Japan's Cable TV Industry: Saved by the Net?Japan's fledgling cable TV industry faces stiff competition from the new PerfecTV and DicrecTV digital satellite broadcast services. But the Internet may just be a weapon for self-defense.by Noriko Takezaki The recent introduction of digital satellite broadcast services has put great pressure on Japan's struggling cable TV operators. Although the Ministry of Posts and Telecommunications (MPT) continues to chant the mantra that conditions for the Japanese cable TV industry are improving, cable TV operators themselves see the future as looking gloomier than ever. In the face of increasing competition, they lack a confident strategy to cope with the dawning digital era. According to a recent MPT survey (released in October 1997), the condition of the Japanese cable TV industry showed considerable improvement during fiscal year 1996. The number of cable TV operators, for example, had surpassed 42,000 at the end of March 1997, a year-on-year growth of 4.8%. The number of cable TV subscribers, meanwhile, had grown to 12.6 million nationwide, a 14.8% increase. Of the total number of cable TV operators, the number of urban cable TV" operators (defined as those who do not offer services to rural areas where conventional terrestrial broadcasts are hard to receive) had reached 708, a year-on-year growth of 10.5%. The subscriber base of these urban cable TV operators, meanwhile, had surged to just over 5 million (up by 37.5%). The overall sales revenues of cable TV operators, meanwhile, increased dramatically (by 89.3%) in FY1996, reaching 213.1 billion. This contributed to a reduction in the cable TV industry's yearly ordinary loss" to 10.7 billion, a decrease of 2 billion from FY1995. After noting that almost half (49.3%) of Japan's cable TV operators produced a profit in FY1996, the MPT report concludes that the condition of the cable TV industry is continuously improving.
Meeting the digital threat The introduction of digital technology is a must for Japanese cable TV operators if they are to survive in the new era of convergence between broadcasting and communications," says Takashi Miyaji, director of Musashino-Mitaka Cable TV. Since we cannot compete with the digital satellite broadcast companies in terms of the number of channels we offer, our only chance for survival is to also offer communications services via our cable TV network." Musashino-Mitaka Cable TV, backed by Fujitsu, started Japan's first commercial cable TV-based Internet connection service in October 1996, not long after the summer launch of its 43-channel cable TV service. In addition to Musashino-Mitaka, to date 28 other cable TV operators have applied for telecommunications carrier licenses. More than half of these operators had originally planned to start their communications services in 1997, but several were forced to postpone their service launch mainly due to Hewlett Packard's unexpected withdrawal from the cable modem business. Hewlett Packard's product, the QuickBurst series of cable modems, had been expected to play a key role in offering Internet services over cable TV networks. In Japan, Tokyu Cable TV, Kintetsu Cable TV, Himawari Network, and LCV had each planned to start offering cable TV-based Internet connection services in 1997 using QuickBurst modems. Hewlett Packard's announcement in spring 1997 that it was discontinuing production of its QuickBurst modems, however, forced these four operators to go back to square one and completely reconsider their operation plans. Several other cable TV operators have been waiting for the anticipated spring 1998 release of cable modems that incorporate the newest technology standard. These modems will comply with the standard specifications (agreed to in March 1997) that were developed by a US cable TV operators' association, the Multiple Cable Network Service (MCNS).
A year of experience telecommunications license, Musashino-Mitaka has been offering Internet services since autumn 1996. Among the services it offers are a dial-up IP (Internet protocol) connection service and a LAN-type IP-assigned connection service for individual users, as well as a LAN-type IP connection services for corporate users. Musashino-Mitaka's dial-up IP service, with a maximum connection speed of 56K bps, is offered at a monthly fee of 1,860 for up to 4 hours, 3,300 for 4 to 10 hours, and 5,700 for 10 to 20 hours. The fee for more than 20 hours of use per month is a time-based 8 per minute. For the individual LAN-type IP-assigned service, a connection at 192K- to 10M-bps is offered at a monthly fee of 3,860 for up to 4 hours, 7,100 for 4 to 10 hours, or 12,500 to 10 to 20 hours. The fee for more than 20 hours of online time per month is 18 per minute. For corporate users, a LAN-type IP connection at 256K- to 10M-bps is available for a flat monthly fee of 235,000 (no additional leased circuit charge is required). The company also offers Website hosting space at no charge for up to 5MB, and 5,000 per month for each additional 5MB or fraction thereof, as well as multiple e-mail accounts and news services. After having offered its Internet connection services for over one year, Musashino-Mitaka admits that it has encountered a few technical problems. Most vexing of these is "ingress noise" - interference from electronic appliances being used in subscribers' homes. Director Miyaji claims that ingress noise does not seriously degrade the quality of the service, but he admits that a problem does exist and has disrupted upstream communications services in some cases. Musashino-Mitaka has been investigating the causes, but has not yet concocted effective countermeasures. The problem of ingress noise is more serious for residents of apartment buildings, since ingress noise originating in one apartment can go through the serial wiring to affect all other subscribers in the building. The problem is relatively easy to address in rental apartment buildings, says Musashino-Mitaka, since the entire building wiring configuration can be upgraded by simply obtaining permission of the building owner. However, in manshon (condominium) buildings, individual permissions must be obtained from each apartment resident/owner. In some cases, too, the building structure may also impose limitations on a configuration change. On the operational side, the shortage of qualified engineers is another big issue for cable TV operators who attempt to offer communications services. The cable TV industry has few engineers sufficiently knowledgeable about and experienced in handling the technical aspects of communications services, particularly regarding the Internet and hardware/software applications. To successfully start and maintain a cable TV-based communications business, however, such technical knowledge and expertise are crucial. Another hurdle is the billing method. According to Miyaji, in order for cable TV operators to earn a profit on their communications services, the billing for Internet access should be based on volume or time rather than being offered at a flat rate. "Many people seem to think that Internet services over a cable TV network can be provided at a lower cost than the connection service of other providers," he observes. "But this is not true. For us, it is like having two kinds of networks - one for cable TV broadcasts and another for Internet access. The maintenance work and management of such networks require much time and expenditure."
No other option In order to compete with the wider variety of selections offered by digital satellite broadcast companies, therefore, cable TV operators feel they need some point of differentiation. "We expect that the demand for Internet services will continue to grow, as convergence between communications and broadcasting advances. Sticking to offering broadcast services only would make it very difficult for us to provide a platform that fits into the coming multimedia age," says Miyaji. As part of their communications services, some cable TV operators are planning to provide such options as Internet phone service, high-speed transmission for images and video, tele-medicine services that connect doctors with patients or their care-providers at home, and community services that connect residents with the administrative services sections of local governments. Japan's cable TV operators, however, still have a long way to go, in terms of both technical capability and business expertise, before they can successfully offer such services. The road ahead is by no means easy, even for those operators who are successful in launching communications services. The cable TV operators will face tough competitors, including the telecommunications carriers who can provide inexpensive Internet services - such as NTT's OCN (Open Computer Network), Japan Telecom's ODN (Open Data Network), and Teleway's Sirius. NTT's FTTH (fiber-to-the-home) plan is another major threat, since it would allow NTT subscribers to access the Internet at 10 per three minutes via NTT's nationwide fiber-optic network. Originally, the MPT had given NTT a deadline of 2010 for realizing nationwide FTTH. In a Cabinet meeting for economic measures held in November 1997, however, a decision was made to advance the realization of FTTH to 2005. This puts further pressure on Japan's cable TV operators, who will need to establish their own communications service infrastructure before FTTH implementation if they are to get and keep market share. Whether Japan's cable TV operators can rise to the occasion, overcome the obstacles, and match their broadcasting and communications competitors remains a big question. But the answer will not be long in coming. Unless cable TV operators can clear most of the hurdles and implement hybrid services by 2005, it will be very difficult for them to survive in tomorrow's digital era.
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