In the event there were 40 million.

From around 1997, first in the Scandinavian countries and Japan, and then in the other rich industrialised countries, mobile voice services began to diffuse rapidly, adding significantly to the revenue and profits of the mobile operators. However, by the early 2000s the first stage in the evolution of mobile communications-the stage based on voice telephony-was beginning to run out of steam in the rich countries as markets reached saturation levels.

The search for a new source of growth initiated the second stage in the mobile communication industry's evolution. Specifically, the industry's corporate leaders began looking toward mobile data, and new services based on mobile data, as a new source of growth. Around the world "texting" became an important source of growth in mobile data traffic while in Japan NTT DoCoMo pioneered the mobile Internet in the form of the i-mode service. Later, again pioneered in Japan, camera phones provided a further source of new data traffic. However, by 2006 it was still not clear whether sufficient consumer demand would exist to turn the new mobile data services into a new source of rapid growth in the mobile communications industry.

Phase One: Enter Broadband Access

In the late-1990s the first commercial broadband services appeared in countries like the U.S. and Japan. However, only since 2002 has broadband access to the Internet begun diffusing rapidly in rich countries, where it is provided not only by telecoms companies but also by cable TV companies using cable modems. (The technologies that they used, as well as other alternative technologies, are discussed later in this chapter.)

Why did broadband begin to diffuse rapidly in rich countries from around 2002? Although a more detailed answer is given to this question below, it is worth mentioning a few of the general determinants here.

Incumbent telecoms operators in these countries began at this time to commit to broadband, partly in search of a new source of revenue, profits, and growth. As already noted, growth in their mobile subsidiaries began to slow as mobile voice markets began to saturate. Furthermore, the telecoms bust (that began in March 2000 when stock markets crashed) and the general slowing in economic activity soon took their toll. From being the darlings of stock exchanges and other financial markets, telecoms companies (together with the now infamous dot.coms) quickly became the devils.

In the U.S., high-profile bankruptcies, compounded by massive fraud, further mired the telecoms waters. Although WorldCom's insolvency, the largest in U.S. corporate history, was the most extreme, dubious and even outright illegal practices were found to be widespread in the telecoms industry. While the European telecoms industry was spared the same degree of illegality, the main European telecoms operator incumbents emerged from the telecoms bust with excessively high levels of indebtedness, largely the result of exuberant merger and acquisition activity during the preceding boom. For all these telecoms companies-and for the telecoms equipment companies that supplied them-the search for a new source of revenue and profit became a high priority. Broadband soon seemed to offer the most promising way out of the doldrums.

Cable TV companies also became interested in broadband at the same time. They, too, suffered from the stock market collapse and the economic downturn as well as pressures from consolidation. Furthermore, by broadband-enabling their cable TV networks (an expensive business) they saw an opportunity to increase their competitiveness while entering new markets. In addition to their traditional television, they could also offer high-speed Internet access as well as new services such as voice telephony (the so-called triple play bundle of services).

A further factor encouraging the take-up of broadband was regulation that reduced entry barriers for companies wanting to compete with the incumbents, thus increasing their expectations of rates of return to be earned in what was coming rapidly to be seen as a set of new and attractive broadband-related markets. (The role of regulation is examined in more detail later in this chapter.)

With all these companies motivated to contest the emerging broadband market, a new growth area quickly emerged.

Phase Two: From Broadband Access to Broadband Services

Things move quickly in the broadband market, as the experience of South Korea (henceforth referred to as Korea) vividly indicates. For a combination of reasons (analysed in detail in Chapter 3 and later in this chapter) Korea led the global field in broadband access penetration. However, by the middle of 2004 it was already becoming apparent that broadband access itself was losing steam as a significant driver of growth in revenue and profitability. On 4 May 2004, the Financial Times reported:

South Korea's top fixed-line phone operator, KT Corp, reported a 65 percent slump in quarterly profit on Tuesday, missing forecasts as landline customers switched to mobiles and broadband Internet growth slowed. [KT] supplies half of the country's broadband connections, but the market is nearing saturation, with penetration rates already the world's highest. However, analysts hope operating profits will improve this year as a cost-cutting programme bears fruit. [emphasis added]

As the first stage in the evolution of the fixed broadband market-based on broadband access-runs out of steam, as is already happening in Korea, two trends are becoming apparent. First, broadband speed/ bandwidth is increasing rapidly; the greater the degree of competition in the domestic market, the greater the increase in speed. Second, increasing attention is being paid to the demand side, to the content, applications and services (including managed services) that it is hoped will drive growth in revenue and profitability and give a good return on investment in broadband infrastructure.

MEASURING PERFORMANCE IN BROADBAND

Five Performance Measures

Not surprisingly, there are a number of possible measures of national performance in broadband. Some of these are shown in Table 1.2.

Measure 1, availability, is the least demanding. In most countries most broadband connections are provided either by ADSL (a technology, discussed in more detail below, developed in the 1980s that allows broadband signals to be sent over the telephone copper cables that connect homes and small businesses), offered by telecoms operators, or by cable modems. Availability measures the proportion of homes (or of population) that has access to a broadband connection if they want it. However, availability does not refer to those who actually have broadband connections. The latter is provided by Measure 2, penetration, which refers to the percentage of homes (or population) that already has a broadband connection.

But penetration per se says nothing about the capacity/speed that users receive or about the price that they pay. Accordingly, penetration figures hide a significant variance between countries regarding the latter two characteristics. It is therefore necessary to supplement Measures 1 and 2 with Measures 3 and 4. But this is easier in principle than in practice.

The reason is that there are many players in the broadband market of any country. The players themselves may operate in different parts of the country and usually have a number of different broadband offerings. To make matters even more complicated, advertised speeds (usually measured in terms of downloaded bits per second) may not measure up to actual received speeds, partly because the latter can depend on the user's distance from the local exchange and the number of people using the system at the time. Little wonder, then, that at the time of writing there is only one serious international comparative study that examines speed and price.

Even Measures 3 and 4 have shortcomings. One of the most important is that they say nothing about quality of service. For example, a very high speed connection at a very low price may be unreliable. The problem, however, is that internationally comparable measures of quality of service-referred to in Measure 5-do not exist.

Measures 1 to 5 all refer to the supply of broadband connections. They reveal nothing about the use that is made of them. In other words, the demand/ user side is ignored. Clearly, this is a major problem with these purported measures of "performance." At the end of the day, availability, penetration, speed, price, and even quality of access are all means rather than ends-what really matters is what users want to do with the bandwidth and connectivity that they have access to and how well they feel they are able to do what they want with it. Measure 6-goodness of fit with the needs of users, the holy grail of broadband-is intended to capture this important point. The problem, however, is that currently we are very far from any measures of Measure 6.

Korea as Leader in Penetration

The most widely accepted global comparison of broadband penetration is that provided by the OECD (Organisation for Economic Co-operation and Development). The latest data are shown in Figure 1.1.

A number of conclusions emerge from Figure 1.1. The first is the outstanding performance in broadband penetration by Korea, a clear outlier. Korea is the only country close to reaching 25 subscribers per 100 inhabitants. Denmark and Canada come second and third, both with about 17 subscribers. The United States, as already noted, comes eleventh with about 11 subscribers. Japan comes eighth with around 13 subscribers. Sweden comes ninth with slightly fewer subscribers than Japan. The other European countries covered in this book come significantly behind those already mentioned in this paragraph. France comes fifteenth while the UK comes sixteenth, with about 8 subscribers each. Germany comes eighteenth and Italy is placed twentieth, with around 7 and 6 subscribers, respectively.

Speed

Incumbents' Speed

In Table 1.3 the world's top 10 incumbent telecoms operators are ranked according to their highest speed broadband offering.

Several important points emerge from Table 1.3. The first is the superior performance of Japan. Not only is Japan and its incumbent, NTT East, the front-runner in terms of capacity, it is significantly ahead of the rest of the global pack. Measured in terms of download speed, NTT East's measure was 100 Mbps (megabits per second) while that of the second incumbent-KT from Korea-was only 13 Mbps. The reason for this superior performance is also given in Table 1.3. While NTT East used FTTH (fibre to the home), KT used a DSL (digital subscriber line) local access connection. The broader issues relating to FTTH are discussed in more detail below.

The second point is that Japan's performance is also far superior in terms of absolute price, that is, the price of the high-capacity broadband connection, irrespective of the speed that is provided for this price. This is even more starkly clear when prices are measured, as they should be, in terms of purchasing power parity (which assumes that money has the same value in all countries, thus giving a better comparison). As Table 1.3 shows, the Japanese price is significantly below that of the next few countries. While NTT East's price was $42.46, that for Korea's KT was $67.61, and for the U.S.'s Verizon, $204.95. Price measured per 100 kbps improves Japan's relative performance even more. Indeed, only two countries in the global top 10 had absolute prices slightly lower than Japan's; Belgium's (ranked seventh) was almost the same at $42.40, while New Zealand (ranked eighth) was $39.84. However, the latter was only for a speed of 2.1 Mpbs.

(Continues...)

Excerpted from Global Broadband Battles Copyright © 2006 by Board of Trustees of the Leland Stanford Junior University. Excerpted by permission.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.