Broadband in Asia Serves
As Window on the Future

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By Fred Dawson

Fred Dawson is principal, Dawson Communications. Dawson Communications publishes the newsletter ScreenPlays and provides consulting and writing services to service providers, suppliers and publications in the broadband sector.

The Asian broadband landscape is unique in many ways, but for cable operators, the region offers a strategic preview of how next-generation technologies and business models are likely to shape competitive challenges posed by telcos everywhere.

Much has been made in the press about Asians’ apparently insatiable appetite for ever higher levels of bandwidth, with Japan awash in super-hype about 100 megabit-per-second service and telecoms in other areas hawking 50 Mbps broadband. Indeed, observers report that bragging rights about having such access speeds has become part of the youth culture in some countries.

For people in the cable business, however, the question isn’t whether the cultural underpinnings behind the bandwidth craze will eventually take hold elsewhere; it’s how soon the technological capabilities fueling the bandwidth surge will be deployed in telecom infrastructures everywhere. As evidenced by upward bandwidth spirals in the U.S. and Europe, as well as Asia, once the marketing machine sets a new bandwidth benchmark, consumer expectations seem to follow.

Or as Greg Armstrong, COO of the leading MSO in Japan, Jupiter Telecommunications (J:COM) puts it: "The hype is about 100 megabits now; where do you stop?" Noting the senselessness of exorbitant bandwidth levels, he adds, “Sometimes technology scares me.”

Access technologies are just part of the emerging telco service story. Equally significant are the steps that Asian telecoms are taking to implement integration of all service streams around the Ethernet platform and to apply quality-of-service and prioritization parameters to those streams as they move from the edge points in central offices to transmission over access lines. Still in the planning stages among state-side telcos, these capabilities are becoming stock-and-trade components of commercial service implementations in Asia.

South Korea

One place to look for how theses developments are playing out is South Korea, where Korea Telecom and Hanaro Telecom, the number one and two service providers, respectively, are locked in intense competition for new revenue streams in a saturated market. With South Korea’s per-line DSL penetration now approaching a globe-topping 30 percent as measured by the DSL Forum, the ability to up-sell customers to new bandwidth levels and to attendant content and feature components has become the key to growing revenues, notes Shailesh Shukla, vice president for marketing at Redback Networks, which is supplying both competitors with edge aggregation and management components.

”The land grab is over,” Shukla says: ’Now carriers have to find other ways to drive growth.” Both companies are offering to upgrade customers from 8 megabit-per-second service to 45 or 50 Mbps at a small monthly price increment. They’ve also introduced a wide range of service enhancements, from video and gaming components to webcam home monitoring and a child-usage control feature that prevents a child from going beyond a prescribed time on the Internet.

The speed increases, exploiting the short copper loop lengths in the highly concentrated Korean market, rely on VDSL (very-high-speed DSL) technology and expanded capacities over fiber metro networks. These improvements keep access rates high even in periods of peak usage, although, as is true elsewhere in Asia, there can be significant disparities between advertised and actual rates.

The per-user applications policies for new advanced features are enforced through the next-generation version of a broadband remote access server (BRAS), which is a cornerstone of the new multi-service architecture developed under auspices of the DSL Forum. In the U.S., BellSouth is the first Bell company to put such capabilities to use in a market trial. Korea Telecom’s implementation marks one of the first commercial applications of the full functionalities of BRAS technology anywhere in the world, Shukla notes.

”This is all software controlled,” Shukla says. For example, in the case of home monitoring with webcams, the provider adds a $2 per-month charge to the basic $20-$25 service rate, ’and $1.98 is profit,” he says. ’There are no incremental costs.”

Along with service enhancements carriers are using the multi-service technology to integrate their various service streams for Ethernet-based transport across metro backbones. In Korea Telecom’s case, the integration applies to Metro Ethernet, WiFi, ATM-based ADSL, and Ethernet-based VDSL, encompassing both enterprise and consumer services.

”To migrate from ADSL to VDSL, as soon as the customer signs up for the higher-speed service, you switch them to another port in the DSLAM and give them a different modem,” Shukla says. ’You remotely switch the customer’s ID from the ATM system and authenticate it to the DHCP (Dynamic Host Configuration Protocol) processes used with VDSL. There’s no operational impact because the edge device supports both time-division multiplexing and Ethernet transmissions.”

Interestingly, Hanaro Telecom, which operates over a large cable HFC footprint as well as DSL, is using BRAS technology to insert traffic from the cable side into the Ethernet metro backbones and to integrate IP services offered through DSL with those offered over hybrid fiber/coax (HFC). The company has installed several switch/routers for 10 gigabit Ethernet routing and for Gigabit Ethernet aggregation of traffic from all the BRAS and CMTS (cable modem termination system) edge devices.

China

Hong Kong is another center of high broadband saturation where service providers are turning to content enhancements to drive revenue growth. Most notably, the Hong Kong Telecom unit of Pacific Century CyberWorks (PCCW) has registered strong market response to its a la carte video content service ’now Broadband TV.” It offers this service via DSL in affiliation with content suppliers such as ESPN, Discovery, MTV Southeast Asia, CNBC, ABC Asia Pacific, Cartoon Network, Turner Classic Movies, Stars Group and E!

Marketed against the triple-play offerings of Hong Kong Cable TV, the DSL-based PCCW services provide on-demand access to about 60 channels over ADSL, where, because of short loop lengths, users typically can receive service at speeds of 6 Mbps or better. PCCW claims it has more than 400,000 subscribers to the now service, outstripping the customer base of HK Cable by about 100,000. How readily the a la carte model of delivering TV programming over DSL will move to other regions remains to be seen, but, in Asia, content providers are not resisting the opportunity to expand their market base via the telcos’ footprints.

Elsewhere in China, in a hybrid model of a la carte and packaged pricing, Taiwan’s Chunghwa Telecom is expanding its ’Multimedia on Demand” service base, and some mainland localities, including Shanghai and Beijing, have begun offering video over broadband connections in the a la carte mode pursued by PCCW. The Chunghwa Telecom service, employing the IPTV Open Media Platform supplied by Alcatel, is somewhat closer to the packaging model used for cable TV insofar as some services are included in the basic service bundle. But the lion’s share of channels that are being offered so far are priced on an on-demand basis.

Chunghwa’s goal is to reach the 150,000 customer plateau this year, even though it has a long way to go in lining up content that matches the content offered by cable TV companies like Eastern Multimedia Co., Taiwan Fixed Network Co. and China Networking Systems. ’Chunghwa Telecom cannot be a threat in the first year because of the scarcity of programs,” says Richard Chen, a deputy secretary general of Eastern Multimedia Group, who was quoted recently in the Taipei Times. ’But it could be a stronger competitor two or three years later.”

Programming issues aside, Chunghwa will have no trouble extending its IPTV footprint, says Alan Mottram, president of Alcatel’s fixed solutions activities. ’We’re in a position where our IPTV gear is beginning to scale into the hundreds of thousands,” he notes. Moreover, he adds, Alcatel and Microsoft have partnered on integration of their respective network and IPTV middleware platforms to ’put our customers in a position to scale into the millions.” He says existing customers of the Alcatel IPTV middleware like Chunghwa will be advised to shift to the new amalgamated Alcatel/Microsoft system.

In Shanghai, according to the Shanghai News, Shanghai Telecom is now offering 50 TV channels on an a la carte basis over its broadband network, which reaches 1.1 million users. The television network CCTV, part of the Shanghai lineup, is also offered over the broadband network in Beijing, the paper says.

Indeed, things are moving fast on the broadband front in mainland China, says Philip Kaplan, president and COO of VitalStream, Inc., a global provider of integrated content delivery services. ’China wasn’t on our radar a year ago, and now it’s one of the top 10 areas for overseas traffic,” Kaplan says.

Most of the activity related to VitalStream’s services is centered on streaming video, Kaplan adds. ’American brands are popular in China,” he says. ’The Chinese government is filtering the type of content that people can get, but they can’t block everything. Users are still able to access some of the commercial and entertainment content, such as advertising and news media, through the filters.”

This, in turn, is driving bandwidth demand. Presently the average data rate on broadband links nationwide is 512 kbps, says Thierry Raymaekers, managing director for marketing, Asia-Pacific, at Irdeto Access, a provider of Internet security solutions with offices in Beijing. ’By technical requirements of video services, there’s a need to increase bandwidth,” Raymaekers says. ’The (national) target is 2 Mbps, which should be suitable for MPEG-4 encoding.”

China’s ADSL subscriber total stood at 12.7 million as of mid ’04, representing a 119.4 percent jump over the previous year, according to the DSL Forum. Overall, the broadband subscriber base in China is about 19 million, according to the Chinese Ministry of Information’s research unit, with cable broadband and fiber access comprising the lion’s share of the remaining subscriber base.

Research firm Point-Topic puts the total broadband number even higher, at 23.8 million connections. Where fiber is concerned, Point-Topic estimates about six million residences in multi-dwelling buildings are connected to fiber via DSL links, many of them VDSL operating at 10 Mbps. Thus, a significant number of users are already well above the 2 Mbps target cited by Raymaekers.

Entertainment applications promise to be a major driving force behind anticipated growth on both the DSL and cable sides, Thierry says. ’Chinese are using broadband primarily for entertainment purposes and a little for business research,” he notes. Reasons they’re turning to the Internet for entertainment include ’the lack of attractive content on TV, slow roll-out in pay-TV over cable and increasing offers of start-up services targeting the audience with games, file sharing and video gaming.” Young people in major cities commonly connect their laptops to their TVs to bring the entertainment into the TV space, he adds.

”Although low in numbers, the trend is progressing fast,” Thierry says. ’To give you an example, over 600,000 unique visitors watched the streaming online broadcast of CCTV’s 2005 Spring Festival Gala on February 8, which was provided by Speedera Networks in cooperation with ChinaCache.”

Japan

There may be no better place to look than Japan for a sense of what cable companies everywhere may be coping with in the not-too-distant future. There Jupiter Telecommunications faces a competitive onslaught from NTT and a host of other telecom-network based providers with fiber facilities in various parts of the country such as KDDI, USEN, K-Opticom and Tetco [is that it’s name? the abbreviation for the parent is Tepco], the telecom arm of Tokyo Electric Power Co. The lion’s share of fiber connectivity is to MDUs, with VDSL serving for in-building transport.

While most of the services traveling over these fiber access networks are focused on broadband Internet and voice, the full triple-play with video has entered the picture, notes J:COM’s Armstrong. ’At first, starting with Yahoo! Broadband, the trend was higher speeds at lower prices for Internet service, but then people began to look at the triple-play option that our company has made popular in Japan,” Armstrong says.

The MSO, who manages a total of 1.9 million customer connections and 3.2 million RGUs out of seven million homes passed, began offering switched voice in the ’96-’97 timeframe and has since extended it across most of its footprint. High-speed Internet is offered at two rates, 8 Mbps and 30 Mbps, and the company is experimenting with fiber-based 100 Mbps to MDUs, using in-building coax to distribute service to residents on a shared-access basis.

Assessing the roll of ever-increasing bandwidth in driving customer demand in Japan can be tricky business. High-profile marketing campaigns touting 100 Mbps service are misleading indicators, to say the least. And marketing claims for ADSL services, advertised at anywhere from 12 to 50 Mbps, aren’t much better.

”The buzz word in Japan is 100 Mbps,” Armstrong says. ’But if you’re a fiber service customer in an MDU you’re sharing that bandwidth with a lot of people. What we’ve found monitoring various web sites is that 80 percent of the fiber-to-the-premises customers are experiencing actual throughput speeds in the 18-20 megabit range. So the issue becomes a marketing perception that, at 30 Mbps, we’re offering something slow, when, in fact, the service we’re offering is actually competitive with fiber service rates.”

J-COM’s 30 Mbps is shared among broadband customers on a given fiber node, so there, too, the actual received rate can be lower than the advertised top rate. JCOM does monitor this consistently and even during busy hours, over 80% of their customers receive 24 Mbps on an equivalent circuit based measurement, Armstrong notes. There’s no doubting there’s a gap between the hype and the reality surrounding broadband access speeds, says Daniel Newman, senior analyst at IDC Japan. Even in instances where fiber connects to single-dwelling homes, actual throughput is well below 100 Mbps, usually in the 70-80 Mbps range, he says. MDU residents experience rates well below 50 Mbps, he adds.

As for the ADSL/VDSL claims, Newman says services advertised at 50 Mbps are actually operating at 12-26 Mbps to single-dwelling homes depending on loop lengths and can be as low as 3 Mbps in MDUs, based on anecdotal evidence he has compiled from users. ’Only about 3-5 percent of customers are getting the maximum throughput,” he adds.

Notwithstanding the credibility gap, demand for NTT’s and other carriers’ fiber services has surged dramatically over the past 18 months and is projected to keep growing at a rapid clip. The total number of FTTP subscribers at mid-2003 was about 456,000, then hit one million last February, and at year-end ’04 was about 1.97 million, with DSL at 13.7 million and cable modem service at 2.92 million, according to IDC Japan. By year-end ’08 the firm projects there will be 7.8 million customers on FTTP, compared to 19.7 million for DSL and 3.95 million for cable. Put another way, the growth projection for fiber between now and YE ’08 is 290 percent compared to 44 percent for DSL and 35 percent for cable.

None of the projections for fiber-based services factor in the potential appeal of video services, Newman says, because video is only just starting to be offered by some ISPs. NTT’s operating arms, NTT East and West, are barred by government regulations from offering ISP services, including video, which means the sales pitch for NTT’s fiber service, known as ’FLET’S,” is based primarily on superior speed, Newman says. (NTT has an ISP, NTT Communications, but it has to operate under the same pricing and other rules as any outside ISP and, at this point, does not offer video service.)

Demand for high speed doesn’t mean people are necessarily paying more, Newman says, noting that in MDUs the price for FLET’S is on par with and, in some cases, cheaper than ADSL service, in contrast to single-dwelling connections, where users pay a $20-$30 per month premium over ADSL. For NTT, providing service at cut rates to MDU residents is a smart move because, under the country’s unbundling requirements, the company doesn’t have to lease fiber access lines to other providers the way it does with ADSL loop. ’If you’re an ADSL customer and your ISP is offering a lower priced service over its own infrastructure, you can easily switch,” Newman notes. ’Fiber allows NTT to significantly reduce churn.”

But even though costs are not high it’s clear that speed does matter to consumers, owing to their interest in high bandwidth-consuming applications like gaming and multimedia. ’There’s a network effect that builds on itself,” notes Dan Briere, CEO of TeleChoice, the U.S.-based consulting firm. ’As certain applications drive people to take higher bandwidth, other applications are introduced, which creates broader demand for that higher bandwidth. This is a big reason why the Japanese have stayed ahead of the gadget curve adopting things like virtual karaoke, camera phones, 3D content, and virtual gaming environments ahead of other regions.” ISPs and facilities-based FTTP competitors to NTT like KDDI Corp. are beginning to introduce video, most prominently video-on-demand services in conjunction with rollout of IP set-top boxes. ’Video services just launched last spring, so it’s too soon to say what the impact will be,” Newman says.

And there’s much else coming to drive bandwidth demand forward. For example, in September NTT East and NTT West started offering a new high-end videophone to customers for use over their broadband networks. With an 8-inch screen, USB and Fast Ethernet ports and a CPU running on Microsoft Windows CE NET 4.2, the device employs an MPEG-4 codec to deliver peer-to-peer web video content, video streaming and other applications as well as VoIP-based video telephony at 2 Mbps. Subscribers can use the phone in conjunction with ISP-delivered services or NTT’s own IP Version 6-based service, one of the first services anywhere to employ next-generation IP addressing.

J:COM’s first point of attack in response to the high-speed challenge is to ensure that sales and customer service personnel understand the distinctions between hype and reality and can communicate that to their customers. ’We have to make sure our employees understand how robust our network is and that it really does stand up to the competition,” Armstrong says.

A big factor in J:COM’s favor is the size and persistence of its direct sales force, now numbering over 1,600 sales reps, notes Mike Losier, senior vice president of marketing and sales at the MSO. ’These are people who are very much in the community, who stay in touch with customers and know how to build trust over time,” he says. ’They go in and explain to people what the truth is about competitors’ services and help them determine what data rates they really need based on their usage patterns. People are confused over bills and who’s delivering what to them. We make it simple, explain how things work.”

With a bundled service offered at a 12 percent discount to its a la carte rates there’s a value component to J:COM’s offer as well. But Losier says the pricing differential isn’t nearly as important as overall quality of service and the personal touch the company brings to the market. Other factors contributing to J:COM’s marketing pitch are the fact that the company includes security and other features in its high-speed data service price that are add-ons elsewhere, and it has exclusive content deals with NHK and other suppliers that serve to differentiate its broadband service.

”We’re definitely talking with programmers, including J:COM affiliates like Discovery and Movie Plus,” Losier says. ’There are a lot of subscription VOD opportunities that cross over to the Internet side, which gives us the chance to offer access wherever the customer goes.”

But, for all these advantages, J:COM is still very much concerned about the need for getting to higher speeds, including the need for completion of the DOCSIS 3.0 specification to enable the company to deploy a standardized response to the 100 Mbps challenge. ’There hasn’t been as much pressure for 3.0 from other areas, but we’re told the spec might be finalized by the end of the year and that commercial deployments could come by 2006,” Armstrong says. The company has been looking at the new multi-band technology offered by Cisco Systems and is favorably impressed. But, Armstrong adds, the company hasn’t decided whether it wants to proceed with a proprietary system rather than wait for a standardized approach.

Meanwhile J:COM is testing use of an in-building distribution platform supplied by C-Link that would work in conjunction with fiber extensions to MDUs to support a 100 Mbps shared service offering. The system uses the high-end range in the cable RF spectrum between 800 MHz and 1 GHz to deliver the data service. ’So far it is working very well, but it’s new technology, so there isn’t any real market experience to go on,” Armstrong says. ’The concern I have is operating at those high frequencies and the distance limitations you can run into. But we’re getting a steady 50-60 Mbps throughput per user, so it’s encouraging.” Armstrong also noted that even though Japan has significant competition, J:COM’s growth rates are still robust and churn is low and trending lower. In 2004 data churn averaged 1.2% per month.

In any event, while high-speed data service, currently registering 11-12 percent penetration of homes passed, is important to J:COM, it’s just a part of the picture, Armstrong notes. ’We don’t think fiber is going to bury us,” he says. ’Once we have the ability to deliver a 100 Mbps service we can market that. We have the ability to talk to people about what they want and what type of service bundle makes the most sense for them. We’re not a telecom company. We’re grounded in video and cable and we want to continue to deliver on the quality of service that people have come to expect from us,” he added.