VoIP in Japan continues to grow with the implicit support of the government, which sees the sector as critical to its high-tech industry policy.
Last October's auction of 9 million IP numbers to voice providers is testament to the bullishness of the market.
Of these, 5.5 million were snapped up by Softbank-owned Yahoo! BB, the driving force in Japan's broadband market. It was Softbank's legal challenge to NTT two years ago that forced the incumbent to open up its exchanges to leased DSL, thus sparking the competition that has created the world's largest broadband market by subscribers.
If successful, it may well be that Yahoo BB writes the book on the broadband business. It now has more than 3 million DSL users, of whom 90% also subscribe to a voice service. Softbank chairman Masayoshi Son has laid out his plans to get into voice, broadcast and other industries on top of broadband connectivity. But for all his efforts, Yahoo! BB is not making any money.
To date, the voice service represents only about 1,000 yen ($8.30) of the 4,000-yen plus ARPU for Yahoo! BB, which last year posted a $708 million loss, although operating losses are falling while customer acquisition losses are also declining.
But the voice business is still virgin territory, and the rules are still being determined.
Much will depend on how well Softbank can "develop and commercialize new services," says a Yankee Group report, which warned that the startup must ward off competition from FTTH and WLAN providers as well as NTT.
Yahoo BB is up against two major business groups, with Japan Telecom, KDDI, NEC and Matsushita on one side, and NTT Communications, Nifty and Sony Communications Network on the other. Providers in each consortium have interconnected their networks, enabling their users to call each other free.
But they don't always interconnect with the PSTN, says Walsh.
"It's very confusing from the point of view of users. To now, it's been very simple. VoIP users have basically used the on-net capability, called other users within the same provider, IP-IP, on the net," says James Walsh, a senior analyst with Yankee Group.
"What is happening now, with those providers interconnecting, with backbone peering with long distance players, in some cases a call is possible, and in other cases it is not."
Still, Japan is where the early shockwaves of the VoIP revolution can be felt. For a start, the 5 million or so IP voice users are learning that distance no longer matters.
On-net calls between all locations are free. A three-minute call from a switched to IP phone costs between 10.4 and 10.7 Yen ($0.095--$0.097)--or five to eight times less than PSTN long-distance rates, says Walsh. A call from an IP to a regular phone is charged at the standard rate, about eight yen per minute.
The introduction of the IP numbers with the 050 prefix provides some definition for VoIP services.
But Geoff Letts, a research fellow for Yankee's Asia-Pac telecom group, warns that quality was already an issue for consumers, along with interconnect uncertainties. Letts and Telegeography's Beckert both note anecdotal evidence of uncertain quality and reliability in Japan and the U.S. The fundamental problem is that a VoIP service rides on top of a DSL or cable connection delivered by another provider.
