Once Again, Japan Uses US Technology to Deliver… More for Less

It might sound prejudiced to say that the Japanese are not innovators, but do very well at refining and delivering technology for less – except that it is true. As in the production of automobiles, electronics, and many other things, Japan will take ideas developed in the United States, and deliver products at a price that will become the standard, and then seem to be unassailable by others.

A story, in the NY Times, concerning the cost of broadband speed, delivered to homes in Japan, shows this to be true once again. It would be nice to think that someone in one of the upper levels of management in any of the cable providers in the United States is reading this; barring that, perhaps a wish that the technology ‘czar’ that the President has appointed might peruse the story.

World’s Fastest Broadband at $20 Per Home

If you get excited about the prospect of really, really fast broadband Internet service, here’s a statistic that will make heart race. Or your blood boil. Or both.

Pretty much the fastest consumer broadband in the world is the 160-megabit-per-second service offered by J:Com, the largest cable company in Japan. Here’s how much the company had to invest to upgrade its network to provide that speed: $20 per home passed.

The cable modem needed for that speed costs about $60, compared with about $30 for the current generation.

By contrast, Verizon is spending an average of $817 per home passed to wire neighborhoods for its FiOS fiber optic network and another $716 for equipment and labor in each home that subscribes, according to Sanford C. Bernstein & Company.

It might seem that Verizon would have studied this as well, because FiOS, though nice, and a different story to tell, doesn’t beat the story of RAW SPEED delivered.

Those numbers from Japan came from Michael T. Fries, the chief executive of Liberty Global, the American company that operates J:Com.

His larger point: “To me, this just isn’t an expensive capital investment,” he said.

The experience in Japan suggests that the major cable systems in the United States might be able to increase the speed of their broadband service by five to 10 times right away. They might not need to charge much more for it than they do now and they’d still make as much money.

The cable industry here uses the same technology as J:Com. And several vendors said that while the prices Mr. Fries quoted were on the low side, most systems can be upgraded for no more than about $100 per home, including a new modem. Moreover, the monthly cost of bandwidth to connect a home to the Internet is minimal, executives say.

This is in the NY Times, claiming a readership larger than that of any other paper in the U.S. – is anyone getting this?  I guess we will soon see.

So what’s wrong with this picture in the United States? The cable companies, like Comcast and Cablevision, that are moving quickly to install the fast broadband technology, called DOCSIS 3, are charging as much as $140 a month for 50 Mbps service. Meanwhile other companies, like Time Warner Cable, are moving much more slowly to upgrade.

Competition, or the lack of it, goes a long way to explaining why the fees are higher in the United States. There is less competition in the United States than in many other countries. Broadband already has the highest profit margins of any product cable companies offer. Like any profit-maximizing business would do, they set prices in relation to other providers and market demand rather than based on costs.

Pricing at Liberty varies widely by market. In Japan, its 160 Mbps service costs 6,000 yen ($60) per month. That’s only $5 a month more than the price of its basic 30 Mbps service. In the Netherlands, meanwhile, it charges 80 euros ($107) for 120 Mbps service and 60 euros ($81) for 60 Mbps. Mr. Fries said that he expected these prices would fall over time.

“Our margins go up,” he said. “But we are delivering more value.”

Cable executives have given several reasons for why many cable systems in the United States are going very slowly in upgrading to DOCSIS 3. There’s little competition in areas not served by Verizon’s FiOS system, which soon will offer 50 Mbps service. And some argue there isn’t that much demand for super-high speed.

Mr. Fries added another: Fear. Other cable operators, he said, are concerned that not only will prices fall, but that the super-fast service will encourage customers to watch video on the Web and drop their cable service.

You knew they would get to the crux of the matter eventually. There it is. This is also the reason for those ridiculous caps that are being put into place.

The industry is worried that by offering 100 Mbps, they are opening Pandora’s box, he said. Everyone will be able to get video on the Internet, and then competition will bring the price for the broadband down from $80 to $60 to $40.

Aren’t you worried that the prices will fall too? I asked.

“Maybe,” he said very slowly. “We’ll see how it happens. We want to keep it up there for now. It is a premium service.”

So it appears that, just as in the banking industry, greed can be a motivator, but too much unbridled greed is a bad thing. Who could have possibly predicted that?

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Extraordinary claims require extraordinary evidence.Carl Sagan
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