This post is by Tony Brown, senior analyst with Informa Telecoms & Media covering the broadband and internet industries in Asia Pacific.
Here in Australia the debate over the A$37 billion FTTH National Broadband Network (NBN) has been as bitter and partisan as anything I have seen in my 15 years living down under, at times it has made debates over traditional hot-button issues like abortion and gay marriage seem like tea and biscuits with the local Vicar.
As an analyst one of the most frequently asked questions I have received from mainstream journalists during the NBN debate is, “Why do we need the NBN anyway, why can’t we just do it with wireless?”
Indeed, I once appeared on a Melbourne AM radio station with a well-known conservative-leaning host to answer this very question, this required a lengthy explanation that going all-wireless would not be possible because of spectrum constraints and that fixed-broadband networks were irreplaceable. I haven’t been invited back.
Nonetheless, the suspicion still lingers in conservative circles that something is not quite kosher, the booming device eco-system of smartphones and tablets convincing many of them that “wireless is the future” and that the boring, expensive fixed-broadband NBN was a scandalous waste of money from a profligate, socialist (if not downright communist) government.
That’s Tokyo calling….
Although the fact remains that wireless networks – even the greatly hyped newcomer LTE – can’t carry the weight of demand for bandwidth from subscribers, there is now serious evidence emerging that the arrival of high-speed LTE networks coupled with the smartphone and tablet boom is creating serious problems for FTTH operators in some markets.
The best example of this is coming from Japan where fixed-broadband giants NTT East and NTT West have been forced to slash their FTTH prices for new subscribers by an eye-watering 34 per cent from ¥5,460 (US$66.70) to ¥3,600 per month to try and re-ignite their subscriber growth and stop the outflow of subscribers to cheaper LTE mobile broadband services.
Sister-company NTT DoCoMo launched its initial LTE services back in December 2010, with rivals KDDI, Softbank and eAccess launching only this year, with DoCoMo’s LTE subscribers growing rapidly to hit 6.2 million at end-September – despite the embryonic nature of the LTE device eco-system and the fact that LTE has only recently reached mature network coverage.
At the same time though NTT East and NTT West’s FTTH subscriber growth has significantly slowed down – despite the fact that overall national FTTH household penetration was still just 46 per cent at 2Q12 – with the firms’ combined net subscriber adds for the year to end-June 2012 falling to 1.2 million, down from 1.7 million in the year to end-June 2011 and from 2 million in the year to June 2010.
Those figures tell a worrying story for NTT, which has spent a huge amount on deploying its nationwide FTTH infrastructure but now sees FTTH subscriber growth slowing markedly across the board, with rival FTTH firms also seeing similar slowdowns in their own FTTH subscriber take-up – hence the whopping 34% price cut.
A changing landscape
The irony of slowing FTTH subscriber growth in Japan and the rise of LTE is that it comes at a time when DoCoMo has actually significantly rationalised its mobile broadband pricing, sweeping away the old all-you-can-eat era with a cheapest price of ¥4,935 (US$60) per month for just 3GB of data – albeit at potential super-fast LTE download speeds of 75Mbps.
Sources at NTT East and NTT West are unequivocal in their views that the biggest, single reason for the slowdown in FTTH subscriber growth is the fact that many young subscribers now prefer to have their own ‘personalised’ LTE broadband services rather than paying for a household-based FTTH service – in addition to which they would be paying for a smartphone LTE data plan anyway.
Initially, many at NTT East and NTT West were convinced that fixed-mobile broadband replacement in the LTE era would be relatively limited because of the fact that mobile broadband would not provide a sufficient data allowance for subscribers to watch movies, download music etc. – but that assumption is proving somewhat flawed.
Sources at NTT East say that LTE subscribers seem to be adjusting their behaviour to fit with the realities of mobile broadband and that they are ‘snacking’ on video-clips and music on their smartphones and tablets rather than downloading multiple HD movies and engaging in the sort of behaviour they would on an FTTH connection.
Of course, operators would ideally like subscribers to take both mobile and fixed-broadband and although NTT East and NTT West are not allowed to bundle their FTTH services alongside DoCoMo’s mobile services, second-ranked player KDDI is aggressively bundling its smartphone plans with its FTTH services.
A rational conclusion
None of this evidence from Japan means that fixed-broadband is dead and we can all live in an LTE utopia – although some partisans might decide to make that their main conclusion – but it does show that once LTE becomes available on a national scale then it has the ability to make a significant impression in the broadband marketplace.
Moreover, although more hard evidence is required on this issue, we can also start to see that LTE subscribers – aware of the limited data allowance they have available – actually use LTE very differently to how they use a FTTH connection with its unlimited data allowance.
From what we can see Japan’s LTE subscribers are becoming more sophisticated in their understanding of the value of mobile data and are increasingly prepared to trade the unlimited data allowances available on FTTH for the mobility and cheaper price of LTE – despite much smaller data allowances.
Of course, when Japan’s LTE networks start getting more congested we might see some of the FTTH ‘refuseniks’ come back to the fold and FTTH take-up might begin to rise again – but that is no sure bet, especially if operators manage to make Wi-Fi offloading seamless and therefore reduce LTE traffic congestion in high demand network areas.
Clearly, fixed-broadband networks aren’t going anywhere but if the Japanese experience is anything to go by LTE could take a much larger seat at the broadband table than we had first imagined.