Ip Telephony : Challenges for Ntt's Fixed-Line Telecom Business

Nippon Telegraph & Telephone Corporation (NTT), the most prominent player in the Japanese Telecommunication industry had diversified services, such as fixed-line, mobile and wireless telephony, broadband services etc. NTT has the largest subscriber base in Japan. The decline in the fixed line business could be attributed to the advent of the internet and increase in the overall requirement of information per person. People could not satiate their needs for communication through the dissemination of voice alone. A shift of consumer preference from 'voice only' communication to 'voice-cum-data' communication was observed in the Japanese telecom industry. Advent of IP telephony catered to the consumer needs of voice-cum-data communication over a single network at a cheaper rate compared to the conventional fixed-line. The expansion of voice communication via IP telephony in Japan changed the whole scenario of Japanese telecom industry. Usage of IP telephony reduced communications cost to half in comparison to Fixed-line phones and long distance phones. Technological environment of Japan provided the necessary impetus for the proliferation of IP telephony. Japan, the second largest business market for IT products and services including Telecom, the market was over $ 230 billion. Japan's adoption of IT and spending on IT was at par with the US or any other developed market, despite its decade long recession. Prior to the proliferation of IP telephony, NTT monopolized the Japanese telecom industry. NTT's 80% revenue came from traditional phone market. With the advent of IP telephony, NTT's revenue dropped by 178.5 billion Yen in the fiscal 2003. The company estimated that revenue from voice should decline by some 9 billion Yen by 2007 due to the spread of IP telephony. The major impact was due to the shifting of corporate customers from fixed-line telephone services to IP telephone services, since 40% of the combined revenue of NTT East and West came from the corporate customers. The two local carriers of NTT lost revenue in their traditional telecom services viz., voice transmission services, leased circuit services, telegram services, having a negative impact on the operating revenues of both the companies. The downward trend of revenue from traditional telecom services was attributed to the decline in the subscriber base of the traditional telecom services and mammoth growth of the broadband subscribers. IP telephony had an exponential growth of revenue during fiscal 2003