Section 6 Establishment of Subscriber Fiber-Optic Networks The establishment of fiber-optic networks will result in fundamental advances in info-communication functions through reconstruction of the current terrestrial network infrastructure, of which the core telephone networks were established more than 100 years ago in the Meiji Era. This is the most important infrastructural element to supporting the intellectually creative society of the 21st century. When compared with other info-communications media, fiber-optic networks require a much larger scale of investment, are slower to build, and take longer to recoup costs. We therefore need to improve network in a comprehensive and systematic way. Trunk-line fiber-optic networks can efficiently transmit large volumes of information. Therefore upgrading of the network's transit system has been considerably advanced. This section examines how to promote network improvement, with a focus on shifting the subscriber system to greater fiber optics use in order to improve the quality of services provided. 1. Conditions for Constructing Fiber-Optic Networks Only 2.9% of the subscriber communications system was utilizing fiber optics at the end of fiscal 1992. This represents 31,400 km out of a total cable length of 1,073,000 km. Expediting the subscriber system shift to fiber optics use is an urgent issue. Section 4 outlined the goals of developing fiber-optic networks. The following conditions should be satisfied in implementing this development. 1) Well-Balanced Nationwide Improvement High- performance info-communications infrastructure will form the foundation of our intellectually creative society of the 21st century, and should be available throughout Japan. Info-communications networks will be more usable and effective when the number of linked users is larger. For these reasons, regional differences in the time and amount of cost involved must be minimized as far as possible in establishing fiber-optic networks so that they can offer an equal opportunity to everyone throughout the country. 2) Efficient Investment Establishing the fiber-optic networks will require considerable capital investment during the next 15 years or so, as indicated in Section 3. However, anybody should be able to use the system from any place in Japan at a charge that they are able to pay, regardless of their level of income. It is therefore necessary to improve the networks at the lowest cost and through highly efficient capital investment. 3) Responding to Technological Innovation Section 3 indicated that technological innovations in the info-communications field are expected to progress rapidly. We will need to promote network infrastructure enhancement with sufficient flexibility to accommodate future progress in technologies and to ensure that the benefits of such progress are properly passed to end users. 2. Establishing Fiber-Optic Networks 1) Basic Principles a. Competition and consumer benefit The fiber-optic networks will form the essential foundation for the growing multimedia industry, and at the same time will support information activities integral to daily life and the nation's economic and industrial development. Private sector innovations should be promoted in the pursuit of greater efficiency through fair and effective competition. On the other hand, the government should formulate policies for promoting private investment through such competition. The government must also take appropriate measures to ensure maximum consumer benefit by minimizing differences in costs and services caused by geographical location and usage type. b. Subscriber network structure Conceivable network structures for the subscriber systems are SS, PDS and ADS as stated in subsection 2 of Section 3. Locating the PDS branchpoint at a subscriber node creates a complex system, which assumes the form of an SS system if we simply examine the line structure. This means that one network system can be transformed to another system. Although an SS system provides the ideal network structure for achieving broadband, interactive, multimedia communications utilizing fiber optics and facilitating future enhancement and expansion of transmission capacity, this system is quite costly. A more realistic system will be a combination of SS and either PDS or ADS, depending on the market demand among businesses and households. This would be followed by a gradual shift to a purely SS system. 2) International Trends Policy-making agencies in other countries are not always in agreement when assessing the impacts of broadband subscriber network brought by fiber-optic related technologies or the effects they will have on network infrastructure. The United States has conventionally differentiated wired telephone networks from CATV networks, and placed stringent restrictions on participation in each other's market. The U.S. authorities are now moving to allow greater mutual market participation to promote broadband, interactive services available to users. However, the United States, as far as we envision, will not return to full free competition in this field because of their experience gained in the initial stage of establishing telephone networks, such as the market failure, and in the following stages, such as extensive problems inherent in monopolistic control. Today, both telephone and CATV networks exist on an almost national scale. Allowing mutual participation is expected to further benefit the consumers' interests, although the idea that prohibiting Regional Bell Operating Companies from acquiring CATV companies in each business area is prevailing. Britain is in a similar situation, moving toward the mutual participation of telephone and CATV networks. However, in this case, BT is not currently permitted to enter the CATV businesses, while CATV operators are allowed to step into the telephone business. In contrast, Germany and France seem to be intent on continuing to build a centrally operated system for the time being. In contrast to the past, this dominance does not mean monopolization over the entire communications market. There is a gradual intensification of competition with wireless communications such as satellite and mobile communications. 3) Construction of Networks a. Competition The influence on network infrastructure of a shift to a broadband subscriber system can be summarized as follows. When a second telephone is necessary in a narrowband subscriber system, such as the current telephone network, a second transmission line is physically installed. A further transmission line may be required as a dedicated line, resulting in multiple transmission lines and increased business competition. A shift to a broadband system means one optical fiber would be sufficient for large volumes of one-way and two-way information transmission. Economy of scale might work increasingly more effectively, thereby reducing competition. In Japan, network improvement can also be approached by both telecommunications carriers and CATV operators. However, it is not yet clear what level of effective competition will develop between these two types of business. The extent of competition will largely depend on market demand. The subscriber networks need to be bettered efficiently. As competition provides an impetus to promoting greater efficiency, improving competitive conditions will boost consumer benefit while enhancing fiber-optic networks. b. Underground cable installation Promoting the embedding of cables underground will increase network security as well as enhance the appearance of urban areas. However, this will require substantial funding, and it is difficult to motivate businesses to adopt this approach. Insisting on underground cables would effectively lead to prohibition of the shift to fiber optics installation. Cable embedment should be actively sought by the government as part of infrastructure improvement and urban infrastructure development. 3. Other Considerations 1) Promoting Private Investment Section 3 estimated fiber-optic network improvement costs. Capital investment will average ¥1 trillion each year until network upgrading is completed in the year 2010 for a total investment of at least ¥16 trillion. This incorporates subscriber network improvement but does not include upgrading the trunk-line networks. Government financing and loans are currently targeting telecommunications and CATV businesses to assist improvement of network infrastructure. However, these resources are too limited and too inflexible to adequately support the proposed fiber-optic network improvement. Improving fiber-optic networks, which enables broadband and interactive communications, will necessitate to lessen the interest burden on private business involved and not restrict it only to the "third sector", which is the joint organization of private and public sector. This will accelerate the speed of network infrastructure improvement, which is the most important issue currently, in the preliminary stage. The Japanese government must consider introducing new financing systems and other measures including public interest-free loans that will reduce these interest burdens. At the same time, it must promote private investment by tax incentives. 2) Considerations for Rural Areas Despite the proposed government measures, delayed network infrastructure improvement remains a concern for less-demand areas, such as rural areas. As info-communication infrastructure constitutes the most vital social investment for the 21st century, we must promote its nationwide development to facilitate equitable access for all citizens. Public services such as education and medical and health care are likely to become the initial network applications in low-demand areas. The government must take the initiative in stimulating demand for the networks by developing and introducing public applications. It must also stimulate network construction while taking into account the effective maintenance at public institutions in rural areas. The Japanese government should take effective measures to follow the discussion of the United States' new universal service to ensure nationwide equal access to the network. 3) Accessibility to "Bottleneck" Facilities The "bottleneck" facilities such as utility poles and conduits are vital factors to be considered in improving the fiber-optic networks. While it is unreasonable for new entrants to bear the burden of newly establishing these facilities, they must have appropriate access to these bottleneck facilities in an appropriate manner if they are to participate successfully in the market. The approach from CATV businesses in particular has just begun and they are inferior to the telecommunications businesses in this business. It will be necessary to establish quickly an equal footing between CATV and telecommunications businesses. With regard to embedding fiber-optic networks underground ,which will improve urban amenity and secure the capabilities of the info-communications infrastructure, it is necessary to lessen the installation cost. While keeping pace with the development of fiber-optic networks, a rapid embedment program should be assisted by more flexible utilization conditions. These include easing the burdens of cable installation road usage as well as permitting cable reinstallation into the embedded facilities.