NTT's IMS Project: Trailblazing or White Elephant?

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Includes: IKAN, NTT, PMCS
by: Andrew Schmitt

The Japanese Ministry of Internal Affairs and Communications is a great source for data on Japanese communication infrastructure and usage. A recent document provides a state-of-the-network update and lays out the goals for the next 3 years.

By the end of 2010, Japan expects to achieve 100% Broadband coverage, 90% of which will be ultra-high speed. The country currently has 95% coverage with 80% ultra high speed. The chart to the right illustrates the shift to high speed broadband through aggressive deployment of FTTH.

The resulting plunge in DSL deployment has crimped the revenue for companies such as Centillium (CTLM) and Ikanos (NASDAQ:IKAN) as NTT (NYSE:NTT) goes whole hog with GE-PON. Incredibly, DSL is now seeing net disconnects as households move to fiber, the only nation in the world where this is happening. Verizon’s (NYSE:VZ) served area is moving towards this situation and should see net DSL disconnects within the next few years.

Ikanos does still recognize some revenue from FTTH installs as approximately 1/2 of them use VDSL for the last 100m. I’ve heard conflicting stories that NTT may/may not eliminate VDSL in future installations. My gut feeling is they will not, and that VDSL will play a major role in deployments, particularly in Asia. PMC-Sierra (NASDAQ:PMCS) continues to be the prime silicon beneficiary of the GE-PON deployment in Japan.

From a more broad perspective, Japan provides insight into the evolution of overall communication trends in an advanced technological society. What is most interesting is that fixed lines are not being eliminated - from a macro perspective they are replaced by IP telephony. While this is bad for providers that rely on fixed lines for revenue it is indicative that the concept of a ‘landline’ is not going away, just evolving technologically. This is good news for other big PTTs and RBOCs provided they have programs in place to cannibalize their POTS lines.

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The article outlines high level plans for the Japanese Next Generation Network (NGN) spearheaded, of course, by NTT.

Underlying the shift in connectivity technology is a shift in user behavior. Despite having nearly instant access to voice communication via mobiles, Japanese are steadily cutting back on voice calls. One can speculate on what is filling the gap (email/SMS) but it is rare event indeed when technology reverses a well worn trend.

NTT is known as a technology trailblazer and was the first carrier to drive widespread adoption of FTTH and 3G cellular. They also championed stillborn technologies such as PHS and ISDN - but being an early adopter has its downsides. Their outlook for what the network of the future is notable in that appears to heavily rely on IP Multimedia Subsystem [IMS].

IMS stands to be one of two things - Telco’s last White Elephant project prior to being forced into commodity providers of connections, or a mechanism that transitions their incumbency to the next stage of the networks evolution. NTT, as well as British Telecom’s (NYSE:BT) 21CN project will be the first real world bellwethers for the commercial viability of IMS. It is a process well worth watching.

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