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Japan's Warp-Speed Ride to Internet Future
Yet the story of how Japan outclassed the United States in the provision of better, cheaper Internet service suggests that forceful government regulation can pay substantial dividends.
The opening of Japan's copper phone lines to DSL competition launched a "virtuous cycle" of ever-increasing speed, said Cisco's Pepper. The cycle began shortly after Japanese politicians -- fretting about an Internet system that in 2000 was slower and more expensive than what existed in the United States -- decided to "unbundle" copper lines.
For just $2 a month, upstart broadband companies were allowed to rent bandwidth on an NTT copper wire connected to a Japanese home. Low rent allowed them to charge low prices to consumers -- as little as $22 a month for a DSL connection faster than almost all U.S. broadband services.
In the United States, a similar kind of competitive access to phone company lines was strongly endorsed by Congress in a 1996 telecommunications law. But the federal push fizzled in 2003 and 2004, when the Federal Communications Commission and a federal court ruled that major companies do not have to share phone or fiber lines with competitors. The Bush administration did not appeal the court ruling.
"The Bush administration largely turned its back on the Internet, so we have just drifted downwards," said Thomas Bleha, a former U.S. diplomat who served in Japan and is writing a history of how that country trumped the United States in broadband.
As the United States drifted, a prominent venture capitalist in Japan pounced on his government's decision to open up the country's copper wire.
Masayoshi Son, head of a company called Softbank, offered broadband that was much cheaper and more than six times as fast as NTT's. He added marketing razzmatazz to the mix, dispatching young people to street corners to give away modems that would connect users to a service called Yahoo BB. (The U.S.-based Yahoo owns about a third of it.) The company's share of DSL business in Japan has exploded in the past five years, from zero to 37 percent. As competition grew, the monthly cost of broadband across Japan fell by about half, as broadband speed jumped 33-fold, according to a recent study.
"Once a customer enjoyed the high speed of DSL, then he or she preferred more speed," said Harumasa Sato, a professor of telecommunication economics at Konan University in Kobe.
The growing addiction to speed, ironically, is returning near-monopoly power in fiber to NTT, which owns and controls most new fiber lines to homes. Growth of new fiber connections exceeded DSL growth two years ago. Fiber is how all of Japan will soon be connected -- for phones, television and nearly all other services.
"NTT is becoming dominant again in the fiber broadband kingdom," Sato said.
That infuriates its competitors. Yahoo BB and others are demanding that the government once again compel NTT to unlock the lines.
In Japan, the regulatory wars over broadband are far from over.
Special correspondent Akiko Yamamoto contributed to this report.