Development Bank of Japan
Research Report
No. 20Current Situation and Challenges for Cable
Television in the Broadband Era

October 2001

Economic and Industrial Research Department
Development Bank of Japan

This report was originally published in Japanese as Chosa No.22 inMarch 2001.

Contents

Summary ............................................................................................................................. iii
Introduction .......................................................................................................................... 1
I

Current Situation of Cable Television ...........................................................................2
1. Definition and Functions of Cable Television......................................................................... 2
1.1 What is cable television?................................................................................................... 2
1.2 Functions of cable television ........................................................................................... 2
2. Current Situation of Cable Television in Japan ....................................................................... 3
2.1 Diffusion............................................................................................................................. 3
2.2 History of development.................................................................................................... 5
2.3 Financial condition............................................................................................................ 6
3. Current Situation of Cable Television in the US ..................................................................... 8
3.1 Diffusion............................................................................................................................. 8
3.2 History of development.................................................................................................... 9
3.3 Financial condition..........................................................................................................11
3.4 Changes in competitive environment and response ..................................................12
4. Summary......................................................................................................................................14

II Changing Environment for Cable Television.............................................................. 15
1. Rapid Growth of Internet and Trends in Broadband...........................................................15
1.1 Rapid growth of Internet................................................................................................15
1.2 Emergence of broadband...............................................................................................15
1.3 Situation of broadband access networks......................................................................16
1.4 Orientation of CATV Internet ......................................................................................22
2. Progress of Digitalization in Broadcasting Industry .............................................................24
III Challenges for Future Development............................................................................ 27
1. Impact and Future Direction of Broadband ..........................................................................27
2. Impact and Future Direction of Digitalization......................................................................28
3. Conclusion...................................................................................................................................31
References........................................................................................................................... 32

Development Bank of Japan Research Report/ No. 20 i

Current Situation and Challenges for Cable Televisionin the Broadband Era
Summary
1. Cable television is a system for transmitting and receiving TV signals, etc. through opticalfiber and coaxial cable networks that can carry huge volumes of information. Its scope today isbroad, ranging from the mere retransmission of TV signals to multi-channel broadcasting as wellas connection to the Internet and telephone circuits. In terms of functions, the cable televisionbusiness in Japan has been developed by contents aggregators (procurement and editing ofindividual contents), network providers (transmission) and service providers (client management,
charge collection and sales). The function as a contents provider (production of contents) islimited compared with the US.
2. As of March 2000, 37.2% of Japanese households were connected to cable television, but
only 5.9% received multi-channel broadcasting through it. Competing media including BS digital
broadcasting and 110-degree CS digital broadcasting are expected to grow and could gain controlof the information networks that connect households to outside sources, resulting in greater
competition.
Cable television was traditionally considered as a monopoly closely related with the local
community. Thus, cable television operators were licensed for individual local areas and placed
under structural regulations based on their status as local businesses, including the requirementthat local capital be invested. As a result, service areas became fragmented at the local level,
forcing individual operators to build and maintain their own distribution systems. It was not until
the 1990s that cable television was significantly deregulated, leading to influxes of major capitaland restructuring to gain economies of scale.
Cable television is basically an infrastructure-based business, which requires facilities such as
head-ends and transmission lines to be built before obtaining subscribers. This requires heavy
initial investment by the operators until a certain number of subscribers have been secured.
Income and expenditure trends in the industry as a whole since fiscal 1993 indicate that thebusiness has remained unprofitable despite a steady increase in sales. Although an increasing
number of operators recorded surpluses in the same period on a single-year basis, many
enterprises are still facing financial difficulties as more than 70% of them had carried-forward
losses as of fiscal 1999.
3. In contrast, 68% of TV households in the US were connected to cable television as ofDecember 2000, showing a striking difference from Japan in terms of market penetration. There
are two factors behind the diffusion of cable television in the US. First, cable television is a good
way of overcoming poor reception of TV broadcasts in many areas. Second, specialized cable
television programs had emerged and developed well before the growth of competing
entertainment services such as video rentals. Total sales of the industry indicate that revenue
from customers has increased due to the rises in the number of subscribers and basic charges.
Advertising revenue has also increased in recent years thanks to the expanded customer base.
Under increased competitive pressure from satellite broadcasting and major telephone companies
Development Bank of Japan Research Report/ No. 20 iii

entering the multi-channel broadcasting market, however, US cable television companies are now
maximizing use of their established networks to provide a wide range of services. These include
telecommunication services such as the Internet and telephone, as well as interactive cable
services. Thus, the companies are actively investing to upgrade their facilities.
4. In recent years, the rapid growth of Internet users in Japan has been accompanied by rising
expectations for accelerated development of the connecting environment and the expansion ofbroadband networks.
The term “broadband” generally refers to wideband access lines that enable rapidtransmission of large volumes of data such as pictures and music. A precise definition is difficult,however, due to the differences in viewpoints between suppliers or users, and in thetechnological level. One possible standard is high-speed services, which are defined by the US
Federal Communications Commission (FCC) as services enabling at least one-way transmissionof 200 kbps or faster.
There are various types of broadband such as CATV Internet, DSL (Digital Subscriber Line),
FTTH (Fiber To The Home), next-generation cellular phones, FWA (Fixed Wireless Access) andsatellite. The various technical and institutional bottlenecks have been eliminated in Japan toaccelerate the spread of broadband networks. The year 2001 will mark the start of the“broadband era” in Japan, as major firms are entering the cable television market in anticipationof rapid growth. Major business opportunities have also emerged for the existing cable television
enterprises to effectively utilize their own well-developed networks.
The United States, the leading country in high-speed Internet, revised the Communications
Act in 1996 to enable local exchange and inter-exchange carriers, as well as telephone and cable
television companies, to enter each other’s business. The large-scale vertical and horizontal
business integration that resulted has stimulated the development of broadband access networks,
which is now a promising business area, and CATV Internet and DSL in particular have been
growing strongly.
In comparison, the broadband connection business has just started in Japan, and is currently
led by CATV Internet. DSL is expected to grow rapidly as conditions for ensuring faircompetition have improved the business environment. Although FTTH has an overwhelming
advantage in terms of speed, its early diffusion on a national scale remains uncertain, as hugeinvestment will be required. It should be noted, however, that the FTTH service has alreadystarted in some areas including the Tokyo metropolitan area.
5. There is a worldwide transition from analog to digital broadcasting, and broadcasting isgoing digital in Japan, too. Digitalization enables efficient compression of visual information. The
transmission of more information in a specific bandwidth will facilitate the development of
HDTV (High-Definition TV), multi-channel and two-way transmission, as well as the emergenceof new Internet-related services.
The digitalization of broadcasting in Japan has been led by satellite broadcasting. CS digital
broadcasting became fully operational in October 1996; BS digital broadcasting started four years
later, in December 2000. In addition, 110-degree CS broadcasting is expected to start around theautumn of 2001.
Technically, there are various methods for cable television operators to receive digital
broadcasting in their central facilities and distribute it to their subscribers, but additional
investment is required in each case. This investment burden has become the driving force behind
the restructuring of the industry, stimulating the establishment of joint reception facilities invarious parts of the country in fiscal 2000. However, most cable television companies have notiv Development Bank of Japan Research Report/ No. 20

yet become involved in retransmitting BS digital broadcasting.
6. The two major developments, namely the emergence of broadband and the digitalization ofbroadcasting, could transform the business models of cable television.
The upcoming broadband era will require CATV operators to actively address relevant issues
such as (i) the realization of potential demand through early price reductions, (ii) thediversification of services and package sales, (iii) cost reduction and the improvement ofcompetitiveness through horizontal division of labor, and (iv) focus on customer satisfaction.
As digitalization progresses, it is important to create an environment that allows cable
television subscribers to receive a substantial amount of digital broadcasting at relatively low cost,in order to maintain the raison d’être of cable television. Many of the subscribers to major cable
television stations are still connected to the network by transmission lines of less than 550 MHz
capacity. Although the bandwidth of such transmission lines must be improved, many operators
may fail to do this due to problems such as financial difficulties.
Against this backdrop, new trends have emerged since 2000 such as the sharing of digital
head-ends by cable television companies and the pursuit of economies of scale through extensive
cooperation. Although it is not simple to integrate different cable television stations because thespecifications of facilities may be incompatible and neighboring stations do not necessarily haveclose economic relations, this trend should be accelerated for the sound development of thecable television industry.
One way to benefit from economies of scale is through merger and acquisition of othercompanies. The practice of managerial techniques adopted by MSOs (Multiple Systems
Operators), which involves enlarging business scale chiefly by acquiring other firms, will
therefore continue to expand. Recently, Internet service providers have started to deliver various
support services to CATV operators, in recognition of their historical independence. By using
those support services, it will be possible to benefit from economies of scale and scope such as
reduced capital investment requirements in the future, the outsourcing of technical and customer
management departments that immediately need to be improved, and efficient development andstartup of new services. Such services are expected to become full-fledged as the effects ofdiffusion of broadband and digitalization of broadcasting are felt nationwide.
Cable television businesses in Japan have generally developed good relationships with local
authorities and companies and are considered an integral part of the local information
infrastructure. While maintaining their know-how and brands developed in partnership with local
communities, managers of cable television operators must become involved in various tie-ups
and support services to respond to growth areas such as broadband and digital broadcasting, inwhich speed is of the essence.

Development Bank of Japan Research Report/ No. 20 v

Introduction
In the late 1980s, cable television was expected to play a key part of the information
infrastructure in local communities with its integrated public media functions thanks to (i) its
large transmission capacity, (ii) the possibility of interactive communication, and (iii) its affinity
with other media including communications satellite, broadcasting satellite, Hi-Vision TV andpersonal computers (CATV Administrative Issues Research Group, “CATV Administration ’88”).
Despite various developments in the information industry in the 1990s such as the rapid progressof digital technologies and the diffusion of mobile communications and the Internet,
expectations for cable television have changed little. Nevertheless, the environment surrounding
cable television has changed significantly over the years and will continue to change.
This report identifies the functions and strategy of cable television as technology such asbroadband and digitalization progresses. Chapter I outlines the current situation of cable
television in Japan and the US. Chapter II discusses the complex and rapid change in thebusiness environment surrounding cable television. Based on those discussions, Chapter III
addresses the challenges facing the Japanese cable television industry.

Development Bank of Japan Research Report/ No. 20 1

I Current Situation of Cable Television
1. Definition and Functions of Cable Television
1.1 What is cable television?
Article 2 of the Cable Television Broadcast Law defines cable television as “cablecasting (thetransmission of wire telecommunications for direct reception by the general public) other thanthe cable sound broadcasting stipulated in Article 2 of the Law to Regulate the Operation ofCable Sound Broadcasting Services.” The “wire telecommunications” are defined in Article 2of the Wire Telecommunications Law, which is a general legislation, as “the transmission or
reception of codes, sound or images by electromagnetic methods using filaments or otherconductors between the site of transmission and that of reception.”
In more general terms, cable television may be defined as a system to transmit TV signals,
etc. by large-capacity networks composed of optical fiber or coaxial cables1. The concept of cable
television however has come to include various activities ranging from the simple retransmissionof TV signals, etc. to the provision of sophisticated services such as multi-channel broadcasting,the Internet and telephone.
1.2 Functions of cable television
The information industry including cable television is changing dramatically as communications
and broadcasting become integrated; various media of information transfer are being brought
together in complex ways through digital technologies. The emergence of various forms of media
and business models has made it difficult to clearly classify information businesses. This sectionseeks to review the functions of media, particularly that of cable television.
Media can be classified into five strata as shown in Figure 1-1 according to their functions.
These include, from upstream to downstream, (i) contents providers, who produce contents, (ii)contents aggregators, who procure and edit individual contents, (iii) network providers, whoengage in transmission operations in general to deliver commercial contents to consumers, (iv)service providers, who manage customers, collect charges, and conduct sales. Items (iii) and (iv)
are also collectively known as platforms. Media other than Items (i) through (iv) above areconsumer appliances, which provide the users with terminals.
According to this classification, the cable television business in Japan has focused on Items(ii)-(iv) above, managing and operating infrastructure constructed at the local level (suchbusinesses are generally called cable system operators in the US). As will be mentioned later,
media classified under the heading (i), called cable networks, have developed substantially in theUS, but their development has been limited so far in Japan.

1

2

A cable consisting of an insulated copper conductor at the core covered by a mesh of copper wires, which is then covered bypolyvinyl chloride.
Development Bank of Japan Research Report/ No. 20

Figure 1-1. Classification of Media by Function
Ground wave
1. Contents
providers

Procurement ofcontents
Package

3. Network
providers

Transmission
businesses

4. Service
providersCustomer management
MarketingCollection agents

Note:
Source:ＣＳ

Consignor
broadcasters

Consignor
broadcasters(*)

Production of contents
including pictures andmusic

2. Contents
aggregators

5. Consumer
appliancesBS

Ground wave
TV stations

Consignee
broadcasters

Platforms

Terminal suppliers

Consignee
broadcasters

Cable televisioni modeCable
networks

Contents
businesses

Cable system
operators

Portable phonecompanies

STB
manufacturers

Portable phone
terminal
manufacturers

SKY
PerfecTV!

TVmanufacturers

IRD
manufacturers

IRD
manufacturers

IRD: Integrated Receiver Decoder, STB: Set Top Box.
Jun-ichi Ikeda, “Techno Zukai, Digital Hoso.”

2. Current Situation of Cable Television in Japan
2.1 Diffusion
Figure 1-2 shows the diffusion of cable television in Japan as a percentage of total households(Basic Resident Register households). The data indicate that 37.2% of total households (Basic
Resident Register households) – 17.65 million households – used cable television facilities as ofMarch 2000. Cable television can be largely classified into facilities transmitting “self-origination”(including sustaining programs) other than the retransmission of ground wave, BS (Broadcasting
Satellite) and CS (Communications Satellite) broadcasting and the so-called joint reception
facilities, which are only equipped with retransmission functions to overcome poor reception of
TV broadcasting. The former represents 20.0% of total households (9.47 million) while the latteraccounts for 17.2% (8.18 million).
However, the number of households receiving multi-channel broadcasting via cable
television is still limited despite steady increases. A questionnaire survey for cable television
operators engaged in multi-channel broadcasting2 indicates that although the home path (thenumber of households in areas with access to cable television) accounts for 41.5% (19.73 million)of total households (Basic Resident Register households), only 5.9% (2.79 million) receive multichannel broadcasting via cable television, connecting their television receivers to STBs (Set Top
Boxes)3, which are also known as “home terminals” (Figure 1-3).

23

Survey conducted by Hoso Journal.
Installed in households subscribing to cable television, etc., STBs assume receiver, tuner and other functions when connected to
television receivers.
Development Bank of Japan Research Report/ No. 20 3

Figure 1-2. Diffusion of Cable
Television in Japan (March 2000)

Figure 1-3. Diffusion of Multi-channel
Cable Television (355 Stations) in Japan(March 2000 Questionnaire Survey)
5.9%

Cable television with selforigination
20.0%
Households notconnected tocable television

Joint listening facilities
with retransmission only

17.2%

11.8%

Located outsidehome path
58.4%

62.8%

23.9%

⇒Households connected tocable television (37.2%)

Source:Households
subscribing to multichannel broadcasting
Retransmission only
Unsubscribing
households insidehome path⇒Located inside home path(41.6% of total)

Ministry of Public Management, Home Affairs, Posts and Telecommunications, “Current Situation of Cable
Television,” Hoso Journal, “CATV Data Map 2000.”

Operators distributing multi-channel broadcasting are sometimes called MVPDs (Multichannel Video Program Distributors). In addition to cable television operators, MVPDs include
CS digital broadcasters, which were launched in 1996. The total number of contracts with
MVPDs in Japan increased by as much as 4.12 million in five years, from 0.99 million in March
1995 to 5.11 million in March 2000. In the meantime, the share of cable television in MVPD
contracts declined from 100% to 54.5% (Figure 1-4). Some argue that the advent of CS digital
broadcasting raised public awareness of multi-channel broadcasting in Japan, thus generating a
Figure 1-4. Shares of Various Services in Total MVPD Contracts in JapanCS digital broadcasting

Cable television(Month/year)
3/95[0.99 million]

100.0%

3/96[1.22 million]

100.0%

3/97[1.81 million]

87.0%

3/98
[2.87 million]

68.9%

3/99
[3.77 million]

4

37.3%

54.6%
0%

Source:

31.1%

62.7%

3/2000[5.11 million]

Note:

13.0%

20%

45.4%
40%

60%

80%

100%

Total number of contracts is in parentheses [].
Cable television: number of households equipped with home terminals (questionnaire survey).
CS digital broadcasting: number of direct receiver’s contracts
Ministry of Public Management, Home Affairs, Posts and Telecommunications, and Hoso Journal data.

Development Bank of Japan Research Report/ No. 20

synergistic effect on cable television. As multimedia including BS digital and 110-degree CS
digital broadcasting are expected to develop further (thus increasing the threat of alternative
services to cable television businesses), competition will intensify to gain control of information
networks linking households with external sources.
2.2 History of development
The previous section outlined the diffusion of cable television in Japan. The situation of cable
television varies in different countries and regions as its development has been influenced
strongly by technical and institutional trends in the past. This section outlines the history ofdevelopment of cable television in Japan.
Cable television in Japan is considered to date back to 1955, two years after the launch ofground wave broadcasting in 1953. Initially, its primary function was to resolve poor reception ofground wave broadcasting4 through retransmission. Thus, large antennae were jointly establishedin good reception areas to distribute the received TV signals to individual households by way ofcables.
Subsequently, idle channels in cable television networks were used to distribute local
information to subscribing households. As a result, the first cable television station in Japan with
self-origination was launched in 1963. This function of production and distribution of local
programs is still one of the characteristics of cable television in Japan. In 1972, the Cable
Television Broadcast Law was enacted to provide legal infrastructure for the installation andoperation of cable television facilities as well as the management of businesses.
Multi-channel broadcasting via cable television requires, among others, (i) the improvementof broadcast contents both quantitatively and qualitatively, (ii) the existence of instruments totransmit broadcast contents efficiently from broadcast program producers to central facilities ofindividual cable television stations, and (iii) the development of cable television networks totransmit more video information to connected households. In Japan, the distribution ofprograms to cable television using CS began in 1989 but initially there were few programs. It was
not until 1996 that multi-channel broadcasting by cable television materialized, due to a
substantial increase in specialized broadcast programs with the start of CS digital broadcasting.
Traditionally, cable television in Japan was a monopoly business in close contact with local
communities. A license was issued for each local service area, according to structural regulations
based on local characteristics such as the requirement for local capital investment. As a result,service areas were fragmented at the local level with each operator building and maintaining aseparate system. Partly due to such regulations and guidance, cable television often takes theform of a semi-public enterprise that is operated as “community medium” owned by local capital.
The 1990s was a period of deregulation for the cable television industry. For instance, thelocal capital requirement was abolished and the regulation on service areas was lifted in
December 1993, resulting in a significant influx of non-local capital. Also, it became
institutionally possible to improve managerial efficiency through economies of scale. Following
the progressive deregulation of foreign ownership of cable television, which started in 1993, newtrends emerged in the previously independent management of cable television stations. For
example, the first multiple system operator (MSO) was formed in 1995 as a joint venture between
a major Japanese trading company and a US company to control multiple cable television stations.
While pursuing economies of scale by acquiring local cable television stations,5 MSOs have been
4

The problem arises where TV reception is impeded by mountains (poor reception in remote areas), or where obstacles such as
high-rise buildings make the reception impossible or causing ghosting (poor reception in urban areas).
5
Jupiter Telecommunications, the largest MSO in Japan, has 5.07 households in its broadcast home path as well as 0.91 million
subscribing households (a subscribing rate of 17.9%) as of March 2001.
Development Bank of Japan Research Report/ No. 20 5

raising management efficiency based on scale merits, including the reduction of initialsubscription charges, package sales of various services (for example, the provision of basic
services and most popular pay channels at a set price), efficient allocation of human resources, aswell as reduction of program and material procurement costs.
With the development of multi-channel broadcasting and a series of deregulation measures,
the number of cable television facilities with self-origination rose from 414 in fiscal 1990 to 984
in fiscal 1999, while the number of subscribing households increased substantially from 1.02
million (a market penetration of 2.5%) to 9.47 million (20.0%) in the same period (Figure 1-5).
Although the number of facilities fell after peaking in fiscal 1998 due to the decline in thenumber of newly established stations and progressive consolidation, capital investment hasremained high due to such factors as the cutover of offices in secondary areas, the introductionof hybrid fiber/coax (HFC)6, and the enhancement of communication business.
Figure 1-5. Trends in Aggregate Numbers of Facilities and Subscribers of Cable
Television with Self-origination and Capital Investment in Cable Television(¥100 million, facilities, 10,000 households)
1,400
Capital investment
Aggregate number of facilities
Aggregate number of subscribers

1,200
1,000
800
600
400
200
0
90

Note:
Source:

91

92

93

94

95

96

97

98

99

2000
(FY)

Capital investment only covers facilities with 10,000 or more drop terminals (terminals connecting transmission lines
with subscribing households).
Ministry of Public Management, Home Affairs, Posts and Telecommunications data.

2.3 Financial condition
Figure 1-6 shows the trend of income and expenditure in the industry (broadcasting department)
since fiscal 1993. Although sales have been growing steadily due to the increase in the number ofoperators covered by the survey and subscribing households, they have not been able to cover
operating costs including depreciation expenses, program purchasing costs and personnel
expenses, resulting in constant operating and ordinary losses. The financial condition of cable
television operators in the same period is shown in Figure 1-7. The number of operators with asingle-year (any one business year) surplus has been rising. More operators recorded a single-year6

6

A system combining optical fiber cables and coaxial cables. A service area is divided into several hundred zones and opticalfiber cables are used in trunk parts. The main advantage of this system is lower cost compared with using optical fiber cablesin the whole system.
Development Bank of Japan Research Report/ No. 20

surplus than deficit for fiscal 1998. In fiscal 1999, 63.0% of the operators (196 companies)
recorded a surplus. Nonetheless, the financial environment remains adverse, as 75.9% of theoperators (236 companies) had carried-forward losses in fiscal 1999.
Figure 1-6. Income and Expenditure of Cable Television in Japan
3,500(¥ 100 million)(companies)
311

Number of companies covered

3,000

300

2,458
2,244

2,500

350

250

2,000

200

1,500

150

1,000

100

500

50

0

0
▲ 175

▲ 500
93

94

95
Sales

Note:
Source:96

Operating cost

97

98

-50

99 (FY)

Ordinary profit/loss

Data only cover the broadcasting departments of commercial operators.
Ministry of Public Management, Home Affairs, Posts and Telecommunications, “Current Situation of Cable
Television.”

Figure 1-7. Financial Condition of Cable Television Operators in Japan
350(companies)
311

311

300
236

250
196
200
150

115

100

75

50
0
93

94

95

96

97

98

99

Single-year income and expenditure

Surplus

Source:Deficit

93

94

95

96

97

98

99

Aggregate profit/loss

Number of companies covered(FY)

Same as in Figure 1-6.

Development Bank of Japan Research Report/ No. 20 7

Since cable television is in general an infrastructure-based business requiring thedevelopment of equipment such as head-ends7 and transmission lines before any potential
customers can subscribe at all, operators usually have to invest heavily at the start until a certain
number of subscribers can be secured. Although the unit price of transmission lines, which
account for most of the capital investment, has been declining in general for newer stations, it
still exceeds ¥20,000 per home path. Additional costs accrue after the cutover of an office mainly
from lead-in works and modification works in condominiums. It is difficult to recover all suchcosts in a short time by passing them on through lump-sum subscription and connection charges
to be paid by subscribers. Moreover, the negotiating power (program procurement power) ofoperators tends to be undermined, as they often negotiate separately with program suppliers.
Thus, factors at various levels restrict the profitability of the industry. Nevertheless, it is generally
considered that cable television operators can expect stable profits once a certain level ofsubscriptions has been secured, as long as they remain local monopolies.
3. Current Situation of Cable Television in the US
As was mentioned in the previous section, subscriptions to cable television in Japan haveincreased substantially since the 1990s on the back of multi-channel broadcasting andderegulation. In order to forecast future developments, we first review the history and current
situation of cable television in the US, which is 20 years ahead of Japan in the development of theindustry.
3.1 Diffusion
As shown in Figure 1-8, 6,930 households in the US – 67.8% of total households with television– receive basic cable television services (i.e. services that are available with the basic charges
defined by operators) as of December 2000. Cable television networks are already running nearmost of the US households, with home path accounting for 95.6% of television households(97.70 million households). Thus, there is a striking difference between Japan and the US in the
diffusion of cable television.
Figure 1-8. Diffusion of Cable Television in the US (December 2000)
4.4%

Households subscribing tobasic services

27.8%

67.8%

Source:78Non-subscribing households
inside home path
Outside home path

NCTA, “Cable Television Industry Overview 2000.”

A set of devices composed of channel processor, frequency converter, modulator, mixer, etc. to amplify, convert and then mix
the various signals received by the antenna for sending them to cable television transmission lines.
Development Bank of Japan Research Report/ No. 20

Figure 1-9 compares the market penetration of cable television between Japan and the US.
As was mentioned earlier, cable television in Japan grew in the 1990s, whereas it developed
rapidly from the late 1970s through the 1980s in the US. Thus, Japan trails the US by two
decades in terms of the market penetration of cable television.
There are two major factors behind the strong development of cable television in the US.
The first is the existence of poor reception areas. The US had to address poor reception inremote areas due to the vastness of its territory, while poor reception in urban areas was a serious
problem early on due to high-rise buildings. Unlike in Japan, sufficient compensation from thosecausing the interference could not be obtained. Cable television was therefore an effective way ofresolving the problem of poor reception until DBS (Direct Broadcast Satellite) became widely
available.
Second, specialized cable television programs (pay TV) had attracted many subscribers even
before the advent of competing services such as video rentals.
Figure 1-9. Market Penetration of Cable Television in Japan and the US
80

(%)
68.0

70

(US) Basic services
60
50
37.2

40

(Japan) CATV with self-origination +common reception facilities

30
20.0
20
10

(Japan) CATV with self-origination

5.9(Japan) CATV with multi-channel
broadcasting

0
70

73

76

79

82

85

88

91

94

97

2000
(CY, FY)

Note:
Source:

US: Percentage of households with television (as of December in each year). Japan: Percentage of basic registerhouseholds (as of March in each year).
Ministry of Public Management, Home Affairs, Posts and Telecommunications, Hoso Journal, and NCTA data.

3.2 History of development
Cable television in the US was started in 1948 to resolve the problem of poor reception for
topographic reasons. Initially, it was not regulated by public authorities, except for franchiseregulation by local governments.8 In the 1960s, however, some operators (cable system
operators) started out-of-area retransmission mainly in smaller cities using microwave
communications. The resulting conflict with local ground-wave TV stations caused the Federal
Communications Commission (FCC)9 to regulate retransmission.
8

Cable television in the US is granted franchises from local governments. Unlike in Japan, the franchise is limited in time andrequires the payment of a franchise fee (up to 5% of gross revenue).
9
An independent administrative commission established under the 1934 Communications Act and a federal government agency
regulating interstate and international radio and wire communications. The Commission is directly responsible to the Congress.

Development Bank of Japan Research Report/ No. 20 9

With the advent of full-fledged pay TV in the late 1970s, cable television in the US began togrow spectacularly. Following the liberalization of domestic communication satellites in 1972
(Open Sky Policy), a commercial-free pay TV channel called HBO (Home Box Office) whichshowed entire movies, started to be distributed nationwide to cable system operators in
December 1975, using a communication satellite (SATCOM No.1). To be able to watch movies
and live sport programs at home was a revolutionary event in itself, as VCR was not widespreadat that time. Cable television operators attracted new subscribers with those featured programs(pay TV).10 In fact, the US cable television market grew strongly from 3,506 facilities and 9.2
million subscribing households (a market penetration of 13.2%) in 1975 to 6,600 facilities and39.87 million subscribing households (46.2%) in 1985 (Figure 1-10).
In 1984, the Cable Communications Policy Act11 came into force to deregulate the cable
television market. The Act was beneficial to cable television operators, abolishing the authority of
local governments to regulate basic charges except for certain cases.
Figure 1-10. Numbers of CATV Facilities and Subscribing Households in the US (Basic,
Pay)(facilities)(million households)

12,00080
10,466
68.5

9,000

60
49.2

6,000

40

3,000

20
Aggregate for basic services (right scale)Aggregate for pay services (right scale)Aggregate number of facilities

00
75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99(CY)

Source:NCTA data.

As a well-developed industry, cable television in the US invested actively in building systems
to supply a large number of programs. As program procurement costs rose, including for live
broadcast of popular sports, however, some cable television operators raised charges frequently
on the pretext of improving the quality of programs, and there was also criticism about thedeterioration in customer services. The problems of deregulation thus emerged.
Against this backdrop, the FCC clarified its policy of re-regulation with the Cable Television
Consumer Protection and Competition Act of 1992. However, the Commission again changed its
policy in favor of deregulation with the US Telecommunications Act of 1996, substantially lifting
the regulation on charges for some small-scale operators, and the regulation was totally abolishedin 1999.
10

The growth of subscribers to pay TV levelled off in the late 1980s due to excessive competition and the emergence of home
video.
11
Legislation to consolidate cable television regulations at the federal level, mainly providing for (i) the introduction of afranchise licensing system, (ii) the abolition of regulations on charges, and (iii) the introduction of a cross-ownership system(precluding local telephone companies to be involved in cable television business in their own service areas).
10 Development Bank of Japan Research Report/ No. 20

3.3 Financial condition
As shown in Figure 1-11, customer revenues for cable television in the US have been risingstrongly. Of the total revenue of $36.9 billion in 1999, basic revenue accounted for a majority(62.7%) with $23.1 billion, while pay revenue amounted to $4.9 billion (12.4%). In addition to thegrowth in the number of chargeable subscribers, the increase in basic revenue was largely due tothe above-mentioned successive hikes in basic charges. Figure 1-12 shows that basic charges(average for the whole industry) rose almost threefold between 1985 and 1999, from$9.73/month to $28.92/month. US cable television operators have also increased theiradvertising revenues in recent years thanks to their strong customer base. Figure 1-13 shows thestatus of cable television in advertising cost in the US as of 1999. Although the industry
accounted for only 4.8% of total advertising cost, the 22.0% increase from the previous year waswell above the increase in total cost (up 6.8%).
Figure 1-11. Trend of Customer Revenues for US Cable Television
500($100 million)
421

OthersPay revenue
Basic revenue

400
300
200
100
0
80
Source:

82

84

86

88

90

92

94

96

98

2000
(CY)

NCTA data.

Figure 1-12. Trend of Average Monthly Rates of US Cable Television
30’96 Liberalization($/month)

28.92'92 Re-regulation
25’84 Liberalization Basic

20

Basic Rate

15
10

8.04

Pay Rate

5

(CY)

0
80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99

Source:NCTA data.

Development Bank of Japan Research Report/ No. 20 11

Figure 1-13. Cable Television in Advertising Cost in the US
Advertising cost in the US (1999)<Ref.> Advertising cost in Japan (1999, 2000)
1999($ million, %)Change from
MediumAmount Share previous year
Newspapers
46,64821.7
5.3
41,403
19.2
8.7
ＤＭ
Network TV
40,011
18.6
2.1
Radio
17,2158.0
14.2
Yellow pages
12,6525.9
5.5
Magazines
11,433
5.3
8.7
10,4294.8
22.0
Cable television
Industrial papers
4,274
2.0
1.0
Internet
1,940
0.9
84.7
0.8
9.5
Outdoor advertisement 1,725
Others27,571
12.8
8.0

Total
As % of GDP

Note:
Source:215,301
2.33%

100.0

6.8

1999
MediumAmountTV
19,121
Newspapers
11,535Inserted bills
4,241
Magazines
4,183
3,242
ＤＭ
Outdoor advertisement 3,148
Traffic advertisement
2,320
Radio
2,043
Telephone directory
1,777
1,610
ＰＯＰ
Internet
241
225
New media
Others3,310
Total
56,996
As % of GDP
1.11%

2000

Amount20,793
12,474
4,546
4,369
3,455
3,110
2,450
2,071
1,748
1,695
590
266
3,535
61,102
1.19%($ million, %)Change from
Share previous year
34.0
8.7
20.4
8.1
7.4
7.2
7.2
4.4
5.7
6.6
5.1
▲1.2
4.0
5.6
3.4
1.4
2.9
▲1.6
2.8
5.3
1.0
144.8
0.4
18.2
5.8
6.8
100.0
7.2

New media include cable television, satellite broadcasting, character broadcasting, etc.
“Dentsu Advertisement Almanac ’00/’01,” and published Dentsu data.

3.4 Changes in competitive environment and response
Today, US households receiving multi-channel broadcasting enjoy the latitude to choose fromvarious MVPDs (Multi-channel Video Program Distributors) other than cable television
operators, including satellite broadcasting and telephone companies. Figure 1-14 shows the total
number of MVPD contracts and the share of each service. The number of contracts rose from68.49 million in December 1995 to 84.40 million in June 2000. In the same period, the share of
DBS including DirecTV (cutover in June 1994) and Ecostar (cutover in April 1996) rose from
3.2% to 15.4%,12 while the previously overwhelming share of cable television declined from
90.7% to 80.2%. The Telecommunications Act of 1996, which institutionally allowed cable
television operators and telephone companies to enter each other’s markets, stimulated the directentry of major telephone companies into the multi-channel broadcasting business.13
The mounting competitive pressure has made it increasingly difficult for cable television
operators simply to resort to price hikes, compelling them to respond differently. The cable
television operators must therefore consider providing various services utilizing their existing
networks, in addition to boosting advertising revenue on the back of the existing customer base.
Indeed, they are increasingly entering the communication businesses such as providing Internet
and telephone services, as well as in interactive services. Cable television operators are also
actively promoting digitalization. About 7.8 million households were already receiving digital
broadcasting as of September 2000, and one industrial association predicts over 40 million
contracts by 2006.
12

Thanks to technical and institutional progress, DBS in the US now provides local channels in major urban areas around thecountry.
13
However, the entries of telephone companies into the cable television business have not resulted in significant success, asmany new entrants are facing financial difficulties.
12 Development Bank of Japan Research Report/ No. 20

Figure 1-14. Composition of Total MVPD Contracts in the US by Service(month/year)

Cable television

OthersDBS

12/95[68.49 million]

90.7%

12/96
[72.37 million]

87.7%

6/97
[73.65 million]

87.1%

6.9%

6.0%

6/98
[76.63 million]

85.3%

9.4%

5.2%

6/99
[80.88 million]

82.5%

12.5%

5.0%

6/2000[84.40 million]

80.2%

15.4%

4.4%

0%

Note:
Source:

20%

3.2%
5.9%

40%

Total number of contracts is in parentheses [FCC data.

6.1%

60%

6.3%

80%

100%

].

A major challenge in achieving this goal is the sophistication of facilities such as thedevelopment of wideband and two-way transmission lines including the introduction of HFC andcommunication equipment. The cost of sophistication greatly raises the capital investment
required in cable television, amounting to some $1,000 per user according to an estimate. Figure
1-15 shows the progress in the sophistication of cable television facilities and the amount of
capital investment. Cable television operators invested over $10 billion in facility upgrading inboth 1999 and 2000. The wideband (550 MHz-750 MHz) facilities thus developed covered 92%of the households subscribing to cable television in 2000, up from 72% in 1998. Likewise, thecoverage of interactive facilities rose rapidly from 56% to 75% in the same period.
Figure 1-15. Trends in Facility Upgrading and Capital Investment of US Cable Television
Operators
250($100 million)

(%)
87

200

72

150

56

68
106.2

100
56.7

68.1

92

100

75

80

124.3

60
40

56.1

50

20

0

0
96

97

Capital investment
Interactive coverage (right scale)

Note:
Source:

98

99

2000

(CY)

Wideband coverage (right scale)

Wideband facilities refer to those with a capacity of 550 MHz or over.
Paul Kagan Associates, Inc. data.

Development Bank of Japan Research Report/ No. 20 13

4. Summary
This chapter has described the current situation of cable television from a rather traditional
viewpoint, focusing on the broadcasting sector.
Although Japanese cable television operators were given a chance to grow as multi-channel
broadcasters in the 1990s thanks to technological progress and deregulation, they have yet todevelop strong cable networks comparable to those in the US. Many of the Japanese cable
television operators with self-origination, defining themselves as community-based businesses,
are equipped with studio facilities and production departments with special emphasis on
providing local information. Some Japanese operators are daily producing and distributing quality
broadcast contents with high subscription rates. However, many operators do not have a wellestablished management base and therefore cannot invest sufficient managerial resources inprogram production; indeed, cable television operators procure most of their programs fromexternal sources. Furthermore, many of the cable television operators involved in multi-channel
broadcasting have ended up dividing the broadcasting media-conscious clientele with satellite
broadcasting, which started and developed concurrently.
Thus, Japanese cable television operators are now entering the fast-moving multimedia era
without the growth scenario enjoyed by US counterparts which reaped the leader’s benefit asbroadcasting contents providers. Of course, the fragmentation of service areas has brought huge
numbers of subscribers to some operators in regions that strongly need out-of-area
retransmission (notably in Nagano Prefecture), and some operators have overcome the handicaps
and achieved financial stability. However, despite such success stories, operators have been
unable to develop into MSOs by acquiring other stations. In summary, the development of
MSOs and industrial restructuring are being led by major capital from other industries such as
trading companies and home electronics manufacturers, and particularly by foreign capital.
With this background, Chapter II will present an overview of the changing businessenvironment for cable television.

14 Development Bank of Japan Research Report/ No. 20

II Changing Environment for Cable Television
As was outlined in the previous chapter, Japanese cable television lags behind its US counterpartby almost 20 years in terms of market penetration. This time lag is important when considering
whether cable television in Japan will be able to play a role similar to that in the US, for the whole
information industry is changing in a way that might undermine the current status of the cable
television business. This chapter focuses on two factors, the development of broadband anddigitalization, and identifies the imminent changes in business environment facing cable
television operators.
1. Rapid Growth of Internet and Trends in Broadband
1.1 Rapid growth of Internet
The Internet is a global grouping of computer networks. It is practically impossible to assess thenumber of users at any point in time due to its universal accessibility, and so such estimatesprovided by several institutions vary considerably with differences in survey methods. According
to a survey conducted by the Ministry of Public Management, Home Affairs, Posts andTelecommunications, the number of Internet users14 stood at 47.08 million as at the end of 2000,
representing 37.1% of the total population. Although the expansion of the coverage of the survey
precludes a precise comparison with previous data, the figure indicates a much faster increase
than in 1999, when it grew by over 10 million from 16.94 million in 1998 to 27.06 million.
One of the major factors behind the acceleration of Internet use in Japan is the rapid
expansion of Internet service through portable phones, led by the “i-mode” of NTT Docomo(launched in February 1999). With a basic charge of ¥300/month, i-mode is billed based on theamount of data transmitted (¥0.3 for 128 bytes) regardless of time, keeping the cost of non-use
low. Coupled with the ability to connect to the Internet simply by pressing a specific button on
the portable phone handset, i-mode has rapidly attracted customers, particularly the young, andgrown far more spectacularly than even the supplier had anticipated.
1.2 Emergence of broadband
As Internet usage started to expand in Japan, led by the technological advance and diversificationof such terminals, demand grew for lower, fixed telecommunication circuit costs, as well as highspeed connections. Attention has focused on the access lines linking the users with ISPs (Internet
Services Providers). Wideband access lines that offer fast transmission of large volumes of datasuch as pictures and sound are referred to as “broadband15.” Its precise definition is difficult,however, due to differences among suppliers and users and the level of technology. One possible
standard definition could be high-speed services, which are defined by the US Federal
Communications Commission (FCC) as services enabling at least one-way transmission of 200kbps or faster. “bps” (bits per second) is a unit of data transfer rate for telecommunication
circuits, etc. 1 bps indicates the capacity of transferring one bit of data in one second. 1,000 bps
is written as 1 kbps, and 1,000 kbps as 1 Mbps. A speed of 220 kbps or faster would ensure
relatively smooth reception of moving pictures by streaming (real-time playing of sound andmoving pictures for receiving data on the Internet). However, some argue that a speed of at least
500 kbps is necessary in order to charge for the reception of moving pictures in the future.
14

Those who use the Internet (including users of the Web or e-mail only) whether at home or elsewhere with personal
computers, portable phones or other terminals.
15
Originally, “broadband” meant wideband (wide frequency bandwidth).
Development Bank of Japan Research Report/ No. 20 15

Early development of such high-speed Internet access networks has been identified as oneof the national strategies of Japan. In its “Basic IT Strategy” (Decision in November 2000), theIT (Information Technology) Strategy Council, an advisory organ of the Prime Minister, set out
an ambitious objective: “Under competition and the market mechanism, to develop within five
years a world-level Internet network with an ultrahigh-speed access capacity (30-100 Mbps) toensure access for all citizens who need it at an affordable price. The plan is to create anenvironment where at least 30 million households can be connected to high-speed Internet
networks and 10 million households can be connected to ultrahigh-speed Internet networks at
any time.”
1.3 Situation of broadband access networks
There are various types of broadband access networks including CATV Internet, DSL (Digital
Subscriber Line), FTTH (Fiber To The Home), next-generation portable phones (IMT-2000),
FWA (Fixed Wireless Access) and satellite.
The environment for broadband networks in Japan has changed dramatically, as technicaland institutional bottlenecks have been rapidly overcome. As many newcomers have been
attracted to this fast-growing market, the year 2001 will mark the start of the broadband era.
Cable television operators therefore have outstanding business opportunities.
However, the development of broadband will be influenced by various factors such as thetrend of Internet users, institutional developments including deregulation, the contents ofservices (speed, charges) and the trend of unit prices for related equipment including specialpurpose modems. Therefore, conditions differ from country to country. For instance, both
CATV Internet and DSL are expected to develop in the US as will be mentioned later, whereas inSouth Korea, the development of DSL leads that of CATV Internet. This section outlines thetrend of broadband networks in the US, the leader in high-speed Internet, then summarizes thesituation of broadband in Japan today.
(i) Broadband in the US
In the US, cable television operators, telephone companies and ISPs have actively invested inbroadband as a promising business. The US Telecommunications Act of 1990 has played an
important role, as it profoundly transformed the regulatory framework based on the 1934
Communications Act to encourage local exchange and long-distance carriers as well as telephonecompanies and cable television operators to enter each other’s markets, resulting in large-scalevertical and horizontal integration for competitive advantage. Cable television has been affectedby such restructuring. For instance, AT&T, a long-distance telephone company, acquired major
cable television operators TCI (agreed in June 1998, approved in February 1999) and Media One(agreed in April 1999, approved in April 2000) for almost $9 trillion in total to secure homeaccess networks before entering the local telephone and data communications businesses. As aresult, AT&T suddenly emerged as the largest cable television operator.16 Also, the merger
between AOL, the largest ISP, and Time-Warner, a media company with a cable television
department, attracted much attention in Japan as an integration of the old and the new.
Figure 2-1 shows the aggregate number of subscriptions to CATV Internet and DSL in
16

However, the sea change in macroeconomic conditions in the US generated some reaction to active acquisition and capital
investment. AT&T announced that it would break up into four companies dealing in (i) corporate long-distancecommunication, (ii) private long-distance communication, (iii) portable phones and (iv) cable television, and that the portablephone and cable television companies would be given full autonomy regarding capital (announcement made in October 2000).
It was also announced that part of the cable television operation would be sold to two peer companies, Charter
Communications and Mediacom Communications (announcement made in February 2000).

16 Development Bank of Japan Research Report/ No. 20

North America (the US and Canada). CATV Internet, which started in 1995 in the region, wassoon followed by DSL, launched in 1996, both experiencing substantial growth subsequently.
The aggregate number of subscriptions to CATV Internet in North America (the US andCanada) is estimated at 4.84 million as of December 2000. The number of subscribers has grown
rapidly due to increased recognition of the service, the expansion of potential service areas andthe introduction of self-installation: the average increase in subscriptions rose from
206,000/month in the first half of 2000 to 300,000/month in the second half. By operator, sevenmajor MSOs in the US account for 74.7% of the North American market as of December 2000,
including AT&T Broadband (23.7%) and Time-Warner Cable (19.5%).
The aggregate number of subscriptions to DSL in North America (the US and Canada), on
the other hand, is estimated at 2.86 million as of December 2000. As in the case of CATVInternet, the number of subscribers has increased strongly with improved recognition and lower
charges to a level comparable to CATV Internet (about $40/month). The average increase insubscriptions rose from 132,000/month in the first half of 2000 to 245,000/month in the second
half. New carriers including ILECs (Incumbent Local Exchange Carriers) and CLECs(Competitive Local Exchange Carriers) have entered the DSL market in the US, with ILECs inparticular acquiring many subscriptions recently, due mainly to their corporate strength.
Figure 2-1. Aggregate Number of Subscriptions to CATV Internet and DSL in North
America (US and Canada)
600(10,000 contracts)
CATV Internet

500

484

DSL
383

400
304
300
200
100

286

245
201

180
139
60

88

0
12/99

Source:3/20006912(month/year)

Kinetic Strategies data (http://www.cabledatacomnews.com/) and TeleChoice data (http://www.xdsl.com/).

In the US, CATV Internet and DSL will likely lead the development of broadband, as opticalfiber is not expected to significantly penetrate the household market (though other promisingbroadband technologies may emerge in the future). Major reasons include (i) the huge cost oflaying new optical fiber cables to reach individual households in the vast territory of the US
inhibits players in the US information industry, which are in intense competition, from making
such decisions at the management level, and (ii) that CATV Internet and DSL require lessinvestment as existing lines can be used, and their technologies can transmit data quickly.
Under Section 706(b) of the US Telecommunications Act of 1996, the FCC conducts aperiodical survey on the availability of advanced telecommunications to all Americans (including
elementary and secondary schools and their classrooms) to promote the diffusion of broadband.
Development Bank of Japan Research Report/ No. 20 17

Based on the survey results, the Commission determines whether the capacity is provided in a“reasonable and timely way.” If not, it is legally required to take immediate measures toencourage the provision of capacity by removing obstacles to investment in infrastructure andpromoting competition. According to the results of FCC surveys on the development of highspeed Internet services published in August (Second 706 Report) and October 2000, the numberof high-speed service lines in the US increased from 2.8 million in December 1999 to 4.3 million
in June 2000, while the number of cable modems and DSLs grew by 840,000 and 580,000
respectively in the same period. Based on these results, the FCC concluded that high-speed
Internet services were spreading well. In order to promote further diffusion of high-speed
Internet services, the FCC is currently researching whether to require cable television operators
to open up their networks to Internet service providers.
(ii) Broadband in Japan
Whereas CATV Internet and DSL will lead the development of broadband in the US, opticalfiber networks are expected to play a major role in Japan. Figure 2-2 shows the expecteddiffusion of broadband in Japan (estimate) stated in the Second Interim Report of the Roundtable Conference on the Development of Information Networks in the 21st Century. According
to this estimate, of households subscribing to broadband in 2005 (24.94 million households),
FTTH will have the largest share with 9.04 million households, followed by DSL (7.49 million
households), cable television (6.25 households) and FWA (2.16 households).
Figure 2-2. Expected Diffusion of Broadband in Japan (Trends in Estimated Number ofSubscribing Households)
2,500(10,000 households)

2,000

216
ＦＷＡ

108

xＤＳＬ

749

ＣＡＴＶ
1,500

796

ＦＴＴＨ
843

1,000

625
473

562
322

500

281
141

0 15

63

202

99
Actual2000
Forecast →2001

Source:

231
404
2002

606

2003

755

2004

904

2005
(year)

Second Interim Report of the Round-table Conference on the Development of Information Networks in the 21stCentury (December 2000) and Ministry of Public Management, Home Affairs, Posts and Telecommunications data.

18 Development Bank of Japan Research Report/ No. 20

As shown in Figure 2-3, Internet services in Japan are progressing rapidly in terms of thenumber of users and the diversification of access methods, and Internet services via portablephones are showing particularly impressive growth in Japan. The number of portable phone
Internet service contracts stands at 34.57 million as of March 2000, increasing by as much as
27.07 million in just one year. With the advent of the next-generation portable phones (IMT2000), to be launched experimentally at the end of May 2001, transmission speed will be
improved from the current 9.6 kbps to 384 kbps at the maximum. Due to their solid customer
base, attention has been focused on the future development of portable phone Internet services,
including the potential for e-commerce in games, music distribution, advertising and finance, forexample.
However, wire broadband including CATV Internet and ADSL is still in the initial stage ofdevelopment, and most subscribers are dedicated Internet users. Currently, CATV Internet leads
ADSL thanks to its head start. Subscriptions to CATV Internet rose at 29,000 contracts permonth, from 154,000 in December 1999 to 329,000 in June 2000, and then increased even fasterby 49,000 per month, reaching 625,000 contracts as of December 2000. Although the number ofsubscriptions to ADSL amounted to only 9,273 contracts in December 2000, it subsequently
increased with the start of full-fledged service and had reached 71,000 contracts as of March 2001.
Figure 2-3. Number of Subscribers to Internet Services in Japan (by Means of Access)

4,000(10,000 contracts)
Portable phones
Telephone circuit, etc.
CATV
ＤＳＬ

3,000

2,000

1,000

0
12
/99

3
/2000

6

9

12

3
/2001
(month/year)

Portable phones
Telephone circuit, etc. (dial-up access)
CATV Internet
ＤＳＬ
Note:
Source:

99/
12
367
1,059
15.4
0.00

2000/
3
750
1,193
21.6
0.02

6
1,272
1,327
32.9
0.12

9
1,968
1,454
46.3
0.25

(10,000 contracts)
2001/
3
12
2,687
3,457
1,580
1,725
62.5
78.4
0.97
7.07

Telephone circuit, etc. covers 15 major ISPs. (Original data are indices.)
Ministry of Public Management, Home Affairs, Posts and Telecommunications.

Development Bank of Japan Research Report/ No. 20 19

The characteristics of the main broadband services at present are summarized in Figure 2-4.
However, the contents of actual services are more complicated due mainly to technical factors, so
the services cannot be easily compared. The following segments will outline the characteristics of
CATV Internet, ADSL and optical fiber, which are the major broadband media in Japan.
Figure 2-4. Comparison of Major Broadband Services
Name

CATV Internet

Access network

CATV network

Conditions of service areas

Limited to within CATV
networks (201 operators asof March 2001)

Introduction to condominiums▲(streamed noise,
improvement)

ＡＤＳＬ

Optical fiber

Local telephone network
Optical fiber network(copper wire)
Limitation on distance from Limited to within opticalcentral telephone exchange, fiber networks
optical serving areas, etc−▲(improvement)

FWA(P-MP system)*1<Ref.>*2
Flets IDSN

Wireless(22, 26, 38 GHz band)
Limitation on distance frombase stations (1 km radius)

IDSN network−−

Relation with ISDN−▲(Interference)

−

−

−

Down-stream speed○(about 128-500 kbps)○〜◎(1.5/3/6/Mbps)◎(10/100Mbps)○(1.5Mbps)▲(64kbps)

SharedExclusive

ISP function (IX connection)

○

○

−

Use of access network

SharedExclusive

Shared−networkSpeed guaranteeNoNo

Yes/noNo

No

Service areas (FY2000)

Local cities

Metropolitan areas

Metropolitan areas

Ordinance-designated cities

Prefecture capitals

↓

↓

↓

↓

↓

↓

(expected FY2001)

Local cities

Prefecture capitals

Metropolitan areas

Ordinance-designated cities

Local cities

Remarks

・Possible packaging withother services

Notes:

Source:・Considerable time required ・Short period required forfor developing nationwide facility installation.
networks
・Service geared to corporate
sector (facilities not costeffective for households)

・Provided by NTT.
・Easy to attract ISDN users*1: Point to multi-point: A FWA system for sharing among two or more users a circuit with a capacity of 10 Mbps
within a radius of 1 km from one base station. Other systems include P-P (Point-to-Point), which connects twopoints on a one-on-one basis.
*2: Flets-ISDN is not defined as broadband service using the criterion of 200 kbps or over.
Various data.

CATV Internet
CATV Internet utilizes cable television networks developed for transmitting pictures, and enables
high-speed data communications between head-ends and subscribers. In practice, one channel (abandwidth of 6 MHz) is generally used each for the up-stream signal (band below 50 MHz) anddown-stream signal (band above 50 MHz) to ensure two-way communication.
The CATV Internet service was started in 1996 in Tokyo. With the subsequent entries fromaffiliates of major railway and trading companies, the number of operators17 had reached 201
companies by March 2001.
Individual operators set the content of their CATV Internet services in principle. A flat-rate
system is used in most cases, charging ¥5,000-6,000 per month for a down-stream speed of up to
several hundred kbps, which is faster than ISDN18.
Despite the possibility of high-speed communications, CATV Internet has its own problems.
Unlike ADSL, which is discussed below, two or more users share the same band for
17
18

Including the operators providing circuits to Internet service providers as a specialized service.
Short for Integrated Services Digital Network. Unlike continuous connection, dialling is required for each connection.
Standard transmission speed is 64 kbps (or 128 kbps).

20 Development Bank of Japan Research Report/ No. 20

communication. Thus, saturation of the band by many users attempting simultaneous access orappropriation of the band by heavy users may reduce the effective speed per user. Furthermore,“streamed noise” is generated with the convergence of up-stream traffic, for cable television
networks have a tree-like form, using one telecommunication circuit for a certain number ofneighboring households. This poses technical and cost-related obstacles to its diffusion,
particularly for existing condominiums in which wiring is difficult to alter.
DSL
DSL refers to techniques and services for high-speed data communications between central
telephone exchanges and subscribers, making effective use of existing telephone lines (copper
cables). It was developed in the US in the early 1990s. In the broad sense of the word, ISDN andanalog modem communications may be included in DSL, but it usually means those services
using telephone lines but not using the band used for telephone calls (up to 4 kHz). The x in theexpression xDSL indicates that multiple specifications exist for the DSL technology. In Japan,
the first experiment on using DSL in September 1997 was followed by a pilot experiment for
ADSL in February 1998. The ADSL service was tentatively launched in December 1999. ADSL
is one of the promising specifications of DSL in Japan. The A stands for “asymmetric,” whichmeans that the speed of the down-stream signal is faster than the up-stream signal. As broadband
attracted greater interest, moves started to be made in 2000 to introduce DSL services. In
December, NTT East and NTT West announced that they would start providing full-fledged
DSL service. DSL ventures, which have led the DSL service in Japan, are currently predominant
players in the ADSL market, but well-known major communication companies have announced
that they will actively enter the business in 2001. Thus, the service areas are expected to expand
rapidly to major cities nationwide, accompanied by further development in metropolitan areas.
Although ADSL fell behind CATV Internet as a full-fledged business, it has improved interms of transmission speed and charges. As regards transmission speed, NTT East and NTT
West, in entering the ADSL business in December 2000, raised the maximum speed from 512kbps to 1.5 Mbps for the down-stream signal, and from 224 kbps to 512 kbps for the up-stream
signal. Other DSL operators followed suit and as a result, the standard transmission speed of
ADSL is now 1.5 Mbps at the maximum for the down-stream signal, already surpassing the
maximum speed of CATV Internet. The service also became more affordable with theintroduction of the outright sale system for ADSL modems in February 2001.
ADSL allows high-speed data communications between central telephone exchanges andsubscribers in the Mbps range. However, one problem inherent to high frequency waves is that along distance between the central telephone exchange and DSL modem may reduce the speed ofcommunications due to attenuation. Thus, service areas are limited to within a certain distancefrom the central telephone exchange. In addition, speed falls in transit networks between central
telephone exchanges and NOCs19 (Network Operation Centers) when circuits became saturated
due to intensive use. However, capacity has been increased and cost reduced by using dark fiber(idle optical fiber core).
Optical fiber cable
Optical fiber itself is made from glass or plastic and has a concentric cross section with cladding
wrapped around the photoconductive core. The index difference between the core and cladding
allows efficient long-distance transmission of optical signals by containing them within the core.
19

Refer to sites and facilities for the management of networks. Usually, NOCs contain computers directly linked to backbone
networks.
Development Bank of Japan Research Report/ No. 20 21

This enables high-speed data communications far outstripping all other network types, withspeeds of tens or hundreds of Mbps or even faster. Access networks using optical fiber cables areclassified into FTTH (Fiber To The Home), FTTC (Fiber To The Curb), FTTB (Fiber To The
Building), etc., according to the extent to which optical fiber is used. FTTH is not expected tomaterialize at the national level in the near future, as capital investment of several trillion yen will
be required. Therefore, the government’s priority is to introduce optical fiber to the basic part ofaccess networks called feeders (corresponding to FTTC), which is to be completed by 2005.
Since such efforts are being led by the private sector, however, optical fiber is estimated toaccount for only 89% of the feeder lines in 2005.20 Although the burden of investment in
optical fiber for private companies will be somewhat alleviated by various support provided by
the government, nationwide development will take a considerable time.
Nevertheless, the provision of optical services has already started in urban areas where theinstallation of optical fiber cables has been completed. The service was launched by NTT in
December 2000, tentatively called the optical/IP communication network service, and offers
three options: basic plan (¥13,000/month + ISP charges), high throughput plan(¥32,000/month + ISP charges) and condominium plan (¥3,800/month + ISP charges). The
three options are identical in that they connect to NTT’s local IP networks21 at up to 10 Mbps,
but differ in the number of users sharing a circuit. Thus, the effective speed is fastest for thehigh-throughput plan (32 users sharing a circuit), followed by the basic plan (256 users) and thenby the condominium plan (about 750 users).
Since March 2001, some operators have been providing FTTH services in certain areas
within the 23 wards of Tokyo at speeds of up to 100 Mbps for both up-stream and down-stream
and with a monthly cost of ¥6,100 (including charges for modem use). Future developments ofthese services should be monitored, as they offer far higher cost-performance than other services.
In addition to the development of broadband networks and backbone networks, shorter
download time and improved image quality, etc. have been sought mainly by introducing IP
multicast22 and QoS control technologies23. Distribution businesses have also sprung up for
images and other large information contents. For example, AII, established in April 2000 withSony and Tokyu Railway among the major shareholders, has been involved in a moving-picture
distribution service using the cable television network, covering more than 150,000 households asof December 2000. This is wholly different from CATV Internet. As broadband accelerates,
contents distribution businesses using ADSL and FTTH are expected to emerge.
1.4 Orientation of CATV Internet
Figure 2-5 shows broadband services in Japan as of March 2001 in terms of speed and user
charges. The graph gives the impression of stability, with each service having its own
transmission speed and user charges. Changes are coming, however, with the launch of new
FTTH services offering higher cost-performance and with NTT announcing further pricereductions for FTTH and ADSL services in its three-year management plan.

20

Round-table Conference on the Development of Information Networks in the 21st Century (2000), “Second Interim Report of
the Round-table Conference on the Development of Information Networks in the 21st Century.”
21
IP networks being developed by NTT East and West for individual areas. From the standpoint of ISPs, connection to a local
IP network in each area is beneficial in terms of business development, etc., for it allows services to be provided to all users in
the area.
22
A technology to send the same data to two or more designated receivers on the Internet and other TCP/IP networks.
23
A technology to guarantee a certain speed of transmission on networks by reserving a band for a specific type ofcommunication. This is important for services that cannot tolerate any delay or interruption in communications, such as thereal-time distribution of sound and moving pictures (radio & TV services) and TV phones.
22 Development Bank of Japan Research Report/ No. 20

Figure 2-5. Image of Principal Broadband Access Lines (Monthly Charges and Downstream Speed)(¥ thousands/month)(March 2001)

20
FTTH (NTT)15

10
Flets ADSLImage ofDSL
FTTH (Usen)

5

Image of
CATV Internet

0
10 kbps10100100kbps

1 Mbps1000

1010000
Mbps

100 Mbps
100000(logarithmic scale)
Note:
Source:Monthly charges include ISP charges.
Compiled by DBJ from various data.

Although the speed of CATV Internet may be increased to some extent by introducing the
US standard DOCSIS (Data Over Cable Service Interface Specification) modems or byincreasing the number of nodes to reduce the number of users per node, room for maneuver islimited compared with ADSL, for it is difficult to achieve effective speeds of several Mbps or
higher.
ADSL, on the other hand, requires substantial initial cost and labor, because the distance andquality of the telephone circuit must be confirmed for each household. Therefore, any increase indemand that exceeds the capacity of works on the supply side may delay the provision of actual
services. In contrast, increased cable television operators, with their tree-like network structures(combining a certain number of households into one channel), can rapidly expand business in agiven service area.
It is virtually impossible for Japanese cable television operators to skim the cream byspecifically targeting heavy demand areas at the national level, as service areas have been definedat the local level. Due to the characteristics of the product, CATV Internet operators shouldchange their pricing policies to encourage rapid commoditization.
Development Bank of Japan Research Report/ No. 20 23

2. Progress of Digitalization in Broadcasting Industry
Following the global transition from analog to digital broadcasting led by the US and UK,
broadcasting is also being progressively digitalized in Japan for satellite broadcasting, groundwave and cable television. Digitalization is receiving particular attention because it will
profoundly transform the structure of the broadcasting industry, which has been built over theyears since the start of TV broadcasting in 1953.
Digitalization facilitates HDTV (High Definition Television), multi-channel and interactive
broadcasting as it enables more information to be transmitted within a certain bandwidth byeffectively compressing video information. Linked with the Internet, digital broadcasting will beable to provide services such as Internet banking and TV shopping, as well as the purchase ofmusic tracks by music program viewers through charged distribution, and securities transactions
by news program viewers, all done just by using a remote controller.
However, viewers need to purchase tuners and other related equipment to receive digital
broadcasting. The smooth transition from analog to digital broadcasting will require not only theprovision of quality programs and sophisticated services for viewers to encourage voluntary
replacement, but also the sharing and standardization of terminals to reduce replacement costs
for viewers.
Also, the change in administrative policies on broadcasting has resulted in deregulation onmarket entry, etc., stimulating entries from other industries such as communications and electricmachinery as well as foreign capital. The rapid diversification of media may increase thecompetition between different media, as viewers will not necessarily spend longer hours watching
TV. Although a direct comparison is not possible, a decline in the rating of ground wave
programs and diversification of the TV advertising market have been observed in the US sincethe 1980s, due to progress in multi-channel and multimedia broadcasting.
Figure 2-6 shows the timetable for upgrading the major information networks in Japan
including the digitalization of broadcasting. Broadcast digitalization in Japan has been led bysatellite broadcasting including BS and CS. CS digital broadcasting was fully commercialized in
October 1996 and BS digital broadcasting was launched four years later, in December 2000. With
the start of 110-degree CS broadcasting slated around the autumn of 2001, the digitalization ofsatellite broadcasting is expected to make good progress in the next few years.
Although CS digital broadcasting has been expanding steadily with the number ofsubscribers surpassing 2.6 million as of March 2001, the industry has experienced considerable
restructuring including the withdrawal and merger of newcomers. Many companies entered theindustry as contents providers for CS digital broadcasting, with over 100 consignor broadcasters
currently producing programs, but some of them have had to withdraw as subscriptions
stagnated against suppliers’ expectations. Also, the three companies which entered the platformbusiness, dealing in essential activities for charged broadcasting such as charging management,
sales promotion and bill collection, subsequently merged into one corporation.
Twenty companies including eight data broadcasters have entered the BS digital broadcasting
business, which started in December 2000, mainly to provide HDTV and interactive databroadcasting. BS digital broadcasters affiliated to ground wave private broadcasting companies
have opted for free broadcasting with advertisement as the primary source of income. In order toestablish themselves as advertising media, they need to increase both viewers and ratings quickly.
The number of viewers of BS digital broadcasting are reported to be 1.4 million as of January
2001 (aggregate shipments of 447,000 TV receivers with the rest represented by viewers via cable
television), but the broadcasters face numerous challenges including improvement of program
production and co-existence with their ground wave parents in the advertising market.

24 Development Bank of Japan Research Report/ No. 20

Figure 2-6. Plan for Upgrading Major Information Networks
CY
Business

1999

2001

2002

2003

2004

2007

2008

2009

2010

〜

▽Movements such as the construction of IP networks and introduction of WDM (successive)

Trunk
networks▽Development of optical fiber networks(government objective of achieving 100%
▽Establishment of ADSL service use of optical fiber down to feeder level)▽Start of FTTH service

Subscriber
networks★Emergence of broadband

Cable
digital broadcasting (on a station by station
television basis)
Broadcasting

2006▽Start of cdma 2000 (KDDI, au)▽Development of HFC, interactive and▽Almost 100% use of opticalfiber for trunk lines of major
operators▽Fulldigitalization foralmost all
operators▽Start of 110-degree CS digital broadcasting
ＢＳ・ＣＳ

Groundwave

Source:2005▽Start of W-CDMA (Docomo, J-Phone)

PortablephonesCommunications

2000▽Start of BS digital broadcasting▽Termination of BS analog broadcasting (projected)▽Start of digital
broadcasting (three
metropolitan areas)▽Digital broadcasting
nationwide (other areas)▽Termination of
analog broadcasting

Various data.

110-degree CS digital broadcasting is distinguished from CS and BS digital broadcasting inthat it uses the communications satellite N-SAT-110. Greater convenience and less burden forviewers are expected by sharing receivers with BS digital broadcasting, which uses a satellite
located in the same orbit of 110°E. Eighteen companies owned by key private stations andother existing broadcasters and home electronics manufacturers among others (98 programs)
envisage entering this 110-degree CS digital broadcasting business (authorized as of December
2000) to provide multi-channel broadcasting with SDTV (Standard Definition Television) and
full-fledged interactive services. In addition, two companies are contemplating entering theplatform business including charging.
Digitalization of the remaining ground wave broadcasting is to be started by the end of 2003
in the three metropolitan areas of Kanto, Chukyo and Kinki, and by the end of 2006 in otherareas. Since the frequency used currently for analog broadcasting is to be utilized effectively forother purposes including mobile communications, the existing analog broadcasting is planned to
be terminated in 2011, regardless of the market penetration of digital broadcasting.
Many of the contents providers in Japan, such as ground wave private broadcasters, have notgained expertise compared with the ongoing development of multimedia communications. On
the contrary, copyrights are often shared with playwrights and performers assuming one-time use,
so reuse is complex. The emphasis is now on the so-called “one source, multi-use” to accumulate
know-how on copyright management for maximizing the value of video contents through reuse.
Amidst rising concerns about the lack of broadcasts contents as multimedia communications
progress, the opportunities for companies owning copyrights for good broadcast contents will
Development Bank of Japan Research Report/ No. 20 25

increase.
Japanese cable television operators, who have specialized in network provision, must
respond appropriately to the digitalization of broadcasting. Additional investment will be needed
to receive satellite or ground wave digital broadcast at the central facilities of cable television
operators for distribution to their subscribers, regardless of the technical method used. Suchinvestment burden has been a major driving force behind the restructuring of the industry. Fiscal
2000 saw joint receiving facilities established in many parts of the country, and sharing of a headend by two or more operators was institutionally authorized in December 1997. Many cable
television operators however have not been involved in the retransmission of BS digital
broadcasting due to financial constraints.
In anticipation of the advent of an information home electronics age, an “e-platform”
initiative has been promoted by major electric machinery manufacturers in particular. Thisinitiative envisages the development of common specifications for digital STB equipped with
communication (modem) and storage (HD drive) functions in addition to the traditional functionof reception, so as to construct a framework to provide participating households with storage andinteractive services. The down-stream networks will utilize BS digital broadcasting, 110-degree
CS broadcasting and ground wave digital broadcasting. It should be noted that public services
including administrative services and local information are main pillars of the initiative. Suchservices will take effect when ground wave digital broadcasting starts in 2003. These movements
may threaten the domain of cable television, which has developed over the years as a communitybased business. Cable television operators must respond, either by co-existence or competition.

26 Development Bank of Japan Research Report/ No. 20

III Challenges for Future Development
When cable television derived income from multi-channel and other charged broadcasting andfrom very limited advertising within its service areas, major managerial issues included (i)effective acquisition of subscribers, (ii) diversification of services including video on demand, and(iii) development of uses as a community-based information infrastructure (water meter reading,health care, educational services, etc.). These are still fundamentally relevant and wait to be
implemented. As described in the previous chapter, however, the two major changes ofbroadband and broadcast digitalization could radically alter the business models of cable
television.
In this context, Chapter III will discuss the challenges facing cable television in light of thechanges in its environment outlined thus far.
1. Impact and Future Direction of Broadband
As described in Chapter II, the year 2001 marks the start of the broadband era in Japan, withbroadband expanding to include ADSL and the start of FTTH in addition to CATV Internet.
However, there are major differences in the competitive environment between urban andlocal areas in terms of the number of operators and the contents of services. Cable television willcontinue to be a primary broadband network for some time to come in certain areas, though thegovernment objective of 100% introduction of optical fiber networks to subscriber loop systems
nationwide by 2005 should be respected. Cable television will also play an important role in theearly diffusion of broadband without reliance on telephone networks.
As mentioned earlier, it is virtually impossible for CATV Internet operators to “skim thecream” by specifically targeting heavy demand areas nationwide by relatively low-cost
infrastructure development, for service areas are fragmented at the local level.
Given the local-specific nature of cable television, operators in the broadband era must
address at least the following issues: (i) generation of potential demand through early pricereductions, (ii) diversification of services and package sales, (iii) reduction of cost andimprovement of competitiveness through horizontal division of labor, and (iv) focus on
customer satisfaction.
(i) Expansion of demand and subscription through early price reductions
Basically, the price of each broadband service is initially determined on the supply side based on
the cost of providing the service. Subsequently, however, this would be overtaken by competitive
price setting as alternative services emerge.
In that case, the supply side would want to maintain the price level as a whole by providing
new services such as moving picture distribution, but potential demand could be quickly
generated by minimizing prices. Thus, it would be more beneficial for cable television operators
to secure as many subscribers as possible before other broadband services become fully
operational. Now is the time to adopt ambitious pricing policies, particularly for cable television
operators in local areas where competition remains weak. Although CATV Internet itself may
become less profitable at some stage, high subscription rates would not only ensure synergy withbroadcasting services but also pave the way for other services such as local advertising and public
services, which require a substantial degree of diffusion.
(ii) Diversification of services and package sales
Examples of the diversification of cable television services include the provision of IP telephone
Development Bank of Japan Research Report/ No. 20 27

and online-game services. IP telephone is an adaptation of the voice-transmission technology of
VoIP (Voice over Internet Protocol), which uses IP (Internet Protocol) networks such as theInternet and Intranet. The use of IP networks, with their high circuit usage efficiency, enables
lower prices to be set. Some technical problems remain such as significant degradation of tone
quality in the case of inappropriate system design and operation. The uncertainties accompanying
the startup of IP telephone businesses are complicated because competition is intensifying in thelocal telephone service market, which is the potential target of cable television operators, in
anticipation of the “My Line” (preferential connection) service to be introduced in May 2001. If
an IP telephone service of suitable quality is provided in areas where cable television subscription
has become commonplace, and at a very low fixed price of ¥2,000/month for example, there
could be strong demand for IP telephones as an economical telephone circuit alongside thetraditional fixed telephone.
Even if a variety of services could be provided through cable television networks, clear
differentiation from other services would be difficult when such services may be provided
through other broadband networks, or when such services are in a communication area where
there is already intense competition. Even in such cases, however, cable television enjoys asubstantial advantage of being able to provide comprehensive services at lower charges. An
important challenge for cable television operators is to take full advantage of this characteristic.
(iii) Reduction of cost and improvement of competitiveness through horizontal division oflabor
If the objectives described in (ii) above are to be achieved, corporate strength must be improved
to absorb the shock of price reductions. There would be limited scope for individual efforts. As
regards functions not included in the core competence of individual operators, costcompetitiveness should be improved by actively promoting tie-ups and other horizontal divisionof labor outside the existing framework.
(iv) Focus on customer satisfaction
It is completely out of date to consider that financial stability can be ensured by achieving enoughsubscriptions under a local monopoly. In the broadband age of fierce competition with othermedia, increasing support from subscribers will also be important for differentiation. For
instance, early and efficient development of a customer support regime covering a wide range ofbasic and advanced issues will be required, with attractive services a prerequisite. With thecomplication of home wiring and equipment, installation engineers will require higher technicalskills as their scope of work may extend into areas that were the customer’s responsibility in theanalog era. Although ideas and practices regarding customer satisfaction may vary with operators,
a major cable television operator has set the objective of reaching the site of an accident within
30 minutes.
2. Impact and Future Direction of Digitalization
As described in Chapter II, the diversification of media brought about by digitalization,
deregulation and the emergence of the Internet in particular will intensify competition between
media. At the same time, new opportunities for growth of the rights business are emerging forproviders possessing good content. So far, Japanese cable television operators have not provided
content as observed in the US, and are unlikely to do so to a significant extent in the years ahead.
If cable television is to maintain its raison d’être as digitalization progresses in the
broadcasting industry, an environment should be created that allows cable television subscribers
to receive digital broadcasting at relatively low cost. As shown in Figure 3-1, however, of the
28 Development Bank of Japan Research Report/ No. 20

households subscribing to major cable television operators (totaling 8.4 million), 4.55 million
households (accounting for 54.1% of the total) use transmission lines of less than 750 MHz in
capacity. These include cable television with a frequency band of 550 MHz. Although all of thoselines are not subject to wideband development, the introduction of multi-channel broadcastingbasically requires the replacement of transmission lines, which many operators will be unable to
do because of financial constraints.
Figure 3-1. Relation between Nominal Capacity of Transmission Lines and Total
Subscriptions (including Retransmission) (FY 1999)

63

750 MHz or over

322

Partially 750 MHz or over455

Less than 750 MHz
0Note:
Source:

50

100

150

200

250

300

350

400
450
500
(10,000 households)

Data do not cover non-members of the Federation as well as non-respondent companies.
Compiled by DBJ from Japan Cable Television Federation, “Directory of Cable Television Operators 1999.”

In order to meet the challenge of digitalization investment, individual operators must persevere,such as quickly strengthening their management base by securing subscriptions, as well as
pursuing economies of scale, which is long overdue.
Figure 3-2 shows recent trends in the restructuring of the Japanese cable television industry.
The sharing of digital head-ends by cable television operators has occurred since around 2000, as
well as various collaborations including mergers. The networking of cable television operators is
not easy, because of the differences in specifications of facilities and the lack of economic
relationships even between operators in neighboring communities. Nonetheless, such moves
should be encouraged to ensure sound development of cable television.
One way of achieving scale merits is through absorption or mergers with other companies.
The practice of the aforementioned MSO-style management to enlarge business scale mainly byacquiring operators is therefore expected to accelerate. Recently, some providers have beenoffering various support services to cable television operators while respecting their historicalindependence (Figure 3-3). The merit of using such services is mainly reduction of investment
risk by incorporating initial investment into variable costs, to benefit from economies of scaleand scope. Profitability of the cable television business can be improved by reducing facility
construction costs, outsourcing the technical and consumer management departments that need
immediate improvement, efficiently developing new services, and accelerating the start of suchservices. Such services will develop rapidly as the impact of broadband and broadcast
digitalization spreads throughout the country.
Japanese cable television operators have generally established good relationships with local
Development Bank of Japan Research Report/ No. 20 29

authorities and companies and are often regarded as an integral part of the information
infrastructure in local communities. In order to ensure a rapid response to promising services
such as broadband and digital broadcasting while taking advantage of the know-how and brands
that they have developed as community-based enterprises, cable television operators must
increasingly seek various tie-ups and support services as part of management policy.
Figure 3-2. Recent Trends in Restructuring of Cable Television Industry (March 2001)
Microsoft (US)Liberty Media (US)
Excite @Home (US)NEC
IRI
Sumitomo Corporation@Home Japan
Jupiter Telecommunications

Broadband
Exchange

Tomen Media Com

Kansai Electric Power

Kansai Cable Net○■■○

Tokyu Railway

Japan Digital Service

○ ○

○

Sony

AII

Kansai Multimedia Service

Matsushita Electric Industrial

Japan Cable Net■■

Tomen Corporation
PCCW (Hong Kong)

Railway companies inTokyo metropolitan area
Fujitsu
Secom
Marubeni

Tokai Digital Network
CenterTokyo Electric PowerCATV stations in Tokai
regionCapital relation
MSO, controlling operator, joint receiving company, holding company
ＩＳＰ
Contents distribution companies, etc.
○

Source:Compiled by DBJ.

30 Development Bank of Japan Research Report/ No. 20

Movement toward establishing council, etc.

Figure 3-3. Examples of Controlling Companies and Digital Distribution Companies
Name
EstablishedCore companies
Operational
Main features●

Japan Digital Service (JDS)
April 2000

Japan Cable Net (JCN)
December 2000
(planning company established in October
2000)

Tokyu and some other private railway
companies and Tokyo Electric PowerFujitsu, Secom, Tokyo Electric Power,
Marubeni

December 2000
Uses a broad-area network thatinterconnects optical fiber cables in
the Tokyo metropolitan area ownedby the private railway companies
and Tokyo Electric Power

April 2001
Concentrates the strength of corecompaniesFujitsu: ISP, IDCSecom:
security, health care and educational
servicesTEPCO: ISP, backboneMarubeni:
backbone●

Development and operation of inter-office
networks with digital distribution centersin Kanto area, to be followed by nationwide
operation●

Main services

Response to digital broadcasting, Internet
and contents services, etc. IT advertisement
and IT terminal business at railway stations,etc.

Response to digital broadcasting, Internet andcontents services, etc. Operational and financial
support to cable system operators

Remarks

Participants include 30 operators with home
path of over 3.7 million households

Planned participantsInitial: all affiliatedstations2001: 40 stations with home path of 5.3
million households2003: 80 stations with home
path of 10 million households

Source:Published corporate data and newspaper information.

3. Conclusion
Originally established as a joint listening facility for retransmission, cable television is now
providing various services taking advantage of the wideband transmission lines. The experiencein the US indicates that cable television has the potential to take households into the informationera. As mentioned in Chapter II, however, the information industry has experienced profoundtechnological innovation, and so Japanese cable television operators may not necessarily enjoy
the privileged status of their US counterparts in 20 years. A new business strategy that reflects thecharacteristics of the Japanese cable television needs to be developed and implemented as soon
as possible, for the future depends largely on the speed with which this challenge is addressed.
[by Shuichi Yoshida (e-mail: shyoshi@dbj.go.jp)]

Development Bank of Japan Research Report/ No. 20 31

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Shimpo-sha, 2000.
Incept. Joho Tsushin Jiten e-Words (Dictionary of Information and Communication Terms).
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Second Interim Report of the Round-table Conference on the Development ofInformation Networks in the 21st Century. 2000.
Sano, Tadao. Shimpan Shoshin-sha no tameno Cable Television Koza (Lecture on Cable
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Satellite Magazine Co. Cable Nenkan 2000 (Cable Almanac 2000). 1999.
Shimbo, Jiro. TV Media no Kobo (The Rise and Fall of TV Media). Shuei-sha, 2000.
Sugaya, Minoru and Kiyoshi Nakamura. Hoso Media no Keizaigaku (The Economics ofBroadcasting Media). Chuo Keizai-sha, 2000.
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32 Development Bank of Japan Research Report/ No. 20

List of Back Numbers (Including JDB Research Report)
No. 20 Current Situation and Challenges for Cable Television in the Broadband Era (This Issue)
No. 19 Recent Trends in the Japanese Economy: The Japanese Economy under Deflation, August 2001
No. 18 Introduction of a Home Appliance Recycling System: Effects & Prospects: Progress towards Utilisation of
Recycling Infrastructure, June 2001
No. 17 Survey on Planned Capital Spending for Fiscal Years 2000 and 2001, June 2001
No. 16 Revitalization of Middle-aged and Elderly Workers in Japan’s Labor Markets: Requiring the Expansion of
the Vocational Training Functions, March 2001
No. 15 Risk-Averting Portfolio Trends of Japanese Households, March 2001
No. 14 Consumption Demand Trends and the Structure of Supply: Focus on Retail Industry Supply Behavior,
March 2001
No. 13 Recent Trends in the Japanese Economy: Weakness of Current Economic Recovery and Its Background,
March 2001
No.12

Emipirical Reassessment of Japanese Corporate Investment Behavior: Features and Changes since the1980s, based on Micro-level Panel Data (This issue)

No.11

Survey on Planned Capital Spending for Fiscal Year 1999, 2000 and 2001, October 2000

No.10

Job Creation and Job Destruction in Japan, 1978-1998: An Empirical Analysis Based on Enterprise Data,
September 2000

No.9

Recent Trends in the Japanese Economy: Information Technology and the Economy, September 2000

No.8

Trend of International Reorganization Affecting the Japanese Automobile and Auto Parts Industries, June
2000

No.7

Survey on Planned Capital Spending for Fiscal Years 1999 and 2000, June 2000

No.6

Current Status and Future Perspective of the Japanese Remediation Industry: Technology and Market for
Underground Remediation, May 2000

No.5

Recent Trends in the Japanese Economy: The 1990s in Retrospect, March 2000

No.4

Destabilized Consumption and the Post-bubble Consumer Environment, February 2000

No.3

The Slump in Plant and Equipment Investment in the 1990s: Focusing on Lowered Expectations, the Debt
Burden and Other Structural Factors, January 2000

No.2

Survey on Planned Capital Spending for Fiscal Years 1998, 1999 and 2000, November 1999

No.1

Corporate Strategies in Japan’s Semiconductor Industry: Implications of Development in Other AsianCountries, November 1999

JDB Research Report
No.96

Recent Trends in the Japanese Economy: Focused on Fixed Investment and Capital Stock, August 1999

No.95

Efforts to Protect the Natural Environment in the United States and Germany: Environmental Mitigation
and Biotope Conservation, July 1999

No.94

Survey on Planned Capital Spending for Fiscal Years 1998 and 1999, June 1999

No.93

Towards the realization of ‘environmental partnership’: A survey of Japan’s environmental NPO sector
through comparison with Germany, June 1999

No.92

The Impact of Demographic Changes on Consumption and Savings, March 1999

No.91

Recent Research and Development Trends in Japanese Enterprises: Technology Fusion, March 1999

No.90

Recent Trends in the Japanese Economy: Prolonged Balance Sheet Adjustment, January 1999

No.89

Impact of Asset Price Fluctuations on Household and Corporate Behavior: A Comparison between Japanand the U.S., December 1998

No.88

Survey on Planned Capital Spending for Fiscal Years 1997, 1998, and 1999, December 1998

No.87

Foreign Exchange Rate Fluctuations and Changes in the Input-Output Structure, November 1998

No.86

Structural Changes in Unemployment of Japan: An Approach from Labor Flow, November 1998

No.85

Recent Trends in the Japanese Economy: Characteristics of the Current Recession, August 1998

No.84

R&D Stock and Trade Structure in Japan, August 1998

No.83

Survey on Planned Capital Spending for Fiscal Years 1997 and 1998, August 1998

No.82

The Significance, Potential, and Problems of DNA Analysis Research: Establishing Public Acceptance isEssential, May 1998

No.81

The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1996, 1997 and 1998
Conducted in August 1997, March 1998

No.80

Recent Trends in the Japanese Economy: Growth Base of the Japanese Economy, January 1998

No.79

Information Appliances: The Strength of Japanese Companies and Tasks for the Future, January 1998

No.78

Challenges and Outlook for the Japanese Machinery Industries: Impact of ISO14000 Series andEnvironmental Cost, January 1998

No.77

Current Conditions and Issues of Computerization in the Health Care Industry : For the Construction of a
Health Care Information Network, January 1998

No.76

Household Consumption and Saving in Japan, December 1997

No.75

The Direction of Japanese Distribution System Reforms: Strengthening the Infrastructure to Support
Diverse Consumer Choices, November 1997

No.74

Foreign Direct Investments by Japanese Manufacturing Industries and Their Effects on International
Trade, October 1997

No.73

The Impact of the Changing Trade Structure on the Japanese Economy: With Special Focus on the Effects
on Productivity and Employment, October 1997

No.72

An Analysis of Foreign Direct Investment and Foreign Affiliates in Japan, August 1997

No.71

Recent Trends in the Japanese Economy: Stock Replacement and New Demand as Aspects of Economic
Recovery, August 1997

No. 70 Corporate Fundraising : An International Comparison, June 1997
No. 69 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1996 and 1997
Conducted in February 1997, May 1997
No. 68 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1996 and 1997
Conducted in August 1996, August 1997
No. 67 An International Comparison of Corporate Investment Behavior: Empirical Analysis Using Firm Datefrom Japan, France and the US, April 1997
No. 66 Housing in the National Capital: Analysis of the Market for Housing using Micro Data, March 1997
No. 65 The Environment for Locating Business Operations in Major East Asian Cities, January 1997
No. 64 Direction of Reconstruction of Business Strategy in the Chemical Industry, January 1997

No. 63 Reflection on Discussions Concerning Regulation of the Electric Power Industry: Deregulation of theElectric Power Industry in Japan and Implication of Experiences in the United States, December 1996
No. 62 Current Status and Future Perspective of the Japanese Semiconductor Industry, November 1996
No. 61 A Breakthrough for the Japanese Software Industry?: Responsiveness to Users’ Needs is the key, October
1996
No. 60 Recent Trends in the Japanese Economy Focusing on the Characteristics and Sustainability of the Current
Economic Recovery, September 1996
No. 59 Analysis of the Primary Causes and Economic Effects of Information: Related investment in the UnitedStates and Trends in Japan, August 1996
No. 58 Selected Summaries of Research Reports: Published in FY 1995, June 1996
No. 57 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1995 and 1996
Conducted in February 1996, May 1996
No. 56 Recent Trends in the Japanese Economy, May 1996
No. 55 Issues Concerning the Competitiveness of the Japanese Steel Industry, February 1996
No. 54 Changes in the Financial Environment and the Real Economy, January 1996
No. 53 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1994, 1995 and 1996
Conducted in August 1995, October 1995
No. 52 Current Economic Trends: Focusing on the Appreciation of the Yen and its Effects, October 1995
No. 51 Problems Concerning the International Competitiveness of the Petrochemical Industry, October 1995
No. 50 An Economic Approach to International Competitiveness, October 1995
No. 49 Selected Summaries of Research Reports Published in FY 1994, July 1995
No. 48 Strategies for Improving the Efficiency of the Japanese Physical Distribution System: Part2, July 1995
No. 47 Issues on International Competitive Strength of the Auto Industry, June 1995
No. 46 Problems Concerning the International Competitiveness of the Electronics and Electric Machinery
Industry, June 1995
No. 45 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1994 and 1995
Conducted in March 1995, June 1995
No. 44 Strategies for Improving the Efficiency of the Japanese Physical Distribution System, March 1995
No. 43 Capital Spending Recovery Scenario Cycle and Structure, August 1994
No. 42 Progress of International Joint Development between Industrialized Countries on the Private Level, May
1994
No. 41 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1993, 1994 and 1995
Conducted in August 1994 , November 1994
No. 40 Selected Summaries of Research Reports Published in FY 1993, June 1994
No. 39 Recent Trends in Japan’s Foreign Accounts, April 1994
No. 38 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1993 and 1994
Conducted in March 1994, April 1994
No. 37 Economic Zones and East Asia Prospect for Economic Activity Oriented Market Integration, December
1993
No. 36 Japanese Corporate Responses to Global Environmental Issues, December 1993

No. 35 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1992, 1993 and 1994
Conducted in August 1993, September 1993
No. 34 Structure of Profit to Capital in the Manufacturing Industry, September 1993
No. 33 Comparison of the Japanese and The U.S. Labor Markets, October 1992
No. 32 The Relative Competitiveness of U.S., German, and Japanese Manufacturing, March 1993
No. 31 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1992 and 1993
Conducted in March 1993, April 1993
No. 30 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1991, 1992 and 1993
Conducted in August 1992, December 1992
No. 29 Flow of Funds in the 80s and Future Corporate Finance in Japan, November 1992
No. 28 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1991 and 1992
Conducted in February 1992, April 1992
No. 27 An Analysis of Foreign Direct Investment in Japan, March 1992
No. 26 Projection of Japan's Trade Surplus in 1995: Analysis of Japan's Trade Structure in the 80s, February 1992
No. 25 Intra-Industry Trade and Dynamic Development of The World Economy, November 1991
No. 24 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1990, 1991 and 1992
Conducted in August 1991, September 1991
No. 23 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1990 and 1991
Conducted in February 1991, March 1991
No. 22 Trends of the Petrochemical Industry and its Marketplace in East Asia, March 1991
No. 21 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1989, 1990 and 1991
Conducted in August1990,September 1990
No. 20 Deepening Economic Linkages in The Pacific Basin Region: Trade, Foreign Direct Investment andTechnology, September 1990
No. 19 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1989 and 1990
Conducted in February 1990, March 1990
No. 18 Petrochemicals In Japan, The US, and Korea an Assessment of Economic Efficiency, February 1990
No. 17 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1988, 1989 and 1990
Conducted in August 1989, October 1989
No. 16 Impact of the EC Unification on Japan’s Automobile and Electronics Industries, August 1989
No. 15 Industrial and Trade Structures and the International Competitiveness of Asia’s Newly Industrializing
Economies, August 1989
No. 14 The Japan Development Bank Reports on Capital Investment Spending: Survey for Fiscal Years 1988 and1989 Conducted in February 1989, March 1989
No. 13 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1987, 1988 and 1989
Conducted in August 1988, September 1988
No. 12 Growing Foreign Investors’ Activities and the Future of Internationalization, September 1988
No. 11 Futures Tasks and Prospects for the Japanese Machine-Tool Industry, July 1988
No. 10 International Division of Labor in the Machine Industries Among Japan, Asia’s NICs and ASEANCountries, June 1988
No. 9

Trends of the Petrochemical Industry and its Marketplace in East Asia around Japan, May 1988

No. 8The International Competitiveness of Japan and U.S. in High Technology Industries, April 1988

No. 7

The Japan Development Bank Reports on Private Fixed Investment in Japan, March 1988

No. 6

Economic Projections of the Japan’s Economy to the Year 2000, February 1988

No. 5

The Japan Development Bank Reports on Private Fixed Investment in Japan, September 1987

No. 4

Current Trends in the Japanese Auto Parts Industry in Overseas Production, July 1987

No. 3

Current Moves for Foreign Direct Investment into Japan, May 1987

No. 2

Overseas Direct Investments by Japanese Corporations, May 1987

No. 1

Current U.S. Consumption Trends, May 1987