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YAHOO! BB takes Japan by storm

By UTStarcom

In early 2001, broadband service was still in its infancy in Japan with fewer than 200,000 DSL subscribers. Yahoo! BB, a Japanese competitive local exchange carrier (CLEC), was formed to address this underserved market with an always-on, low-cost, high-bandwidth, multi-application ADSL service available over ordinary telephone lines. The company first introduced 8 Mbps ADSL data service in September 2001; Yahoo! BB added BB Phone in early 2002, upgraded its data service to 12 Mbps in July 2002, and introduced BB TV in March 2003.

The launch of Yahoo! BB’s services took the Japanese market by storm. The combination of high-speed services at low prices quickly attracted huge numbers of subscribers and forced competitors to make deep price cuts. By March 2003, Yahoo! BB was the largest DSL provider in Japan, with 2.3 million subscribers and a 30 percent market share. Yahoo! BB has achieved a dominant share of the DSL market among residential users, small and medium-sized enterprises, and small office/home office users. The company partners with McDonalds, Starbucks, 7-11, and others to provide hotspots, and it also offers corporate customers big savings on enterprise phone charges with BB Phone. Yahoo! BB is the first competitive carrier in the world to surpass the incumbent provider in market share.

Figure 1: Growth of DSL lines in Japan by operator.

Strategy for Success
Yahoo! BB’s staggering success is not accidental. It is the result of an aggressive, carefully engineered, and well-executed business strategy that calls for the company to be first to market with the latest applications at the lowest price, while utilizing next-generation technology to stay 6 to 12 months ahead of the competition. UTStarcom’s AN-2000 IBÔ IP-based DSLAM enabled Yahoo! BB to successfully execute all components of this strategy.

To fend off competition, the company wanted to create a huge subscriber base very quickly. However, Yahoo! BB realized that achieving nationwide rollout of a low-cost DSL service would require both a high initial capital investment to create a network as well as an innovative business model that would significantly lower capital and operating expenditures. The company also needed to find a qualified vendor that could provide a low-cost, high-density, easily deployable DSLAM.

All-IP Network Is at the Core of the Business Model
The core of Yahoo! BB’s business model is an all-IP network with non-blocking bandwidth and a nationwide IP backbone leased from NTT. By employing existing, under-utilized dark fiber, an all-IP network reduces the operating expenses of transport and ATM links. The company has also established peering with all major data centers around the world.

To further reduce capital expenditures and operating costs, Yahoo! BB realized it had to remove the network’s ATM infrastructure and install an IP-based DSLAM to provide IP- over-Ethernet. The DSLAM not only had to offer a high-density, non-blocking solution that would provide very high bandwidth, but also had to be easy to deploy. To find such a solution, Yahoo! BB turned to UTStarcom, a key player in the DSL world with significant success in Asia.

The AN-2000 IB IP-based DSLAM from UTStarcom offered everything Yahoo! BB needed. A carrier-class, high-performance access network solution, the AN-2000 IB delivers always-on, high-speed Internet data and video services over a wireline network. Unlike many other DSLAMs, the AN-2000 IB interoperates with existing DSL customer premises equipment and delivers IP from the ADSL line card, allowing carriers to deliver multiple high-speed services such as voice-over-IP (VoIP) and video over a backbone network that employs low-cost IP switching and routing. UTStarcom’s product also had other compelling characteristics Yahoo! BB was looking for, including plug-and-play operation, a mass provisioning capability, and features such as echo cancellation and packet filtering.

Pure IP Is Efficient, Cost-Effective
A pure IP approach makes it easier and less expensive to deploy network equipment, since it eliminates unnecessary and inefficient transport of IP packets over a costly and complex ATM infrastructure. Pure IP also increases performance in the DSLAM and backbone, enabling Yahoo! BB to quickly deliver a broad range of cost-effective broadband services. The company’s pure IP network has no topology restrictions; it is highly scalable and has no limitations regarding data center locations. The LAN-switched network provides high speed and minimal latency, and because it uses dark fiber it is easy to expand.

Yahoo! BB’s investment in its nationwide, all-IP infrastructure network has allowed the company to maintain a technological edge over its competitors. The UTStarcom platform plays an important role in ensuring that the underlying network is future proof and scalable.

The First With the Best
Yahoo! BB’s all-IP network allows it to execute on another important part of its business strategy—to be the first to market with important new applications. Today, Yahoo! BB offers its subscribers one-stop shopping for the triple play of high-quality data, voice, and video services—a powerful means for winning and retaining customers and ensuring strong growth.

The initial 8 Mbps ADSL service, introduced in September 2001 and priced at $19 a month, was a runaway success, attracting more than 100,000 subscribers in the first month alone. In July 2002, this was supplanted by Japan’s first 12 Mbps service, priced at only $20.75, including a personal mailbox, a homepage, and a wide range of value-added services.

A key complement to the broadband service is BB Phone, a VoIP telephone service that offers voice quality better than that of mobile telephones for only $3 a month. Calls that originate and terminate in the IP network are free, while calls terminating outside the network, including calls within Japan as well as international calls, cost only a fraction of competing services. Japan’s telecommunications industry reacted to the launch of BB Phone with shock as it realized that the Yahoo! BB portfolio was changing the traditional broadband business model. Consumers reacted with enthusiasm as they realized that a broad range of benefits, including dramatic cost savings, were within their reach.

Yahoo! TV debuted in March 2003 with 19 channels of live TV programs that are of almost-DVD quality. The initial charge is $82, and the monthly fee is $20. For an additional charge, subscribers can access select channels and video on demand (VoD) content.

Yahoo! BB also offers other services, including Yahoo! BB Mobile, which is the leading hot-spot operator in Japan; Yahoo! Game, which offers game downloads to more than seven million Sony PlayStation2 owners; and premium Internet content such as daily updated news, music downloads, sports games, and more.

Pricing Stimulates Growth
Extremely competitive pricing is also an essential part of Yahoo! BB’s business strategy as it seeks to increase market share and revenue. Basic service fees are the lowest in Japan, stimulating the growth of broadband and forcing competitors to make dramatic price cuts.

Figure 2: Yahoo! BB’s DSL tariffs (Source: UTStarcom)

Behind the aggressive pricing lies a tight and effective cost model; UTStarcom’s platform, which is more cost efficient than a standard ATM-based DSLAM, contributes greatly to the model’s success. The AN-2000 IB is space efficient, saving money in co-location charges; it is energy efficient, saving Yahoo! BB $3 per month per subscriber; and it is easy to install, which reduces costs by $3 per port. Finally, by employing an all-IP platform instead of an ATM-based DSLAM, Yahoo! BB was able to reduce its total infrastructure investment and achieve profitability more quickly.

A Model With Broad Applications
Yahoo! BB became market share leader in broadband access in just 18 months, signing on 2.3 million subscribers and gaining 30 percent of the market. Several thousand new subscribers join every day, and the total subscriber base is increasing rapidly. The company now is signing up 40 to 50 percent of all new DSL subscribers in Japan and is eating away at NTT’s subscriber base. Nearly 2 million, or 84 percent, of Yahoo! BB subscribers have signed on for BB Phone. Now Yahoo! TV is poised to dominate the market for broadband television service as well.

With broad market acceptance, Yahoo! BB is achieving a high return on its initial capital investment of about $1 billion, half for dark fiber and half for equipment. The company’s IP backbone has proven remarkably cost effective, costing ten times less than an ATM backbone but with ten times the available speed—a difference of a factor of 100. As a result, Yahoo! BB achieved an operating profit in less than 18 months (based on assumed profit/loss), and high profits are gearing up very quickly.

Figure 3: Estimated financial status of Yahoo! BB (Source: Yahoo! BB, Ovum)

Yahoo! BB’s business model, coupled with UTStarcom’s technology, has enabled the company to achieve this remarkable growth and profitability. The model also has the potential to work elsewhere because it addresses the main barriers to offering broadband service in any country—price, speed, and reach.

For more information, please contact:
Jeff Burkland: jburkland@utstar.com

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