Despite the Japanese government’s efforts to promote competitive FTTx services in the country, broadband operator Softbank is abandoning its fibre ambitions.

Starting 1 July, Softbank, who was offering its own FTTx product under the Yahoo BB brand using leased fibre from incumbent NTT, announced that it will no longer continue with the model. Instead, Softbank will now resell NTT’s FLET’s Hikari (fibre) service, acting like a sales agent, relying on sales commission and a share of the monthly fee for providing the customer service.

According to a report on the JCN Network, Softbank has succumbed to the high licensing fees that NTT was charging for the fibre, and has started to resell the FLET’s service since February in 10 prefectures around the country. The latest announcement will expand the reseller deal to cover the whole of Japan, the report said.

The report says that Softbank will earn an undisclosed commission for each subscriber it signs up to the FLET’s service for either NTT East or NTT West – the NTT Group’s two fixed line operating units in Japan. Softbank is not reselling a white-label service from the NTT entities. The offering is priced exactly the same as NTT’s and Softbank’s website explicitly points out that it is providing services from NTT, complete with links to terms and conditions from the NTT entities.

According to the JCN report, Softbank will however provide some of the customer support services, and will earn ¥1,296 yen of the monthly fee for each subscription, or some 25% of the ¥5,460 monthly charge – in the case of NTT East - for a single dwelling subscription.

It is no wonder why Softbank has chosen to abandon the fibre leasing model. The reseller deal means that NTT can charge about ¥4,000 a month for operating the underlying fibre– give or take taxes and other incremental charges like customer premise equipment – and still has a business case, a level that is below what it was charging for wholesale fibre.

NTT East was charging a monthly wholesale fibre rental fee of ¥4,713 as recent as a year ago, which means anyone leasing fibre to compete with NTT’s FTTx will be severely challenged to find margin in such an offering. Indeed, NTT East and NTT West managed to grow their combined market share to 73.7% at the end of 2008, up 2.3% on the year, according to statistics from the Japanese Ministry of Internal Affairs and Communications. The only competitor that has seen some success is what the Ministry calls “power utility group carriers,” who has the rights of way to install their own fibre along power lines and transport routes. These carriers hold 10.4% of the market.

IS SOFTBANK EXITING BROADBAND: The announcement does not bode well for Softbank’s broadband strategy. While it continues to be the leading DSL operator in the country with a market share of 38.2% at the end of 2008, compared to 36% for the two NTT units combined, DSL numbers are falling. The total DSL market in Japan dropped to 11.6 million by end-2008, from 13.1 million a year earlier.

FTTx services, on the other hand, gained more than 3 million new users in the same period to 14.4 million accounts.

Softbank will now have to depend its DSL share, while fending off competition from FTTx offering, including its own. The good news is that the broadband infrastructure segment has been the company’s smallest revenue contributor since mid-2007. The segment declined to ¥55.2 billion in Q4 2008, from ¥61.7 billion in the same period a year earlier, and now makes up less than 10% of the company’s overall net sales.

It might make sense to the company to become a reseller of broadband services to maintain the customer relationship and to focus on growing revenues for supplementary value added services on top of the access, segments which the company calls “Internet culture” and “e-commerce,” both of whom already generate more sales than its broadband business.

Tony Chan