Japan's VoIP Boom�and Lessons for U.S.

Telecom-savvy Japan is miles ahead of North America in VoIP adoption. What accounts for this gap? Analysts take an in-depth look at the key factors.

By Ed Sutherland | Posted Mar 24, 2005
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Could the tech-hungry islands of Japan be a window into the future of VoIP in America? Slightly smaller in size than California and with less than half the population of the U.S., Japan could have 28 million VoIP users by 2008. Why?

"Japan is probably a year or so ahead of the world" in adoption of VoIP, according to Kamal Anand, vice president of marketing at Meru Networks.

Meru recently inked a deal with three of Japan's four leading enterprise VoIP suppliers, Oki Electric, Hitachi, and Fujitsu. Meru will integrate its Voice-over-WLAN (VoWLAN) infrastructure with the Japanese companies' SIP servers and dual-mode Wi-Fi/cellular phones. The VoWLAN agreement means employees of companies served will be able to receive calls on their mobile phones no matter their location. Other workers will be able to roam a 28-floor hotel and stay in contact via Wi-Fi phones.

The Sunnyvale, Calif.-based Meru calls Japan "the world's most advanced and demanding VoIP mobility market."

The Japanese VoIP explosion
U.S. adoption of VoIP will expand from 1 percent in 2004 to more than 12 percent by 2009, according to Jupiter Research. A remarkable growth figure, yet less than half of the adoption rate Japan will experience by 2008, according to that country's Yano Research Institute. Why the difference?

At the heart of the difference between the U.S. and Japanese VoIP experiences is the lack of awareness of IP voice in America. Joe Laszlo, the author of the Jupiter Research report, cites the low rate of public knowledge as a key obstacle in future U.S. growth.

More than 80 percent of those responding to the research firm's survey either never used IP telephony or were unaware such services exist.

In the driver's seat
In Japan, the need to support voice services is a driving factor behind the growth of VoWLAN, according to Meru. Nearly all Japanese use cellular services, a trend that threatens traditional telephone providers. Laszlo believes more Japanese view their cell phones as their primary voice connection and a backup for VoIP.

From their heavy use of subway transportation to the abundance of cell phones, Japanese "are trained to rely on mobility," says IDC VoIP analyst Will Stofega.

In 2003, the Japanese government introduced the 050 telephone exchange enabling traditional telephone services to seamlessly switch to VoIP. The move was evolutionary, according to one analyst.

"The new system creates an environment in which natural selection will favor an increase in the use of VoIP phones," said Yankee Group analyst James Walsh at the time.

The broadband factor
Among the many factors driving Japan's embrace of VoIP, say analysts is the omnipresence of Broadband access. More than a quarter of the Japanese population enjoys high-speed Internet connections. And while the average U.S. broadband link is 3 Mbps, it is not uncommon for Japanese to experience 12Mbps online sessions.

Internet provider Softbank, recently purchased Japan Telecom, through which it is offering VoIP to some 860,000 subscribers.

Another reason for Japan's push into VoIP is the high price of making a circuit-switched telephone call. Using VoIP is up to eight times cheaper than traditional telephony, according to the Yankee Group.

So, the easy access to broadband plus the relatively high cost of traditional telephone service make Japan ripe for VoIP. But what are the differences between Japan's VoIP experience and IP telephony in America?

VoIP's lessons?
Regulation is one of the ways VoIP adoption in the U.S. could be slowed, according to Michael Osterman of Osterman Research. Regulations requiring VoIP to handle issues such as emergency 911 calls and support of electronic surveillance are not present in Japan.

Quality of service and latency, hot topics in the U.S. VoIP market, are rarely mentioned by Japanese IP providers, due to the nation's generous bandwidth resources, say analysts.

What lessons can the U.S. take from VoIP in Japan? While the Japanese experience cannot be wholly duplicated in the American market, there are several issues worthy of note, according to experts.

U.S. VoIP providers need to emphasize the technology less and focus more on services. Features such as virtual phone numbers and soft handsets are most important to VoIP subscribers, says Laszlo. "Who cares if its 'VoIP' or 'shmoip', says Stofega.

VoIP providers must act more like phone companies, says Laszlo. Stofega sees the entrance of online giant AOL into the VoIP marketplace as a good sign. AOL, with its huge base of users, will be able to focus on services, rather than attracting enough customers to remain afloat.

Bundles are in. Japanese VoIP users get their land line, cell phone, and now VoIP in one package. Cable operators have awakened to this trend, says Laszlo. Offering video, Internet, and VoIP in a bundle is becoming a more common marketing practice.

While Vonage and others have highlighted VoIP as an inexpensive option to traditional phone service, "pricing is not number one on the list" for subscribers, according to Laszlo.

But visibility remains the main difference between Japan's VoIP explosion and the U.S. "There's no clear case why [VoIP] is needed now," says IDC's Stofega.

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