NEWS RELEASE
Perspectives on the Scale and Trends of the IT Market
in Japan through 2011(2)
— Internet Advertising to Expand to ¥741.7 Billion, Blogs and SNS to ¥170.6 Billion —

December 21, 2006
Nomura Research Institute, Ltd.
Nomura Research Institute, Ltd. (NRI: Tokyo, Japan; Akihisa Fujinuma, President, CEO & COO) has completed market analyses and market scale forecasts for the period through 2011 for five major fields of information technology in Japan. In this second phase following forecasts for hardware and broadcasting markets released on December 19, 2006, NRI announces forecasts for eight Internet-based business markets, four mobile phone markets and six broadband markets.


Market Forecasts (Unit: Billion yen)
Market   FY 2006 FY 2007 FY 2011
Internet-based business markets BtoC EC 3,820 4,420 6,430
Online billing/payment 127.3 144.1 201.0
Music distribution *1 18.8 36.3 79.5
Online game 151.0 186.0 389.0
Internet advertising *1 355.4 466.3 741.7
Blogs and SNS 22.2 48.4 170.6
VOD 9.4 14.0 43.4
IP broadcasting 8.7 18.5 51.6
Mobile phone markets Mobile carrier *2 7,071.1 7,182.0

7,208.8
6,926.8 6,891.9 6,369.9
Mobile content 332.4 358.5 387.3
Mobile billing/payment 15.4 19.5 38.5
Broadcasting for mobile receivers 1.4 7.0 58.2
Broadband markets FTTH 385.5 488.1 780.6
ADSL 519.7 496.6 379.1
CATV Internet 190.9 193.1 174.4
Mobile broadband 9.8 12.7 36.5
Corporate network 1,113.1 1,038.1 835.2
IP telephony (1,000 subscribers) *3 1,171.4 1,357.9 1,808.3

*1: Figures are based on calendar years, rather than fiscal years.
*2: The figures in the upper row represent the assumption that the average revenue per unit (ARPU) of each carrier will continue to record a year-on-year decline of 2 percent after fiscal 2006; the figures in the lower row represent the assumption that the ARPU of each carrier will continue to record a year-on-year decline of 4 percent after fiscal 2006.
*3: The figures for IP telephony indicate the number of subscribers; the unit is 1,000 subscribers.


Mobile phones will drive the growth of Internet-based business
As we see that a variety of businesses using the Internet have begun to progressively penetrate into people's lives, the Internet-based business market is expected to grow. A major driving force of growth has shifted from PCs to mobile phones. In particular, we will see remarkable growth in services designed for mobile phones with respect to business-to-consumer (BtoC) electronic commerce (EC), music distribution and Internet advertising.

The pace at which the size of the Internet advertising market grows might decline slightly. Nevertheless, as supported by the growth of Internet advertising targeting mobile phones, in 2011, the market is projected to reach 741.7 billion yen and account for more than 10 percent of total advertising expenses. When we look at the blog and SNS market, by the end of fiscal 2011, the number of blog sites is projected to reach 18.13 million, and the number of people who register at SNS sites will be 51.1 million. On a monetary basis, the total size of the market is expected to amount to 170.6 billion yen. This growth will encourage those who register at blog and SNS sites to visit EC sites. As a result, the size of the BtoC EC market is projected to exceed 6 trillion yen as of 2011.


Number of mobile phone users will exceed 100 million in 2008
In 2006, the mobile phone market saw major moves such as the start of one segment broadcasting for mobile receivers, the acquisition of Vodafone by SoftBank and the introduction of number portability. Because of these changes, the market will become increasingly more competitive in the future towards 2011.

The number of mobile phone subscribers has been increasing slightly. It will exceed 100 million subscribers early in 2008 and reach 108.26 million subscribers by the end of fiscal 2011. However, even in an optimistic forecast in which the average revenue per unit (ARPU) of each carrier is assumed to decline at an annual rate of 2 percent, the market size is projected to decrease after reaching a peak of 7,262.4 billion yen in fiscal 2009. When we view the mobile phone subscriber base in terms of communications system, the shift from 2G to 3G is projected to be almost complete by the end of fiscal 2010 (excluding the impact of number portability and that of the entry of new carriers).



Household penetration of broadband will reach about 60%
Although the broadband market is approaching maturity, we will see steady progress in the installation of FTTH (fiber to the home) systems. By the end of fiscal 2011, 17.90 million households will be connected via optical fiber cable and the market size will reach 780.6 billion yen. During the same period, broadband services for household use including CATV Internet and ADSL in addition to FTTH will spread among 30.89 million households, equaling a household penetration of about 60 percent.

The number of subscribers to consumer IP telephony is projected to increase from 9.40 million lines at the end of fiscal 2005 to 18.08 million lines by the end of fiscal 2011.

This is the sixth version of NRI's IT market forecasts, following those made in 2000, 2001, 2003, 2004 and 2005. NRI plans to publish the details of the forecasts outlined above as a book entitled Korekara joho tsushin shijo de nani ga okorunoka—IT shijo nabigeta 2007 (What will occur in the information and communications market—IT market navigator 2007) today by Toyo Keizai Inc.
[For general inquiries, please contact the following:]
Yukako Seto / Ai Ohara
Corporate Communications Department
Nomura Research Institute, Ltd.
Tel: +81-3-6270-8100
E-mail: kouhou@nri.co.jp
[Reference]
Market Definitions

Internet-based Business Markets
BtoC EC This is the e-commerce market for consumers using the Internet. Sales using mobile phones via the Internet (mobile EC) are included. However, corporate spending such as the purchase of air tickets for business travel is not included. Transactions in which final decisions are not made and/or contracts are not completed via the Internet such as quotations and applications relating to the sale of automobiles and real estate are not included. Financial service markets such as online trading and online banking, and digital content markets (music/video distribution, e-learning, etc.) are also not included. Further, publicly operated events and auctions are not included.
Online billing/payment This is defined as the market for billing and payment under electronic commerce between businesses and consumers (BtoC). The market size consists of the total amount received by a third party settlement organization in the form of handling fees paid by transaction participants in Internet shopping. The handling fees paid to delivery companies for charge collection services and escrow service (fiduciary service to mediate between a seller and a purchaser for the delivery of money or property) usage charges are not included.
Music distribution "Music distribution" is defined as services to download a complete piece of music via the Internet or a mobile communications network. Services to distribute karaoke data and those to distribute only some portions of a piece of music such as for "ringtone melodies" and "ringtone songs" are not included.
The music distribution market consists of two segments of different nature. They are the "Internet music distribution market" and the "mobile phone music distribution market." The forecast for the Internet music distribution market covers the amounts paid by consumers to services for downloading music to PCs and audio devices from the Internet. The forecast for the mobile phone music distribution market covers the amounts paid by consumers to services for downloading music to mobile phone terminals by purchasing music through mobile communications networks or the Internet.
Online game The online game market forecast covers the total sales of gaming services provided in Japan via the Internet for game machines for household use including portable game machines and mobile phones. However, the market forecast does not cover the online sale of non-packaged game software in which the game software itself is downloaded from the Internet to hardware such as game machines for household use and PCs, and where the software is used independently within such hardware.
Internet advertising This market covers advertisements inserted in services provided on the Internet and/or communications lines using mobile phones, such as inserting advertisements on websites and information sites for mobile phones and the e-mail distribution of advertisements. Expression media such as text, image, video and voice (music and narration) are all included. The expenses to create content are not included.
Blogs and SNS The size of the blog market consists of the sum of the following revenues that portal providers obtain by providing blog services: Internet advertising on each blog site, fees charged for blog usage, business blog usage charges, revenues from publications using blogs and handling fees to introduce EC sites through blogs. Fee-based digital content used on blog sites is not included.
The size of the SNS market consists of the sum of the following revenues that SNS providers obtain by providing services: Internet advertising on each SNS site, fees charged for SNS usage and EC handling fees obtained through SNS sites. Fee-based digital content used on SNS sites is not included.
VOD (video on demand) The size of the VOD market is defined as the sum of the amounts paid by consumers to purchase the rights for about one week to view relatively short-duration video content lasting about 30 minutes to three hours such as movies, animations and dramas (that had often been offered in the past in the form of packaged media, such as DVDs and video cassettes) through the Internet, CATV networks, etc. This forecast does not include advertising and sales promotion expenses paid by sponsor companies to video distribution media under free VOD services provided by GyaO, Yahoo!, Doga, etc. Further, the forecast does not cover electronic sell-through (EST) that enables consumers to download video content and retain such content without time limitation.
IP broadcasting This market consists of initial subscription fees and viewing fees paid to broadcasting services that distribute video of multi-channel broadcasting, retransmission of terrestrial wave programs, etc. to TV receivers connected to set-top boxes (STBs) through closed IP networks. While an STB necessary to use this service is chiefly provided on a rental basis, such rental charges are not included in this market. Further, broadcasting services provided via the open Internet, VOD (video on demand) and broadcasting services for PCs are also not included.



Mobile Phone Markets
Mobile carriers This market consists of the total revenues of the existing mobile carriers in Japan from their telecommunications business. Revenues of new market participants are not included.
Mobile content This market covers the sales of the service of distributing content to mobile phones for a fee. Content that is provided to users free of charge is not included. The market consists of two segments: the "entertainment market" such as ringtone melodies (including ringtone songs, complete ringtone songs, voice ringtones), games and wallpaper downloads, and the "information service market" such as news and weather forecasts.
Mobile billing/payment This market covers handling fees paid to a third-party intermediary between a seller and a purchaser in shopping via mobile phone. However, the settlement for mobile content for transactions directly related to mobile phones such as ringtones and games and for CtoC (auctions) is not covered.
Broadcasting for mobile receivers This market is defined as that for broadcasting services (voice and video) for mobile devices such as mobile phones and vehicle-mounted information terminals. Analog broadcasting services such as conventional TV and radio broadcasting are not included. While one-segment broadcasting is currently provided free of charge, this business model has not yet been established. Further, because services before the start of broadcasting are also included, this market is measured by the increment in the added value of mobile devices as created by broadcasting services. Revenues obtained from selling devices or selling content and/or goods through broadcasting services are not included.



Broadband Markets
FTTH (fiber to the home) This forecast covers the market of optical fiber broadband access for households. The market consists of those cases where optical fiber is directly installed as a lead-in cable to individual houses as well as cases where optical fiber is used in conjunction with VDSL (very-high-speed digital subscriber line) to provide services to apartment complexes.
ADSL (asymmetric digital subscriber line) This forecast covers the market of ADSL access services for households. Services for businesses are not included.
CATV (cable TV) Internet This market refers to Internet access services offered by CATV networks. The forecast covers broadband access services provided by CATV operators in Japan to households including individual houses and apartment complexes.
Mobile broadband The size of this market consists of contract fees and monthly usage charges paid by users of public wireless LAN services (used in public spaces) as well as usage charges for temporary use. The forecast does not include ISP charges and roaming charges that are incurred every time an access point of another carrier is used. Next-generation wide-area wireless services such as WiMAX, IEEE802.20 and next-generation PHS are not included because, as of 2006, the business model had not yet been clarified. The installation and operations expenses under the business model in which fee-based access point facilities are provided are not included.
Corporate networks This market covers leased lines, frame relay (FR)/cell relay (CR), IP-VPN, wide area Ethernet and Internet VPN. Because these network services are used by corporations, they are referred to as the "corporate network market."
IP telephony Among IP telephony services, this forecast covers IP telephony service for consumers that can be used with ordinary telephones rather than PCs. The forecast does not include telephone service for which IP is used only for interoffice transmission between NTT communications base stations.



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