The document discusses network effects, open access, and standards strategies in telecommunications markets. It notes that network effects can lead to tipping points and winner-take-all outcomes in mature markets. Open access and standards strategies, like interconnection requirements and technical standards, can promote faster penetration of networks by increasing competition. The document uses Japan's telecommunications laws and market data as examples to illustrate these concepts.

1. Network effect, open access,
and standards strategy
Toshiya Jitsuzumi, Dr.
Kyushu University

2. Fruits of the Market
Maximizing Maximizing
corporate consumers’
profits welfare
Without governmental intervention

3. Conditions for market dynamism
• Perfect/Sufficient Information
• Inclusiveness
• No externality
• No public goods
• Perfect Competition
http://www.dot-
communications.co.uk/assets/images/HeadersLogos
/terms_and_conditions.jpg

4. Features of the telecom industry
Network Effect
http://www.bourncreative.com/wp-
content/uploads/2012/09/capitalize-on-uniqueness.jpg Natural Monopoly

5. Network Services
Quality of experience (QoE) depends on the variety
of services: The more the variety is, the better the
QoE becomes.
http://www.imagine-net-tech.com/images/network.jpg

6. Network effect (network externality)
Indirect effect
Direct effect

7. Impact on consumers’ demand
Price The more the variety is, the
better the QoE becomes.
Assume that
the price is
constant
Demand
Demand
Quantity

8. Impacts of network effect 1
There is a tipping point in the start-up market.
Critical Mass
http://4.bp.blogspot.com/-v1wfeRJ8JD4/UIrYhkWesdI/AAAAAAAABTY/LfO0mTDSaxs/s640/the+tipping+point.jpg

9. Teledencity
100
USA
アメ カ
リ
90 Sweden
スウェ ーデン Early adopters
スイス
Switzerland
80
人 フランス
France
口 ドイツ
Germany
70 Late adopters
1 日本
0 Japan
0 60
人
当 50
た
り 40
電
話 30
機
数
20
10
0
11
14
17
20
23
26
29
32
35
38
41
44
47
50
53
56
59
62
65
68
71
74
77
80
83
86
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
Source: Miyajima（1993, pp.151-
153）

10. Impacts of network effect 2
The winner takes all Wider
in a matured market. service
variety
More Potential More
friends for better attractive
profitability network
Larger Larger
installed installed
base base More
customers
More
friends

11. WTA in the SNS market
100%
Facebook
StumbleUpon
80% YouTube
Twitter
60% Pinterest
reddit
40% Digg
MySpace
LinkedIn
20%
NowPublic
VKontakte
0% iWiW
Mar-11
Dec-11
Jun-09
Jun-10
Sep-11
Jun-12
Mar-13
Mar-09
Mar-10
Mar-12
Dec-09
Dec-10
Jun-11
Dec-12
Sep-09
Sep-10
Sep-12
Fark
orkut

12. 100%
0%
20%
40%
60%
80%
Mar-09
Jun-09
Sep-09
Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
WTA in the social news market
Mar-13
Digg
reddit

13. If we want …..
Faster More
penetration competition
Open access
and/or
Standards strategy

14. Open access and interconnection
http://www.tutorialspoint.com/images/interconnect.jpg
http://commons.wikimedia.org/wiki/File:Internet_map_1024.jpg

15. Standards strategy
http://www.adaptelec.com/index.php?main_page=document_general_info&products_id=154

16. TBL in Japan: Duty to interconnect
Article 32
(Interconnection with Telecommunications Circuit Facilities)
Any telecommunications carrier shall agree to the
request for interconnection of its telecommunications circuit
facilities being installed by said telecommunications carrier from other
telecommunications carriers with telecommunications facilities of said
other telecommunications carriers, except the cases listed in the following
items:
i. Where there is a risk of hindering the smooth provision of
telecommunications services
ii. Where there is a risk that said interconnection may unfairly impair the
interest of said telecommunications carrier
iii. Where there are due reasons specified in the applicable ministerial
ordinance of the MIC in addition to the cases listed in the preceding
two items

17. TBL in Japan: Designated Telecom Facilities
Article 33
• Interconnection with Category I Designated Telecommunications
Facilities
Article 34
• Interconnection with Category II Designated Telecommunications
Facilities

18. TBL in Japan: Designated Telecom Facilities
Article 35 (Order, Etc. Concerning Interconnections of Telecommunications Facilities)
1. Where a telecommunications carrier, in spite of other telecommunications carrier's proposal to enter into an
agreement to interconnect telecommunications facilities of said telecommunications carrier with telecommunications
facilities of said other telecommunications carrier, does not accept entering into a consultation or where said
consultation fails to come to an agreement, the Minister shall, upon petition of said telecommunications carrier
who proposed said agreement, order said other telecommunications carrier to start or reopen the
consultation, except the cases where it is deemed that such interconnections fall under any item of Article 32 and
an application for arbitration is filed under the provisions of Article 155 paragraph (1).
2. Where, in addition to the cases stipulated in the preceding paragraph, in spite of one's proposal to enter into an
agreement to interconnect telecommunications facilities between telecommunications carriers , the other party does
not accept entering into a consultation or where said consultation fails to come to an agreement, the Minister
may, upon request of one of said telecommunications carriers, order the other telecommunications carrier
to start or reopen the consultation when it is deemed such interconnections especially necessary and appropriate
to promote the public interest, except the cases where an application for arbitration under the provisions of Article
155 paragraph (1) is filed.
3. Where a consultation between the parties concerned about the interconnections to telecommunications facilities of a
telecommunications carrier fail to come to an agreement with respect to such details as the amount of money to be
received and paid by them or other details including terms and conditions of interconnections, a telecommunications
carrier who installs telecommunications facilities to be connected to said telecommunications facilities of the
telecommunications carrier may apply for an award to the Minister. However, in the cases where the parties filed
an application for arbitration in accordance with the provisions of Article 155 paragraph (1), this shall not apply.
4. When consultations between the parties concerned, except the cases stipulated in the preceding paragraph, after an
order has been issued in accordance with the provisions of paragraph (1) or paragraph (2), fail to come to an
agreement with respect to such details as the amount of money to be received and to be paid by them or other
details including terms and conditions of interconnections, the party (or parties) may apply for an award to the
Minister.
….

19. TBL in Japan: Technical standards
Article 41 (Maintenance of Telecommunications Facilities)
(1) Any telecommunications carrier installing telecommunications circuit facilities shall maintain its
telecommunications facilities (except those specified in the applicable ministerial ordinance of the
MIC as those having a minor influence on the users' benefit in the cases of damage or failure, etc.
thereof) for use of its telecommunications business in compliance with the technical conditions
specified in the applicable ministerial ordinance of the MIC.
(2) Any telecommunications carrier providing universal telecommunications services shall maintain its
telecommunications facilities (except telecommunications facilities stipulated in the preceding
paragraph) for use of its telecommunications business for providing said universal
telecommunications services in compliance with the technical conditions specified in the
applicable ministerial ordinance of the MIC.
(3) The technical conditions of the preceding two paragraphs shall be so specified as to ensure the
following matters:
i) The provision of telecommunications service shall not be extremely hindered by damage or
failure of telecommunications facilities.
ii) Quality of telecommunications services shall maintain an appropriate level.
iii) Secrecy of communications shall not be violated.
iv) Telecommunications facilities of users or other telecommunications carriers connected shall
not be damaged or impaired, nor shall functions thereof be impaired.
v) The demarcation of responsibilities between the telecommunications facilities of a
telecommunications carrier and those of others shall be clearly stipulated.

20. TBL in Japan: Technical standards
Article 42
• Self-Confirmation of Compliance of Telecommunications Facilities
by Telecommunications Carriers
Article 43
• Order to Comply with Technical Conditions

21. Accelerated penetration of mobile service
Mobile phone penetration
PHS penetration
At the end of Fiscal Year
Source: MIC（www.soumu.go.jp/joho_tsusin/eidsystem/ market01_01.html）