0

Broadband Competition Policy in Japan March ２００８

Yasu TANIWAKI ([email protected])

Director, Telecommunications Policy Division Telecommunications Bureau Ministry of Internal Affairs & Communications (MIC), JAPAN

1

Broadband Competition Policy in Japan

✔ ■Current Status of Broadband Market in Japan ■Outline of “New Competition Policy Program 2010” ■Specific Issues □Network Neutrality Issues □Revitalization of Mobile Business

Transition in the Number of Japan’s Broadband Subscribers 【Number of Telecommunication Service Users】 （Unit: 10 thousand）

16,000,000

1 2 ,0 0 0

固 定 電Communications 話 （加 入 電 話 +Ｉ ＳＤＮ） Fixed (telephony)

As of Jan. ' 08.1末 現 在 2008 10548.6

移 動 電 話Communications （携 帯 電 話 +ＰＨＳ） Mobile (telephony)

高 速 ・超 高 速 イ ン ター ネット加 入 者 数 Broadband service

IP電 話 IP Telephony

1 0 ,0 0 0

9764

8,112

9869

9648

12,000,000

8,665

8 ,0 0 0

FTTH FTTH

5,781

6,263

5,456

6,678

6,285

6,028 6,164

6,223

6,263

6,196

6,077

6,133 5,685

5,907 5,245

As of Dec. 2007

5,961

6,022

5878

5917

5,636

5745

5808

5602.9

5239.8

8,000,000

5678

4,731

4 ,0 0 0

6,000,000

CATV CATV

3,825

As of Dec. 2007 2,830.2

2,691

1,951

2,330

1,541 943

1,170

433

22

830.5

1060.4 976.7

387 85

2,576

2,422

2,148 2,237

2 ,0 0 0

213 49 87 138 171

2,504 1375.9

1209.7 1145.7

1676.6 As of Dec. 2007

2,000,000

12,585 12,585 0 7/ 9 '0

7/ 3 '0

6/ 9 '0

6/ 3 '0

5/ 9 '0

4/ 3

4,000,000

ＦＷＡ ＦＷＡ

527.6

'0

2/ 3 '0

0/ 3 '0

8/ 3 '9

6/ 3 '9

4/ 3 '9

2/ 3

3,827,502 3,827,502

1300

0 '9

11,328,952 11,328,952

10,000,000

7,482

0/ 3

14,000,000

9982.6

9,147

'9

ＤＳＬ ＤＳＬ 13,133,113 13,133,113

9475 9,361

6 ,0 0 0

【Number of Broadband Service Users】

2

Tariff for Broadband Services

3

(yen/month)

IP phone charge PSTN phone charge

6,510 internet charge

IP phone charge

5,991

6000

5,754

5,985

5,250

5,200

5000

4,693 4,900

4000

4,389

4,095

4,095

4,206

3,505

3,969

3,570 3,465

3000

2,980

2,908

2000

1,344 1000

0

1,050 NTT East(1)

K-opticom

NTT East

(100 M)

(100 M)

(100 M)

(1) (2)

USEN (100 M)

FTTH

FTTH

(single residences)

(multiple residences)

Note 1: When using BB.excite as the ISP Note 2: When the service can be provided to 8 or more residences Note 3: Includes basic IP telephone charges as well

NTT East(1)

(47 M)

Softbank BB (50 M)

(3)

(3)

KDDI (50 M)

KDDI (5 M)

Itscom (30 M)

ADSL Sources: Respective company web sites

Itscom (512k)

Cable

Japanese Broadband Service in Global Comparison

4

Speed of DSL

Broadband prices (100kbit/s)

（Mbit/s）

(US dollar) Japan

0.07

Japan

51.2

Korea

0.08

Korea

51.2

Netherlands

Singpore

0.14

Sweden

0.23

Singapore

0.24 0.3

Italy Taiwan,Chaina

30.72

Sweden

24

Finland

24

Netherlands

0.34

France

0.36

Finland

0.36

United States

Taiwan,Chaina

12.288

Italy

12.288

France

0.49 0.51

Germany

20.48

The U.K.

0.63

Lithuania

0.69

Hong Kong,China

0.83

10.24

Kazakhstan

8.192

The U.K.

8.128

Portugal

8.128

Brazil

8

Portugal

0.93

Iceland

6.144

Bosnia・Herzegovina

0.93

Hong Kong,China

6.144

Poland

6.144 6.016

Canada

1.01

Macao,China

1.07

Germany

Brazil

1.08

Philippines

Belgium

1.21

0

0.2

0.4

0.6

0.8

1

1.2

1.4

5.12

0

10

20

30

40

50

Source ： ITU Internet Reports 2006 ”digital.life”（December 2006）

60

Next Generation Broadband Strategy 2010 (August 2006) Status of broadband service availability

broadband service super high speed broadband（ＦＴ ＴＨ）

FY２００５

FY２００６

FY２０１０

（as of the end of March 2006）

（as of the end of March 2007）

（Target set by the government)

47.3 million （94％）

48.6 million （95％）

100％

40.2 million （80％）

42.7 million （84％）

90％

As a roadmap to fulfill “Next Generation Broadband Strategy 2010,” “Digital Divide Elimination Strategy,” including concrete measures to eliminate “broadband zero” area, will be released by MIC in June 2008. (Note) “Broadband availability map,” describing availability of broadband services (ADSL, FTTH etc.) in each town or village, has been provided via the internet.

5

6

Broadband Competition Policy in Japan

■Current Status of Broadband Market in Japan

✔ ■Outline of “New Competition Policy Program 2010” ■Specific Issues □Network Neutrality Issues □Revitalization of Mobile Business

7

From monopoly to competition

Further promotion of competition 1997 ∼

1985 ∼ „ „ Introduction Introduction of of market market principles principles „ „ Privatization Privatization of of NTT--PC NTT--PC

„ „ Reorganization Reorganization of of NTT NTT (1999) (1999) „ „ Deregulation Deregulation of of market market entry entry restriction restriction „ Abolition „ Abolition of of foreign foreign investment investment regulation (except for regulation (except for NTT NTT and and NTT regional companies) NTT regional companies) „ „ Establishment Establishment of of interconnection interconnection rules (introduction rules (introduction of of LRIC LRIC model) model)

Age of Telephony

2001 ∼ „ „ Strengthening Strengthening of of asymmetric asymmetric regulations regulations „ „ Establishment Establishment of of USF USF mechanism mechanism „ Setting „ Setting up up of of Telecommunications Telecommunications Business Business Dispute Dispute Committee Committee

From “ex-ante” regulation to “expost” regulation 2004 ∼ „ „ Abolition Abolition of of Type Type II and and Type Type IIII business business categories categories „ „ Drastic Drastic deregulation deregulation of of price price and and tariff tariff regulations regulations „ „ Introduction Introduction of of competition competition review review mechanism mechanism

Emergence of Internet

Transition to Full IP-based networks

Transition from ＰＳＴＮ to ＩＰ-based networks

Review of competition rules through transparent procedures

Review of Competition Rules corresponding to transition to full IP-based networks

Outline of Japanese Telecom Competition Policy

8

Current Status of Japanese Telecom Market Number of competitive telecom carriers April 1985 87

April 1989

April 1993

April 1997

738

1,259

4,726

April 2001

Feb 2008 14,441

9,348

Structure of NTT group (reorganized in July 1999) Regulated under NTT Law

NTT (Holding company) NTT DoCoMo

NTT Communication

NTT regional companies own 93% of all the access lines. (as of the end of March 2007)

NTT East

NTT West

Market Share of NTT East and West (as of the end of March 2007) （share by number of lines ）

Copper lines

９９．９％

Copper&fiber& ＣＡＴＶ lines

９２．５％

FTTH

７８．９％

（share by revenue） revenue）

Fixed telephone （including ISDN） ＡＤＳＬ

FTTH service

９０．６％

３８．０％

６９．０％

9

Development of DSL Service Market and Introduction of Interconnection Rules

10

(millions) 16

Others Approx. 62.0%

NTT E/W Approx. 38.0%

14 【End-Mar. 07】

12 10 8 6

Autumn Autumn 2000 2000 Establishment of collocation and unbundling rules for access networks 0 7 8 of NTT E/W

DSL DSL

Cable Cable Modem Modem

4 2 0 Mar-99 Sep-99 Mar-00 Sep-00 Mar-01 Sep-01 Mar-02 Sep-02 Mar-03 Sep-03 Mar-04 Sep-04 Mar-05 Sep-05 Mar-06 Sep-06 Mar-07

Changes in Market Environment and Review of Competition Policy Changes in competitive environment (1) Progress of broadband deployment (2) Development of horizontal market integration (3) Development of vertical market integration 【Development of horizontal market integration】

【Development of vertical market integration】

“New Competition Promotion Program 2010” (Sep 2006, revised in Oct 2007) Related to a review of a framework of competition rules to address the transition to IP-based networks, define a road map for deliberation to be implemented by the early 2010s.

11

Outline of “New Competition Promotion Program 2010” Comprehensive Review of Competition Rules to Address the Shift to IP Based Networks (Comprehensively implemented by early 2010s) １．Promotion of Facility Based Competition

Promotion to Use Physical Networks Owned by Local Governments etc. Promotion of Diversification of Access Networks（WiMAX etc.） Review of Dominant Regulations Introduction of Competition Safeguard System (from FY 2007) Comprehensive review of Dominant Regulations (Implementation will be launched by FY 2010.)

２．Review of Interconnection Policy

Review of Calculation Method for Interconnection Charges of NTT E&W Establishment of Interconnection rules for NGNs

(by the end of FY2007)

３．Review of Universal Service System

Consideration （“feasibility study” in 2007 to be followed by precise consideration at the Information and Communications Council by the end of 2008)

４．Review of Tariff Policy

Review of the Price Cap Regulation etc. Promotion of Competition in the Mobile Communication Market (☞”Mobile Business Vitalization Plan” in September 2007)

５．Other Main Policies

Study concerning the Network Neutrality principles （the first SG report in September 2007, followed by the second report by the end of 2008) Review of Dispute Settlement Functions etc.

✔Status of NTT will be concluded following consideration in 2010. ✔Comprehensive legal framework including telecommunications and broadcasting will be concluded by 2010.

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13

Broadband Competition Policy in Japan

■Current Status of Broadband Market in Japan ■Outline of “New Competition Policy Program 2010” ■Specific Issues

✔□Network Neutrality Issues □Revitalization of Mobile Business

Basic Framework for Ｎetwork Ｎeutrality

14

SG on Network Neutrality (Nov. 2006 – Sep. 2007) Change of Market Structure ■Changes on network structure （Transition from PSTNs to IP based networks） ■Progress of market integration such as FMC ■Proliferation of new communications such as P2P

Network neutrality (from the user perspective) (1) IP-based networks should be accessible to users and easy to use, allowing ready access to content and application layers. (2) IP-based networks should be accessible and available to any terminal that meets the relevant technical standards, and should support terminal-to-terminal (or “end-to-end”) communication. (3) Users should be provided with equality of access to telecommunications and platform layers at a reasonable price. Note: In this case, "the user" refers not just to end users but also includes content providers and other related companies that conduct business using IP networks.

Ensuring utilization of networks “with proper cost allocation”（A） & “without any discrimination”（B） Equitable cost distribution of networks (A) Neutrality of cost sharing models for upgrading the communications networks

Equal access to networks (B) Neutrality of telecommunications layer with respect to other layers

Basic Framework for Ｎetwork Ｎeutrality

15

SG on Network Neutrality (Nov. 2006 – Sep. 2007) Change of Market Structure ■Changes on network structure （Transition from PSTNs to IP based networks） ■Progress of market integration such as FMC ■Proliferation of new communications such as P2P

Network neutrality (from the user perspective) (1) IP-based networks should be accessible to users and easy to use, allowing ready access to content and application layers. (2) IP-based networks should be accessible and available to any terminal that meets the relevant technical standards, and should support terminal-to-terminal (or “end-to-end”) communication. (3) Users should be provided with equality of access to telecommunications and platform layers at a reasonable price. Note: In this case, "the user" refers not just to end users but also includes content providers and other related companies that conduct business using IP networks.

Ensuring utilization of networks “with proper cost allocation”（A） & “without any discrimination”（B） Equitable cost distribution of networks (A) Neutrality of cost sharing models for upgrading the communications networks

Equal access to networks (B) Neutrality of telecommunications layer with respect to other layers

IP Traffic on the Networks (Total Volume) ○○The Thetotal totalamount amountof ofIP IPtraffic trafficininJapan Japanwas wasestimated estimatedat at812.9Gbps 812.9GbpsininNov Nov2007, 2007, increased increasedby byabout about2.5 2.5times timesinin33years. years. [Gbps] 900

812.9Gbps (2007.11)

800

Estimated download traffic of broadband users in Japan

721.7Gbps (2007.5)

700 636.6Gbps (2006.11)

600 523.6Gbps (2006.5)

500

468.0Gbps (2005.11)

339.8Gbps (2007.11)

424.5Gbps (2005.5)

400 323.6Gbps (2004.11) 303.2Gbps (2004.10)

300

294.0Gbps (2007.11)

(ref.1) Monthly average of daily peak traffic exchanged at major IXs in Japan

269.4Gbps (2004.9)

200 199.4Gbps (2007.11)

0

1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12

100

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Monthly average of daily traffic of Broadband customers (ADSL/CATV/FTTH) of major ISPs in Japan

(ref.2) Monthly average of daily traffic exchanged at major IXs in Japan

2007

Efforts for Grasping Current Status of Internet Traffic in Japan , MIC

16

Traffic Exchanged among ＩＳＰs（as of Nov 2007）

17

○ “The traffic flowing into domestic ISPs from foreign ISPs（Inbound traffic, B3）” has been remarkably increasing by twice in 1.5 year. It has exceeded “the traffic exchanged at any place outside domestic major IXs (mainly private peering, B2)” at Nov 2007.【left diagram】 ○ In the traffic exchanged among domestic ISPs, the percentage of “the traffic exchanged at domestic major IXs (B1)” has turned upward again. 〔B１〕 the traffic exchanged at domestic major IXs 〔B２〕 the traffic exchanged at any place outside domestic major IXs 〔B３〕 the traffic flowing into domestic ISPs from foreign ISPs [Gbps] ＜Outbound traffic from domestic ISPs＞ ISPs＞

＜Inbound traffic to domestic ISPs＞ ISPs＞

[Gbps]

160

160

B1

B2

B3

140

B1

133.7

140

129.0

120

93.5

100

B2

B3

124.5 120

107.6 94.9

100 80.9

40 20

53.1 47.9 48.2 38.0 36.3 35.9 40.1 28.5 25.3 27.7

57.1

90.5 68.1

77.4 66.2

68.4

41.6

54.0

62.3

81.8

71.2

48.1

43.3

37.8

57.8 41.6

33.0 30.9 31.8 16.7 14.1 15.4

20

0

70.8 60.1

58.4

60 40

83.4

77.6

80

68.5 55.1

108.4

94.5

73.3

80 60

116.4

113.3

47.8 39.8

24.1

0 04.5

04.11

05.5

05.11

06.5

06.11

07.5

07.11

04.5

04.11

05.5

05.11

06.5

06.11

07.5

07.11

Efforts for Grasping Current Status of Internet Traffic in Japan , MIC

IP Traffic (Downstream) „ P2P traffic has a significant impact on networks rather than streaming and web surfing. „ Average P2P occupation rate increased by 30% at peak traffic level and by 10% at off peak level in 6 months period. Occupation rate of bandwidth

Others (web, mail etc.)

Randomly selected day in April 2006

Occupation rate of bandwidth

Randomly selected day in November 2005

Top

Bottom

18

19

IP Traffic (Upstream) „ P2P occupation rate is higher in upstream than in downstream. „ P2P traffic occupied no less than approx.50% throughout 24h in Apr.2006. Others (web, mail etc.)

Occupation rate of bandwidth

Occupation rate of bandwidth

Randomly selected day in November 2005

Randomly selected day in April 2006

Top

Bottom

Bandwidth Usage and P2P Users 10% of all users occupy 60 through 90% of the traffic

20

Distribution of uses in all traffic

Traffic volume

75% P2P traffic

25% Other traffic

(more than 90% of all users)

(less than 10% of all users)

P2P users (10%) controls 60 through 90% of the traffic.

63% Heavy users

(10% of P2P users)

37% average users (90% of P2P users)

User (ascending sort )

Top 10% of P2P users(*) occupy more than 60% of the traffic

Bandwidth used by heavy users completely differs from that used by average users.

Traffic volume

average user : 550Mbyte Top 10% among P2P users occupy over 60% of the traffic

x 30

x 190

P2P user : 17Gbyte

P2P heavy users: 104Gbyte P2P User (ascending sort ) (*) “the P2P users” are considered as the users whose P2P traffic exceeds over 1 Mbyte within 24 hrs. (Note) The data was provided by Plala Networks) (partly extracted)

Measured : 2003/6/30 – 2003/7/1 11:59 (*) the Plala Networks has controlled its P2P bandwidth since November 2003, therefore the latest published data in uncontrolled situation is for 2003.

Dispersion of Intelligence in Networks Newly emerging services coordinated between terminal equipment and intelligence in servers (SaaS, online data storage etc.)

networks （meshed End user as a “private” content provider

Remarkable improvement of computing capability of terminal equipment such as ＰＣs

Ubiquitous economy, CGC(Consumer Generated Media), diversity of content delivery mode including P2P

21

Background of Dramatic Traffic Increase ■Broadly usage of P2P-based file exchange, driven by increasing availability for broader upload bandwidth in response to proliferation of FTTH service

■In addition to increase of rich content including video, many new business models with CGC (Consumer Generated Content) have emerged. ⇒Content may flow into the network from a variety of network edges

■Some new factors possibly to making Internet traffic increase. ●Emergence of new communications represented by M2M in line with progress of ubiquitous economy ●Increase of network utilization including SaaS within firms ●Proliferation of grid computing

22

Actions to Be Taken to Cope with Network Congestion Using Ｐ２ Ｐ ■Currently unclear if technological innovation can absorb incremental cost due to increasing traffic. ■For coping with dramatic traffic increase (network congestion), ensuring dynamic Interaction is required between networks and terminals, allowing networks to flexibly absorb traffic fluctuating. （☞network scalability）。 scalability ■Advantage of P2P in allow for improving content delivery efficiency should be utilized. Flexible choice of content delivery technologies such as C/S model and CDN as well as P2P should be ensured.

Field Trials by “P2P Network Experiment Council” (FY07-08)

23

P2P Network Experiment Council

24

z z “P2P “P2P Network Network Experiment Experiment Council” Council” was was established established in in August August 2007. 2007. z z Result Result of of experiments experiments will will be be summarized summarized by by end-March end-March 2009. 2009. ■ Purposes ・“P2P Network Experiment Council” was established with the aim of promoting new content delivery businesses using broadband network, and diffusing the use of broadband services to regional areas. ・ To achieve the above targets, the council participants exchange their information and views on new network services applying P2P application technologies, support P2P-experiments and P2P-services, and examine the results of experiments. ■ Participants(in alphabetical order) – Bitmedia Inc., BitTorrent K.K., BROTHER INDUSTRIES LTD., DREAMBOAT Co.Ltd., INFOCITY Inc., Internet Initiative Japan Inc., Grid Solutions inc., Japan Broadcasting Corporation, J-Stream Inc., Kadokawa Digix INC., Mandala, NEC Corporation, NHK ENTERPRISES Inc., NTT Communications Corporation, SOFTBANK BB Corp., TOKYO SHOSEKI CO.LTD., TOYAMA INTERNET SHIMINJUKU, TV Bank Corp., VeriSign Japan K.K. -MIC (as an observer)

P2P Network Experiment Council SG on Joint Delivery Architecture

SG on P2P Delivery Model P2P Security Guideline Drafting Group Content delivery service providers Content holders Culture

Education

Movies/ Cartoon Films

Sports

Games

Study Group On Effective Delivery Network

Telecommunication carriers, CDN service providers, P2P service providers ISPs, IXs, Content holders

Local Government A

Local Government B

Local Government C

Local Government D

Outline of “Guideline for Packet Shaping (Draft)”(March 2008) １．Background of the Guideline Development of broadband Dramatic Traffic Increase A few heavy users are occupying most of the bandwidth

２．Principle of the Guideline 【Coverage of the Guideline】 ①

Traffic restriction of specific applications (e.g. P2P traffic)

② Traffic restriction or canceling the contract of heavy users whose traffic exceeds a certain threshold

【Basic concept】 In principle, ISPs should increase their network capacity when network traffic has increased. Some ISPs practise “Packet Shaping”

Packet shaping is allowed only in an exceptional situation. Packet shaping should be justified only from an objective criteria.

Based on the discussion in the “WG on Network Neutrality”, ISPs held a conference in Sep. 2007. （MIC is participating as an observer.）

３．Points at issue ◆ Relation to “Secrecy of Communications”（Article 6, Telecommunications Business Law） ◆ Relation to “Fairness in use”（Article 6, Telecommunications Business Law）

◆ How to provide users with information about packet shaping

Establishing the Guideline as a basic principle regarding ISPs’ practise of packet shaping

◆ _Further issues to be considered

４．Schedule March 17 Public comment （～April 14） ⇒

April 2008 Establishment of the Guideline

25

Guideline for Packet Shaping (Draft) 1. Background Background on on the the deliberations deliberations 1.

■ Dramatic traffic Increase / a few heavy users are occupying most of the bandwidth. ■ To tackle these problems, some ISPs currently practise “packet shaping.”

2. Purpose Purpose and and positioning positioning 2.

■ To avoid arbitrary use of packet shaping, the guideline is established as a basic principle regarding the practise of packet shaping by ISPs.

3. Coverage Coverage of of the the Guideline Guideline 3.

■ The guideline covers the following two cases. (1) Traffic restriction on specific applications (e.g. P2P traffic) (2) Traffic restriction or canceling the contract of heavy users whose traffic exceeds a certain threshold.

4. Basic Basic principles principles 4.

5. Secrecy Secrecy of 5. of communications communications 6. Fairness in in use use 6. Fairness

26

■ Basic principle means that ISP should increase the network capacity when traffic has increased. Packet Shaping is allowed only in an exceptional situation. ■ Specifically, Packet Shaping must be justified only from an objective criteria, such as when the QoS of general users is degraded by the traffic of P2P applications which occupy bandwidth excessively and continuously.

■ Clarifies specific cases when packet shaping is allowed as ISPs lawful pursuit of business. ■ Clarifies specific rules to be followed regarding “fairness in use”.

7. Disclosure of of information information 7. Disclosure

■ In terms of consumer protection, ISPs are required to provide sufficient information to users regarding their packet shaping policy (terms and conditions of contract, description of tariffs, etc.) ■ ISPs are also required to provide relevant information to CPs and other ISPs.

8. 8. Issues Issues for for further further consideration consideration

■ Coping with increase of video content (YouTube, etc.) ■ Information sharing systems among relevant players such as ISPs, CPs, etc.. ■ Cost sharing model (cost allocation among ISPs, additional charges for heavy users etc.)

３

Major points of Guideline（１/2）

27

（１）Relation to “secrecy of communications” ■ISPs analyze the header or payload information of the packet when they practise packet shaping*. Such information constitutes “secrecy of communications”（Article 4, Telecommunications Business Law）. ■The guideline clarifies requirements and specific cases when packet shaping is legally allowed. *Cases when the equipment analyzes the data automatically are included.

Requirements for action to be allowed legally (1)Justification of action ①

(2) Necessity of action, balanced with justification

Cases when ISPs restrict traffic of specific applications

【 When ISPs “restrict” traffic of P2P applications such as “winny”】 ＜Conditions＞ ●Justification & necessity for action ・The QoS of general users is degraded by P2P traffic which occupies bandwidth excessively and continuously. ・Packet shaping is for maintaining network stability and securing QoS for other users. ●Validity of means ・The practise of packet shaping is applied only to specific apps whose traffic volume is extremely excessive.

Packet shaping may be justified as a lawful action.

②

(3) Validity of means

Cases when ISPs restrict use of bandwidth for specific users

【 When ISPs “shut out” traffic of P2P applications such as “winny”】 ●Such actions do not satisfy validity of means because ISPs can maintain their operations by other means such as restricting the traffic of P2P apps, which is recognized as a lighter restriction than shutting out the traffic.

Difficult to be justified as a lawful action * In the case where end users agree individually, ISPs can shut out the traffic of P2P applications.

【 When ISPs restrict use by heavy users】 ＜Conditions＞ ●Justification & necessity for action ・QoS of general users is degraded by traffic due to specific heavy users occupying the bandwidth excessively and continuously. ・Packet shaping is for maintaining network stability and securing QoS for other users. ●Validity of means ・The practise of packet shaping is applied only to specific users whose traffic amount is extremely excessive.

Packet shaping may be justified as a lawful action. ☞ It is permissible to check the traffic of respective users, for restricting the bandwidth of heavy users or giving them a warning them to decrease their use.

34

Major Points of Guideline（2/2）

28

（ ２）Relationship to “fairness in use” ■The Guideline clarifies the rules to be followed when implementing packet shaping in the context of the relationship to “fairness in use” (Article 6, Telecommunications Business Law). 【Cases when ISPs restrict P2P traffic of specific heavy users】 ＜Conditions＞ ●ISPs must distinguish heavy users’ traffic from general users’ traffic based on objective data. ●Based on tariffs, the traffic restriction on heavy users should be limited to an equivalent traffic volume of general users.

In general, such an action is recognized as not violating the “fairness in use” principle.

（ ３）How to provide information about Packet Shaping ①

【Cases when ISPs restrict traffic or charge additionally for specific heavy user groups】 ●Discriminatory practises are applied to users under the same conditions.

【Cases when ISPs restrict traffic of specific CPs】 ●CPs are also covered by the “fairness in use” principle.

Except when there is a valid reason, in general, such an action may be recognized as violating the “fairness in use” principle.

ISPs should provide sufficient information about their packet shaping policy to their users. （１）Required Information includes （２）Required measures for providing information （１）Required Information includes include include ◆◆ Implementation Implementation of of packet packet shaping shaping contract contract ◆◆ Terms Terms and and concrete concrete measures measures for for packet packet shaping shaping

（２）Required measures for providing information ◆◆ Clear Clear description description in in the the tariff tariff (addition (addition to to model model

article) article) ◆◆ Provision Provision of of relevant relevant information information on on HPs HPs etc. etc.

② The information on packet shaping policy is also useful for other ISPs and CPs, affected by this policy. In this context, it is required to disclose this information to other ISPs or CPs as well as to users. ③ ISPs with contracts (e.g., transiting or roaming) are required to share information about their respective packet shaping policies. Peering ISPs (with no contracts) are required to provide the same information to those ISPs as well as to users. 35

Relationship between Upper-tier ISP and Lower-tier ISPs

29

CP

ISP-A has an opportunity to compensate for the increasing equipment cost by collecting from CPs and ISP-B.

ISP-A Rich content

（video streaming, etc. ）

transit

ISP-B

ISP-B has no opportunity to compensate for the increasing equipment cost difficult to collect directly from end users.

End user

30

Coping with the Traffic Increase

30

■Additional charge on heavy users? ✔User charges are a fixed rate on a best-effort basis. ⇒Possibility to disturb equality of cost burden among heavy users and light users. ✔In general, it is acceptable to collect an additional charge from heavy users. ✔On the other hand, issues to be considered exist: ・acceptable to develop multi-tiered Internet structures (fast lane and slow lane)? ・possible to find rational price differentiation between heavy users and light users? →In the meantime, a case-by-case approach should be taken. ■Additional charge for CPs? ✔Both the CP and ISP markets are competitive. →Market principle may work. ■Equality on cost allocation among ISPs? ✔Market mechanism may not work due to several factors such as asymmetry of information (eg. upper-tier ISP vs. lower-tier ISP), and increasing burden for enhancing network capacity. ✔It is appropriate to allow for packet shaping without any bit discrimination.

Basic Framework for Ｎetwork Ｎeutrality

31

SG on Network Neutrality (Nov. 2006 – Sep. 2007) Change of Market Structure ■Changes on network structure （Transition from PSTNs to IP based networks） ■Progress of market integration such as FMC ■Proliferation of new communications such as P2P

Network neutrality (from the user perspective) (1) IP-based networks should be accessible to users and easy to use, allowing ready access to content and application layers. (2) IP-based networks should be accessible and available to any terminal that meets the relevant technical standards, and should support terminal-to-terminal (or “end-to-end”) communication. (3) Users should be provided with equality of access to telecommunications and platform layers at a reasonable price. Note: In this case, "the user" refers not just to end users but also includes content providers and other related companies that conduct business using IP networks.

Ensuring utilization of networks “with proper cost allocation”（A） & “without any discrimination”（B） Equitable cost distribution of networks (A) Neutrality of cost sharing models for upgrading the communications networks

Equal access to networks (B) Neutrality of telecommunications layer with respect to other layers

32

Change of Market Structure and Network Neutrality

Physical network layer

Collaborative business models

Communication service layer

Business model developed by one single player

Vertical integration

Platform layer

a variety of content and applications

Ubiquitous networks Horizontal integration

Users including Ｍ２Ｍ

A variety of intelligence aroud networks

Content and application layer

Differences between the Internet and NGNs

33

■Internet a) No scheme to ensure overall QoS on end-end basis. b) Each NW is interconnected on a multilayer basis and the Internet itself is an open and autonomous network. c) Best effort model to find out best solution through collaboration among anonymous players. Interconnection with IP

B

C X

A

D

■Next Generation Networks（ＮＧＮs） a) IP-based networks are to be restructured from legacy PSTN networks. b) Networks are controlled by carriers to ensure QoS and security though the functions of SDP (Service Delivery Platform). video

Network Restructuring

Message

Video telephony

IP based networks

PSTNs

５

Freedom to Choose Networks Next Generation Network Application Servers

Application function

Video phone

34

Internet collaboration

Content ･･･････ delivery

Interconnection among ISPs

B

Tier 1

C

Platform/Service function

Session Control

Authentication Security

Core node

Core Networks

Edge node

Optical access

collaboration

D

X

Network function （transmission)

Access Networks

Charging

Wireless LAN

PCs

collaboration

Other accesses

cell phones

QoS may differ according to network

A

Security and authentication system may depend on applications used in terminals

telephones

ubiquitous network

TVs

E

Networked home appliances

Interconnection Rules on Next Generation Networks

35

Application Servers Application function

Video phone Session Control

Platform/Service function

Access Networks

xDSL

Authentication Charging Security

Core node

Core Networks Network function （transmission)

Content ･･･････ delivery

Edge node Optical access

Wireless LAN

Other accesses

Fixed/Mobile phones, networked home appliances , PCs.

Issues to be considered ■Scope of facilities required to be opened

✔In addition to NNI and SNI, additional measures should be taken to ensure openness between different layers, taking care of requests by competitive carriers as well as NTT East and West. ✔Necessary to let unbundling rules flexible, reflecting characteristics of IP based networks.

■Calculation methodology for access charges

✔Methodology to set access charges reflecting characteristics of IP based networks (appropriate profit level should be achieved for NTT East and West). ✔Developing charge settlement system between NGN and ISPs

■Setting appropriate terms required for interconnection (equivalency between NTT East & West and competitive carriers) ■Other issues including measures to ensure openness for video delivery platform, smooth coalition between fixed networks and mobile networks

Interconnection rules for NGN developed by NTT East/West are currently currently under discussion at Telecommunications Council. (The report is expected to be finalized by the end of March 2008.) 2008.)

Outline of Dominant Regulations Applied as one

Service regulations

Restrictions

Applied as necessary in case of exceeding 25% of the above weight returns

Tariff and price (cap) regulation ■Restriction of information usage only for specified business ■Equal treatment of other companies ■Equal treatment of manufacturers, etc. ■Firewall with specified carriers

Authorization of interconnection tariffs

Interconnection rules

36

■Restriction of information usage only for specified business ■ Equal treatment of other companies ■ Equal treatment of manufacturers, etc.

Notification of interconnection tariffs

Rules for interconnection tariffs (e.g. LRIC) Development of interconnection accounts Telecommunications facilities (fixed) designated as essential facilities

Facilities without any essentiality although the number of providers is limited due to availability of frequency

Facilities Access lines and related telecommunications facilities

Criteria

Telecommunications facilities serving a relatively larger proportion of subscribers

Access lines with more than 50% share (designated on a prefectural basis) NTT East and West

Type I designated facilities (fixed)

Base station lines and related mobile telecommunications facilities Access lines with more than 25% of share (designated on a business area basis) NTT DoCoMo etc.

Type II designated facilities（mobile)

37

Basic Directions for Reviewing Dominant Regulations Service regulations

＋

Share of access lines

bottleneck

Identify the market having possibility to abuse market dominance* (vertically and

Essential facility

horizontally)

Interconnection related regulations to open up bottleneck facilities

Conduct restrictions

Market dominance

Identify submarkets (converged markets) * (Focus to be shed mainly on the horizontal equivalent competition)

Other market dominance

Caused by Market share * oligopolistic + α market environment

Identify the market having possibility to abuse market control power* (vertically and horizontally) Add these concepts

○ ○

Leverage of market dominance on relevant markets Possibilities of collective dominance in collaboration with allied companies

*mark indicates the possibility to take advantage of competition review mechanism.

Notification of tariff for interconnection

Conduct restrictions

Outline of Network Neutrality Issues Equitable cost allocation of networks Revealing network congestion（traffic volume doubled in ２ years）

Necessity for developing cost sharing model on building up additional network capacity

■Additional charge for heavy users（☞no specific factor to disturb healthy competition. More detail discussion on reasonable differentials between heavy users and light users etc.） are to be required. ■Additional payment by CPs to ISPs --- not required under the healthy competitive environment in CP and ISP market (dependent on market mechanism) ■cost cost allocation between upper tier ISPs and lower tier ISP (possibility (possibility for market mechanism not working effectively） effectively）

Necessary to develop scalable networks to absorb fluctuations of traffic

Basic principles on packet sharing to be specified to avoid disturbing competition, ensuring confidentiality of communications, proper measures to provide Information on packet shaping to subscribers etc.

Easing traffic congestion by taking advantage of Ｐ２Ｐ technology

certain level of criteria on packet shaping to be developed

Field trials on traffic dispersion using Ｐ２Ｐ technology

Development of “Guideline for packet shaping” shaping”

38

Equal access to networks

Development of NGNs

Progress of Market Integration

Necessity of preventing abuse of market dominance （ensuring horizontal and vertical fair competition

Establishment of interconnection rules on NGNs developed by NTT East and West

Issues to be considered include: ✔scope of facilities required to be opened ✔calculation method of access charges ✔terms for interconnection by competitive carriers ✔other issues including measures to ensure openness for video delivery platform, smooth coalition between fixed networks and mobile networks

Consideration of interconnection rules on NGN

Review of dominant regulation regulation in correspondence correspondence to market integration Issues to be considered include: ✔ Review of threshold definition on market dominance ✔ Prevention on abuse of market dominance among plural markets (Collective dominance, leverage of market dominance with other closely related markets) ✔ Establishment of mechanism to prohibit market dominance jointly abused by dominant carriers and related entities ✔ Utilization of competition review system

Consideration of reform of dominant regulations

Study Group on Internet Policy ☞

1st phase Study Group on Network Neutrality

（Nov 2006～September 2007）

New Competition Promotion Program 2010 （revised in October 2007）

New Competition Promotion Program 2010

2nd phase Study Group on Internet Policy

（February ～December 2008）

（Revised on 23 October 2007） 2007）

➢ Development of Environments Intended to Ensure Network Neutrality In the transition to IP-based networks, a study shall be undertaken concerning the framework for network neutrality, such as fair usage of networks (neutrality of the communications layer to the other layers) and fairness in cost sharing for the networks (neutrality of the cost sharing model for increasing network capacity). For this reason, MIC shall, based on the "Study Group on Network Neutrality" report (released in September 2007), continue to consider the following regarding several issues over network neutrality. (b) Consideration of How Network Neutrality and Competition Models should Be While network structures and market environments are changing drastically in front of us, MIC shall establish a new venue for consideration in FY2007 to extract and summarize a wide range of medium-term policy issues related to how network neutrality and the competition model should be, such as the appearance of business models with earnings models that differ from the existing ones, effects on the competition environment from increasing borderlessness driven by the Internet and the nature of the Internet governance related to it, how market environments should be developed as IPv4 is transitioning to IPv6, and the direction of business expansion in local regions by entities such as ISPs and CATV operators, and draw a definite conclusion, with 2008 as the approximate due date.

39

Issues to be Considered at Study Group on Internet Policy SG on Network Neutrality （Phase １）

Equitable cost allocation of networks

Ｐ２Ｐ network experiment （～FY08）

SG on Internet Policy （Phase ２）

Follow-up

（further study）

Development for smooth content delivery systems Other possible solutions for network congestion

Business environment for ISPs Review on impact on market structure In the transition to IPv6

Network neutrality

Interconnection rules for NGN developed by NTT regional companies （to be concluded by the end of March 2008）

Equal access to networks

Review of dominant regulations (to be concluded by the end of 2008)

Other relevant matters

Promotion of diversity of access networks

Review of legal framework In correspondence to emerging new business models

SG on Platform Functions (Feb. – Nov. 2008)

Internet governance issues

Enhancement of ＣＡＴＶ Development of models for sharing responsibility Consideration on new business models New competition rules in response to borderless internet

Development of overall internet strategy

Development of guideline for packet shaping （Spring 2008）

40

41

Broadband Competition Policy in Japan

■Current Status of Broadband Market in Japan ■Outline of “New Competition Policy Program 2010” ■Specific Issues □Network Neutrality Issues

✔□Revitalization of Mobile Business

42

Number of Mobile Service Subscribers (Unit : 10（ thousand subscribers) 10,000 people subsc r ibed）

（r at e of inc r ease（％））

12,000

10,000

180 number of subscribers rate of increase from previous year

10,170 160

8,665

9,147

9,648 140

8,112

8,000

120

7,482 6,678

100

5,685

6,000

80

4,731 3,825

4,000

60

2,691 2,000

0 End of the year Number of subscribers Rate of increase from previous year

40

1,171 49

87

138

171

213

1989

1990

1991

1992

1993

1989

1990

1991

1992

20

433 1994

1993

1995

1994

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

0

2006

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

49

87

138

171

213

433

1,171

2,691

3,825

4,731

5,685

6,678

7,482

8,112

8,665

9,147

9,648

10,170

101.6

77.3

58.8

24.3

24.5

103.2

170.4

129.7

42.2

23.7

20.2

17.5

12.0

8.4

6.8

5.6

5.5

5.4

43

Change of APRU for Mobile Business Change of t he rat io by service in t he whole APRU

（ Yen/ person） 15,000 12,000 9,000 6,000 3,000

8,235

7,853

7,570

7,004

6,769

6,662

1,346

1,607

1,805

1,740

1,867

1,992

6,889

6,245

5,766

5,263

4,902

4,670

2001

2002

2003

2004

2005

2006

dat a ARPU voice ARPU

0

（US$ per year)

ＡＲＰＵ（２００３）

The ratio of the data APRU in the whole ARPUに占 めるデ ータARPUの比 率 APRU

(%) 30

1,000

25

800

Year

24 20

20 600

18

17 14

15

13

13

400

10 200

6

米国

オーストラリア

イタリア

韓国

ドイツ

フランス

（*）ＡＲＰＵ（Average Rate Per User）

0

英国

U. K.

It a ly

Ge rm an y

Fr an ce

Ko re a

Au st ra lia

U. S.

Ja pa n

0

日本

5

（MIC）

Market share by main mobile phone operators

44 ＨＨＩ（*

share 100%

5.6% 5.3% 5.2% 5.0%

5.0% 4.9% 4.8% 4.6% 4.5% 4.3% 4.2% 4.1% 4.0% 3.8% 3.7% 3.5% 3.6% 3.7% 3.9% 4.1% 4.2% 4.3% 4.4% 4.5%

6000

90% 15.2% 15.6%15.9% 16.3%16.5% 16.7%16.8% 17.2%17.4% 17.3% 17.3% 17.2%17.1% 17.0%16.9%16.4%16.2% 16.0% 16.0%15.8% 15.6%15.5% 15.5% 15.6% 80% 5000 70%

22.4%22.2%21.7%21.5% 21.6% 21.7%21.8% 21.9% 22.2%22.5%23.0% 23.7%24.0%24.4%24.8% 25.3%25.6%25.9% 26.1%26.4%26.6% 26.8%

27.3%27.7%

60%

50%

3989 4000 4023 4024 4001 3993 3983 3966 3941 3943

3924 3903 3897 3902 3901 3926 3915 3896 3875 3855 3843

3827 3796 3756

4000

40%

30%

56.8% 56.9% 57.2% 57.2% 56.9% 56.7% 56.6% 56.3% 55.9% 55.8% 55.5% 55.0% 54.9% 54.8% 54.7% 54.8% 54.6% 54.4% 54.1% 53.8% 53.6% 53.4% 52.8% 52.2%

3000

20%

10%

0%

2000 01.6

01.9 01.12 02.3

02.6 02.9 02.12 03.3

Docomo group

ドコモグループ

03.6 03.9 03.12 04.3 04.6

au group (including Tu-ka)

auグループ(ツーカーを含む）

04.9 04.12 05.3

Softbank mobile

ｿﾌﾄﾊ ﾞﾝｸﾓ ﾊ ﾞｲﾙ （ 旧ＶＦ） (previous Vodafone)

05.6

05.9 05.12 06.3 Others

その他（ ＰＨＳ／ﾄﾞｺﾓ を除く） (exclude PHS/Docomo)

06.6

06.9 06.12 07.3 (right)

ＨＨＩ (右軸）

（*）ＨＨＩ（Herfindahl-Hirschman Index） one of the indicator to measure the degree of monopolizing market. Squares the number of each operator’s market share and adds up. its range is from 0 to 10,000, and means higher degree of monopoly when it close to 10,000.

（from MIC)

Changes required in Mobile Business Business Model 1.0

Content application layer Content application layer

45

Business Model 2.0

Content & Applications

Content & Application

Platform layer Platform layer

Mobile Service Vertically integrated Business models

Progress broadband development and IP transition

ＦＭＣ

Fixed Service

Open Mobile Business Environment

Network layer Network layer

Terminal layer Terminal layer

Mobile terminal

Users

variety of ubiquities terminals （including home appliances）

A various ways to utilize telecommunications services including M2M (machine to machine)

Ubiquities Network

Telecommunications Telecommunications service layer service layer

Mobile Service

Review of Sales Model for Mobile Business (1) Role of sales incentives

Matters to be considered

✔Activating the potential demand for high end terminals by providing users with “low price.” ✔Facilitating diversification of services through bundling terminals and services.

1. Lack of users’ users’ recognition that cost for terminals is implicitly financed by service price. 2. Rational and equal cost bearing has not been ensured among users. users. 3. increase of cost owed by carriers due to increasing sales incentives incentives consisting of one forth of APRU 4. Lack of diversity resulted by unifies sales method 5. Concerns for fair competition caused by that access charge or wholesale price is calculated based on rate base where sales incentives are included. 6. Limitation for diversity of terminal development with only carriers carriers can decide details of terminals. 7. Concerns for letting the terminal market shrink

Necessity for revising the current sales model

（discuss policy to clearly show users the terminal cost and the connection cost）

Current sales model

terminal price

Lack of transparency caused by bundling terminal price and service price

Existence of unfairness among users

sales Incentive

users cover

service fee

Cost equivalent to sales incentives can be recovered from service revenues within a certain period of time.

（rational） service fee

46

Review of Sales Model for Mobile Business (2) Current Model

New Model

Terminal price

Terminal price

(initial cost)

Sales Incentives

User

Excluded from rate base for access charge and/or wholesale price in the telecom business accounting rule

User

Terminal Fee [Monthly] (equivalent to the sales incentives for terminals)

47

■

Promotion of MVNO entry through reductions in access charge and wholesale price

■

Clarification of earnings and expenses related to terminal sales (implicit pressure to decrease sales incentives)

Compensated for sales incentives

Service fee [Monthly]

Partial introduction in 2008 Consideration of fullfull-scale introduction by 2010, at the latest

Service fee [Monthly] Separation Plan (separation of terminal fees from service fees)

Period Contract

Status of SIM unlock ■The real significance of SIM locks will disappear through the introduction of service period contracts. ■However, differences in 3G systems do exist (W-CDMA [Docomo / Softbank] and cmda2000 [au]); thus, SIM unlocks at this time could distort competition. ■In In principle, SIM unlock is desirable. Looking at the direction of future development for BWA and the terminal market, by 2010, this issue of SIM unlock will be concluded at the timing of 2010.

■ Correction of inequality on burden of terminal costs

■ Promotion of terminal diversification through SIM unlock

Promotion of New Entries of MVNOs ■ MVNOs (Mobile Virtual Network Operators) provide telecommunications service service without setting up their own wireless facilities. ■ MNO goes beyond simple telecommunications service provision to implement implement vertically integrated business including content/application content/application layer, represented by music and game distribution, and alliance with financial services. ■ It is expected players in other areas come as MVNOs into the mobile communications market and build up new business models. ■ A “winwin-win” win” relationship can be built between MNO and MVNO.

Service Diversification

Service provision

Users (Enjoy a diversity of services)

New Market Creation MVNO (Entry from a variety of business categories)

Added Value (Services and terminals)

MVNO

Wholesale service and/or interconnections

MNO (incumbent mobile telecom carriers)

Linkage of existing services with mobile services Creation of New Markets Economic Revitalization

games, e-money and more MNO (incumbent mobile telecom carriers)

Revitalization rsification Revitalizationof ofthe themobile mobilebusiness businessand andachieving achievingservice servicedive diversification through throughpromotion promotionof ofnew newentries entriesas asMVNO MVNOinto intothe themobile mobilemarket market

48

Outline of “Mobile Business Vitalization Plan” (September 2007) Content Application Layer Platform Layer

Mobile Business Vitalization Plan ■Study on business interoperability at platform layer (ID portability portability etc.) (Study to be launched by the end of FY 2007)

Communication Service Layer

Physical Network Layer

■Provision of information on applicability of related legal frameworks frameworks for MNOs and MVNOs (starting within FY2007) ■Considerations for MVNO acceptance when allocating frequencies for new systems

■Clarification of accounting related to sales incentives (revision (revision of ordinances on Telecommunications Business Accounting by the end of FY2007) ■Partial introduction of new fee plan (separation plan for service service fees and terminal price) in 2008 (final conclusion to be considered by 2010 at the latest) ■Reexamination of important explanatory items for consumers relating relating to terminal price and service fees (reexamination “Consumer Protection Guidelines” Guidelines” by the end of FY2007)

Terminal Layer

■Consideration of SIM unlocking (final decision to require for SIM SIM unlock to be made by 2010)

Discussion of comprehensive legal system for communications and broadcasting (ongoing discussion)

■Consideration of standard tariff for wholesale service provided by MNOs to MVNOs

Creation of special ubiquitous zones (discussion aimed at implementation)

■Revision of MVNO Business guidelines* (implemented by the end of 2007)

Diversification of mobile access network (ongoing discussion)

■Promotion of terminal platform standardization (creation of terminal terminal testbed, testbed, etc.)

Consumer Interface

■Discussion of measures for strengthening consumer protections

Maximize benefit for Japanese users and help give Japan’s ICT industry a comparative advantage

49

50

Any Question?