Broadband and Structural Separation from the Perspective of Transaction Cost Economics - Adoption, Usage, and Global Impact of Broadband Technologies - page 83

Table 7. Business scale of NTT local companies and J:Com (Fiscal 2009) (Unit: Million Yen)

NTT-East NTT-West J:Com

Revenue 1,928,652 1,780,821 333,724

Operating Profit 47,634 18,475 61,159

Source: Financial data published by each company

to be imposed on top of functional separation was
not well explained. Here, it is important to note
that costs and benefits analysis of structural sepa-
ration have not been performed in the broadband
market where new technologies such as FTTx are
developing and transactions costs are significant.

on NTT local companies together with aggressive
marketing by Softbank Corp. contributed to the
rapid growth of ADSL in Japan. NTT local com-
panies set the price of FTTx services very low to
be competitive with the cheap ADSL services of
Softbank Corp. and the FTTx services offered by
subsidiaries of electric power companies. This has
contributed to the rapid growth of FTTx services
in Japan. The main factor behind the rapid growth
of broadband is not the structural separation of
NTT but conduct regulation including LLU and
a dark fibre obligation 11 .
I will elaborate on the differences in market
structure between POTS and broadband in the
following sections.
When we study structural separation in the
broadband market, we should notice the differ-
ences in market structure between POTS and
broadband. The distinction between local and long-
distance has become obscure with the diffusion of
broadband, as the Internet is characterised by the
layered structure of physical, service and content.
The basic elements of the POTS network are
composed of metallic subscriber cables and local
exchanges (Figure 3). They deploy mature tech-
nologies and we cannot expect further significant
innovations in these areas. When we consider
structural separation, we can stipulate the dividing
lines at the interface between subscriber cables and
the entrance of local exchanges or at the exit of
local exchanges. Further, access lines, i.e. metallic
subscriber lines and local exchanges have been
already installed. The incumbents acting in both
the upstream and downstream markets need not
invest in upstream facilities. This means that such

THE BROADBAND MARKET AND
STRUCTURAL SEPARATION

I have analysed the structure of the broadband
market and policies on structural separation in
the U.S.A., the main EU countries and Japan.
The unique cable policy and asymmetric regula-
tion between cable modem and ADSL promoted
facilities based competition between cable op-
erators and telecommunications carriers in the
U.S.A. As a result, structural separation is not
required any more in the U.S.A. This means that
a particular institutional factor contributed to the
formation of a particular market structure and the
policy implications for other countries are limited.
Therefore, I will concentrate on the comparison
between Japan and the EU.
Although the diffusion of broadband is rather
slow in the EU, the fact that the penetration of
broadband is higher in France or Germany where
there are negative attitudes towards structural
separation than in the U.K. which implemented
the functional separation of BT casts doubts on
the effectiveness of structural separation in pro-
moting broadband.
The analysis described in the above sections
will lead to the following propositions. The impo-
sition of line-sharing and co-location obligations