Policies and Challenges of the Broadband Ecosystem in Japan (Advances in Information and Communication Research, 4) [1st ed. 2022] 9789811680038, 9789811680045, 9811680035

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Advances in Information and Communication Research 4

Toshiya Jitsuzumi Hitoshi Mitomo   Editors

Policies and Challenges of the Broadband Ecosystem in Japan

Advances in Information and Communication Research Volume 4

Series Editor Hitoshi Mitomo, Graduate School of Asia-Pacific Studies, Waseda University, Tokyo, Japan

This book series focuses on socioeconomic aspects of information and communication. Information and communication technology (ICT) is now indispensable as an infrastructure supporting the advancement of society. ICT has benefited modern civilization, and its influence has spread over numerous aspects of our life and economy. Along with technological progress, much has happened in this arena, with new developments continuing at a rapid pace. Constructive use of ICT makes our society more efficient. On the other hand, however, inappropriate use of ICT causes serious social problems that have not been experienced until now. In such a rapidly changing area, our attention tends to be drawn to superficial phenomena rather than gaining deep insight into them. In order to understand the role of ICT in modern life, social science is essential for capturing the impact of the development of networks and the advancement of information and communication services and applications. Social sciences shed light on a variety of issues and provide a framework for promoting the utilization of ICT while avoiding the potential drawbacks. The series Advances in Information and Communication Research helps to provide academics, government officials, and practitioners with the information and expertise necessary for understanding social phenomena and making policies appropriate for those new trends. Many ideas and suggestions are offered that are practical not only in the developed world but that can be applied in developing nations as well. In emerging countries ICT is highly anticipated as a means of improving the quality of life, promoting economic growth, and bridging the gaps among people and regions. Readers will gain deep insight into the impacts of utilizing ICT in diverse societies. Interdisciplinary approaches help in understanding how those influences can be captured both qualitatively and quantitatively through studies stemming from various social sciences — economics, sociology, legal studies, media studies, marketing, regional studies, socioeconomic planning, and other relevant disciplines. Editor in Chief Hitoshi Mitomo (Waseda University) Editorial Board Johannes Bauer (Michigan State University) Erik Bohlin (Chalmers University of Technology) Shuya Hayashi (Nagoya University) Takuo Imagawa (Ministry of Internal Affairs and Communications) Toshiya Jitsuzumi (Chuo University) Kenichi Kawasaki (Komazawa University) Seongcheol Kim (Korea University) Mikio Kimura (Japan Commercial Broadcasters Association) Yu-li Liu (National Chengchi University) Tingjie Lu (Beijing University of Posts and Telecommunications) Hiroyuki Morikawa (The University of Tokyo) Akihiro Nakamura (Yokohama City University) Fumio Shimpo (Keio University) Suphat Suphachalasai (Thammasat University) Hidenori Tomita (Kansai University) Takashi Uchiyama (Aoyama Gakuin University) Minh Khuong Vu (National University of Singapore)

More information about this series at https://link.springer.com/bookseries/16002

Toshiya Jitsuzumi · Hitoshi Mitomo Editors

Policies and Challenges of the Broadband Ecosystem in Japan

Editors Toshiya Jitsuzumi Faculty of Policy Studies Chuo University Hachioji, Tokyo, Japan

Hitoshi Mitomo Graduate School of Asia-Pacific Studies Waseda University Tokyo, Japan

ISSN 2524-3322 ISSN 2524-3330 (electronic) Advances in Information and Communication Research ISBN 978-981-16-8003-8 ISBN 978-981-16-8004-5 (eBook) https://doi.org/10.1007/978-981-16-8004-5 © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Singapore Pte Ltd. The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721, Singapore

Preface

Owing to the rapid development of information and communication technology (ICT), the broadband ecosystem is transforming itself globally and becoming the foundation of all socio-economic activities. New services are being introduced into the market continuously and gaining immense popularity. Likewise, new entrants are now crossing industry boundaries that were previously thought to be insurmountable and obtaining significant market shares. Further, business models that were formerly considered infeasible are now dominating the market and generating huge profits. The expansion of new economic frontiers through ICT innovation offers us the possibility of achieving higher levels of social welfare, while simultaneously offering service providers new ways to dominate the market for their own sake and expanding the impact of previously unseen economic externalities. Additionally, impacts on noneconomic values such as privacy, democracy, and uniting society, which are rarely discussed in an economic context, are also gaining attention among civil societies and policymakers. To maximize social welfare and gain competitive advantage globally, agencies that are in charge of economic and industrial policies are expected to adequately support such rapid socio-economic developments. Given the existence of the Marshallian externality, delaying the development of the broadband ecosystem would be detrimental to the long-term interests of society by limiting and locking the industrial structure of the country into a situation where it can only achieve a lower level of social welfare compared to its trading partners. Governments also have to appropriately address possible problems to mitigate potential harmful side effects. This is because the emerging broadband ecosystem does not guarantee the achievement of equitable income redistribution even if it provides the possibility of expanding social welfare and also because there are noneconomic values that need to be emphasized in our society. Furthermore, challenges facing the government will easily exceed the industry’s previous delimitations as well as national borders, and it is highly unlikely that the existing set of policies and current governance frameworks will be able to adequately address them. For instance, online platforms, which are becoming increasingly dominant in the broadband ecosystem, have until recently been just another set of

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Preface

broadband-using companies and policymakers have not considered specific regulatory mechanisms targeted to them. Regulatory designs that focus on their economic features, such as two-sided markets and strong network effects, are initiated in many countries. Additionally, an international framework to deal with borderless business development has also been promoted in places such as the OECD countries and the European Union; however, at the time of penning this manuscript, no mature conclusion has been reached. Moreover, the accumulation of knowledge on the part of academia, particularly, empirical-economic discussions based on the actual industrial structure of each country, seems insufficient, making it difficult to generate meaningful and practical policy recommendations that are backed by solid theoretical foundations. Since a one-size-fits-all solution cannot be expected, studies that take into account the different industrial structures and priorities of various economic and non-economic values of each nation are urgently needed. In response to this situation, Professor Mitomo of Waseda University called for organizing a study group with his colleagues, providing basic knowledge from the perspective of academia and supporting the discussions on policy design. Fortunately, with the generous supports of KDDI Research Institute (now KDDI Research, Inc.), we started a study group in November 2015, and had the opportunity to study and discuss the various issues surrounding the newly emerged broadband industrial structure (broadband ecosystem 2.0), mainly from economic and sociological perspectives, reflecting academic interests of the participants. Chapters in this book are a compilation of the research findings reported by each participant in the study group and two articles prepared by researchers from KDDI Research, Inc. Each of the chapters is an academic analysis of the latest policy issues in the broadband ecosystem, reflecting the current market status quo. However, this book alone cannot provide ultimate answers to the wide variety of policy issues that have recently emerged. Moreover, considering the pace of rapidly changing markets, the possibility exists that this conclusion will soon become outdated and lose its practical relevance. However, even in such a situation, we believe that the analysis presented in this book can serve as a reference point for other countries facing similar problems.

Tokyo, Japan

Editors Toshiya Jitsuzumi Hitoshi Mitomo

Acknowledgments

This book is published as the fourth volume in the book series of the Japan Society of Information and Communication Research (JSICR). JSICR, as an academic organization focusing on policies and socioeconomic aspects of ICT, is making an international contribution to the enhancement of ICT. The editors are grateful to KDDI Research, Inc. for their help in organizing our study group and supporting the publication. The editors would also like to express warm thanks to Naoko Fukuda and Tomomi Abe at JSICR for their editorial support.

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Contents

Development of Infrastructure Sharing in the Mobile Market . . . . . . . . . . Tomoko Yamajo

1

Issues in Regulating Online Platforms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Toshiya Jitsuzumi

23

Interdependency on the Data Platform and Its Effect on the Diffusion of Autonomous Driving . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Hitoshi Mitomo Audio-Visual Content Industry in Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Takashi Uchiyama

45 67

Trends and Use Cases of 5G . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 Issei Kanno Measures to Develop Human Resources with AI Skills in Japan: Society 5.0 and Investment in the Next Generation . . . . . . . . . . . . . . . . . . . . 123 Ema Tanaka and Shizu Aizawa New Competition in Regulated Service Markets After the Smartphone Diffusion: Regulations on Ride-Hailing Services in Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153 Akihiro Nakamura The Preference of Payment of Game Players in the Cross-Platform Era: A Survey of Smartphone Users in Japan, the UK, China . . . . . . . . . . 171 Ema Tanaka, Yuhsuke Koyama, and Nobushige Kobayashi Acceptability of the “Right to be Forgotten” in Japan . . . . . . . . . . . . . . . . . 197 Teppei Koguchi and Kenji Kanda The Economic Value of Personal Information: Analysis of Information Leakage Incidents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213 Teppei Koguchi and Shogo Maeda

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Editors and Contributors

About the Editors Toshiya Jitsuzumi is Professor of Telecom Policy at the Faculty of Policy Studies, Chuo University, Japan. He is Director of the Japan Society of Information and Communication Research. His research focuses on network neutrality, platform regulation, and rulemaking for artificial intelligence (AI). He has been a member of various committees on internet policy and AI strategy at the Ministry of Internal Affairs and Communications. From 2018 to 2019, he served as a vice chair of the Committee on Digital Economy Policy at OECD. He is currently a member of the Responsible AI working group of the Global Partnership on Artificial Intelligence. Hitoshi Mitomo is Professor of Telecommunications Economics and Policy at the Graduate School of Asia-Pacific Studies (GSAPS) and Director of Digital Society (IDS) at Waseda University, Japan. He is President of the Japan Society of Information and Communication Research. He is Vice Chair of the International Telecommunications Society (ITS). His research spans a wide range of socioeconomic and regulatory issues related to ICT and media. While serving as a member of the Telecommunications Council of Japan’s Ministry of Internal Affairs and Communications, he has been involved in various ICT and media policy development.

Contributors Shizu Aizawa ICT Research & Consulting Division, Foundation for MultiMedia Communications (FMMC), Tokyo, Japan Toshiya Jitsuzumi Faculty of Policy Studies, Chuo University, Tokyo, Japan Kenji Kanda Faculty of Informatics, Shizuoka University, Shizuoka, Japan

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Editors and Contributors

Issei Kanno Wireless Communications System Research Group, KDDI Research Inc., Saitama, Japan Nobushige Kobayashi Faculty of Liberal Arts, Tohoku Gakuin University, Miyagi, Japan Teppei Koguchi College of Informatics, Shizuoka University, Shizuoka, Japan Yuhsuke Koyama Faculty of Department of Planning, Architecture and Environmental Systems, Shibaura Institute of Technology, Saitama, Japan Shogo Maeda Faculty of Informatics, Shizuoka University, Shizuoka, Japan Hitoshi Mitomo Graduate School of Asia-Pacific Studies, Waseda University, Tokyo, Japan Akihiro Nakamura Faculty of Economics, Chuo University, Tokyo, Japan Ema Tanaka Faculty of Global Japanese Studies, Meiji University, Tokyo, Japan Takashi Uchiyama School of Cultural and Creative Studies, Aoyama Gakuin University, Tokyo, Japan Tomoko Yamajo Global Market and Policy Research Group, KDDI Research, Inc., Tokyo, Japan

Development of Infrastructure Sharing in the Mobile Market Tomoko Yamajo

Abstract This chapter presents the development and competitive challenges in mobile infrastructure sharing. Mobile operators worldwide have been engaged in various types of sharing arrangements since the early stages of mobile market development. Infrastructure sharing offers many benefits for mobile operators, including cost reduction and early deployment of networks and services. It also brings various benefits to the mobile market and society. However, certain types of sharing arrangements may adversely affect mobile operators’ ability to compete with each other. Governments and regulatory authorities in some countries have set certain restrictions on sharing agreements between mobile operators by establishing regulations and guidelines and carefully monitoring competition in the market. With the introduction of 5G, and the latest generation of wireless technology, mobile operators are more interested in joint construction and the shared use of infrastructure to overcome the unprecedented challenges brought about by 5G. Keywords Mobile · 5G · LTE · Infrastructure sharing · Wireless tower · National roaming · Facility-based competition · Service-based competition · Coverage obligation · Regulations

1 Introduction Infrastructure sharing is the joint construction and shared use of network facilities between mobile operators to provide services to end-users. There are various models per the scope of sharing, such as site sharing, Radio Access Network (RAN) sharing, and roaming. The US, as well as some European and Asian countries since the 2G and 3G eras, have seen the introduction of infrastructure sharing arrangements. Such arrangements have since expanded further with the advent of 4G LTE. The primary drivers of infrastructure sharing are cost reduction and early deployment of networks and services. T. Yamajo (B) Global Market and Policy Research Group, KDDI Research, Inc., Tokyo, Japan e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 T. Jitsuzumi and H. Mitomo (eds.), Policies and Challenges of the Broadband Ecosystem in Japan, Advances in Information and Communication Research 4, https://doi.org/10.1007/978-981-16-8004-5_1

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Mobile operators worldwide are working to implement 5G. Among the largest challenges of 5G is the deployment of dense small cell networks using millimeter wave (mmWave) bands previous mobile systems have never used. Mobile operators look to infrastructure sharing as a solution to overcoming the unprecedented challenge cost-effectively. Governments and regulatory authorities in favor of infrastructure-based competition are cautious on some types of sharing arrangements, citing restricted competition, service differentiation, investment motivation, and consumer choice concerns. Given the benefits of infrastructure sharing in successful network deployments, regulatory environments are becoming more supportive of mobile operators’ sharing arrangements. Some governments and regulators now regard infrastructure sharing as an effective tool to achieve their policy goals, such as improvements in mobile coverage and elimination of digital divides. With the advent of 5G and future wireless technologies, the regulatory environments surrounding infrastructure sharing are expected to be further relaxed. This chapter is organized as follows. Section 2 summarizes typical models of mobile infrastructure sharing. Section 3 considers benefits and competition aspects of mobile infrastructure sharing from regulatory-authority and mobile-operator perspectives. Section 4 provides examples of sharing arrangements between mobile operators and other infrastructure providers and government measures in several countries, particularly 5G trends. Section 5 concludes.

2 Types of Mobile Infrastructure Sharing Mobile operators worldwide engage in several types of infrastructure sharing, roughly classified as passive or active sharing. This section summarizes typical sharing models per classification by international organizations and industry associations in the telecommunication sector (e.g., GSMA 2008, BEREC 2019).

2.1 Passive Sharing Passive infrastructure sharing operates via joint use by two or more mobile operators of physical space and supporting infrastructure within base stations. It may sometimes involve the sharing of passive backhaul elements. Per the scope of sharing, passive sharing can be classified as follows: Co-location In the co-location model, mobile operators share the same location, such as compound, base station sites, and rooftops, to construct base stations. Co-location is sometimes limited to common access to locations and may also include the use

Development of Infrastructure Sharing in the Mobile Market

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of common masts and other supporting constructions or cabinets, including related installations, such as air-conditioning and power supply. Site Sharing Site sharing is the most common form of passive infrastructure sharing. Two or more mobile operators share the same location for supporting infrastructure, and each installs a mast, antenna, cabinet, backhaul, and active equipment. Mast Sharing Mast or tower sharing is the joint use of the same mast, antenna, or rooftop by two or more mobile operators, where each installs a cabinet, backhaul, and active equipment. Passive Sharing Through Tower Company As a passive sharing variation, mobile operators may share passive infrastructure such as site and tower through operator-affiliated or third-party tower companies. Tower companies specialize in providing mobile operators with space to install antennas and indoor space to install elements such as communication equipment, electric power, air-conditioning, and security. Some mobile operators sell their towers to third-party tower companies through leasing agreements. In another case, mobile operators spinoff their affiliate tower companies and monetize them as an independent businesses. These arrangements help mobile operators save capital costs by removing the need for investment in sites and towers. In recent years, several major tower companies have increased their business scale through mergers and acquisitions and expanded their assets globally across countries and regions (Sawada 2019; Yoshikawa 2018). Passive infrastructure sharing has been popular among mobile operators since the 2G and 3G eras, mainly in Europe and parts of Asia. Sharing through tower companies is particularly common in the US, China, India, Australia, and some African countries. Passive sharing is generally encouraged and even mandated by governments and regulators in some countries.

2.2 Active Sharing Active sharing is the joint use of active elements of the networks of two or more mobile operators. Active elements to be shared are diverse and include many different types of electronic equipment capable of various functions. Below are the types of active sharing per the sharing elements.1

1

MVNO (mobile virtual network operators) is regarded as one of the active sharing models under the EU regime. However, it is not discussed here.

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RAN Sharing RAN sharing is the joint use of access network equipment, including antenna, mast, and backhaul equipment, by two or more mobile operators, where each employs a core network. RAN sharing is divided into two types per whether spectrum sharing is included. Multi Operator Radio Access Network (MORAN) Sharing MORAN is a type of RAN sharing, where mobile operators share equipment but do not share spectrum. The end-users of each operator access the services of their respective operator via a spectrum of their respective operator. Multi Operator Core Network (MOCN) Sharing MOCN is a type of RAN sharing where mobile operators share all access network elements, including spectrum. The end-users of each operator access the services of their respective operator through all spectrum shared in the access network. National (Domestic) Roaming National or domestic network roaming can be considered an active infrastructure sharing.2 Under this arrangement, mobile operators use each other’s networks within the same country to provide services in areas where they do not have respective networks. National roaming is particularly useful for new entrants to expand their coverage nationwide even before completing their network construction. In the early 2000s, mobile operators planned several active sharing agreements, but many were unrealized. It could be attributed to insufficient technological development and RAN sharing standardization, immature regulation, and disagreements in strategies between sharing partners. With the transition to 4G LTE in the latter half of the 2000s, interest in active sharing among mobile operators rose again, some deals successfully proceeding, mainly in European countries.

2.3 Wholesale Open Access Network The wholesale open access network (WOAN) model, also known as the single wholesale network (SWN) model, emerged around 2010 as a new mobile infrastructure sharing. In this model, service providers purchase network capacity at wholesale rates from an SWN operator that owns and operates infrastructure, including spectrum, and provide services to end-users. Wholesale rates are regulated; thus, every service provider can access the network on equal terms and conditions. Per the proponents of this model, advantages of WOAN include the efficient use of scarce spectrum resources and early expansion of network coverage, particularly in rural areas. Several emerging countries in Africa and South America, where fixed broadband networks are not yet fully deployed, have implemented or are considering implementing LTE 2

International roaming is generally not discussed in the context of the competition impact of infrastructure sharing.

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WOANs to accelerate broadband availability and improve the digital divide (GSMA 2014, 2017, 2019a).

3 Competition Aspect of Mobile Infrastructure Sharing This section considers the benefits and problems of mobile infrastructure sharing and its competition aspect from the viewpoints of regulators and mobile operators, respectively.

3.1 Benefits and Competition Challenges of Infrastructure Sharing In general, infrastructure sharing could provide mobile operators with the following benefits: • Reducing capital investment and operational costs can improve financial conditions • Network coverage can expand in a shorter period than that conducted by one company, and the new technology service can rapidly develop • Customer experience and customer retention could improve by the advanced quality of service. Among these benefits, the most significant driver of the infrastructure sharing agreement is cost reduction. The Body of European Regulators for Electronic Communications (BEREC) provides an estimated range of cost savings from infrastructure sharing, which could be up to 45% in capital expenditure (CAPEX) and 35% in operational expenditure (OPEX), as shown in Table 1 (BEREC 2018a). Infrastructure sharing offers various benefits to mobile operators who sign agreements, the mobile market, and society. It is expected to lower barriers to entry into the mobile market, particularly regarding the national roaming arrangement. Recent years have seen the environmental benefits of shared infrastructure. More energy savings and reduction of CO2 emissions could be achieved by sharing masts, Table 1 Estimated cost savings from mobile infrastructure sharing

Sharing types

CAPEX (%)

OPEX (%)

Passive sharing

16–35

16–35

Active sharing (without spectrum sharing)

33–35

25–33

Active sharing (with spectrum sharing)

33–45

30–33

Source BEREC

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antennas, power supplies, and air-conditioning. Infrastructure sharing also prevents landscape deterioration by reducing the number of sites. However, per the types of infrastructure sharing and how it is implemented, infrastructure sharing might adversely affect competition in the mobile market as follows: • Lower investment incentives for mobile operators could undermine infrastructurebased competition • Mobile operators who do not participate in the sharing agreement are excluded • Some active sharing types make it challenging to differentiate services because there is no difference in coverage or quality of service among sharing partners • Active sharing agreements might require sharing sensitive information between partners, raising concerns about tacit collusion and competition law violations. Passive sharing is encouraged in many countries because it has little impact on mobile operators’ ability to differentiate their services. Active sharing more likely impedes mobile market competition; Regulatory and competition authorities carefully examine the sharing-partner agreements, monitor the market competition, and intervene with some remedies, as necessary. In many countries, active sharing, especially when spectrum sharing is involved, requires prior approval by regulatory authorities.

3.2 Assessment Framework of Infrastructure Sharing by EU The BEREC conducted surveys and released reports on mobile infrastructure sharing in Europe, describing examples of mobile infrastructure sharing agreements and regulatory approaches in EU member countries (BEREC & RSPG 2011; BEREC 2018a). Per such reports, in December 2018, the BEREC proposed a common position and framework for national regulatory authorities (NRAs) in member countries to assess mobile infrastructure sharing agreements (BEREC 2018b). After public consultation, the BEREC released the final version of a position paper in June 2019 (BEREC 2019), underscoring that when NRAs assess infrastructure sharing agreements, they must achieve and maintain three objectives of the EU regulations: effective competition, better connectivity, and efficient use of spectrum. The BEREC also identified the parameters NRAs should consider when assessing whether infrastructure sharing can achieve the regulatory objectives. Tables 2 and 3 summarize the details of the objectives and parameters. The BEREC describes an example assessment of some network types based on the above objectives and parameters. It concludes that passive infrastructure sharing is encouraged in all areas, given that there is no negative impact on effective competition. The BEREC notes that active sharing is less beneficial and might be sometimes restricted in densely populated areas where infrastructure-based competition is feasible. Meanwhile, it might be an effective tool to expand mobile coverage in less densely populated geographic areas. Moreover, in specific situations where mobile

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Table 2 Main objectives when considering network sharing agreements Effective competition

• The European Electronic Communications Code explicitly mentions efficient infrastructure-based competition as an objective NRAs should pursue • In case infrastructure-based competition is not feasible, service-based competition should be promoted

Better connectivity

• service improvements regarding coverage or quality of service • to facilitate the development of IoT, machine type communication, network slicing for the next generation networks, and management of legacy technology or services with a long lifecycle • to reduce the deployment cost for passive infrastructure of high-speed communications network

Efficient use of spectrum • NRAs are required to ensure the effective and efficient use of spectrum, which is a scarce and essential input for the provision of mobile services Source BEREC

network operators (MNOs) cannot individually deploy their networks because of the scarcity of available sites or limited space or other essential inputs, such as power supply and backhaul links, active sharing could be objectively necessary for MNO competition, and NRAs may even mandate sharing. Among the active sharing types, the BEREC urges NRAs to carefully assess spectrum pooling (MOCN) and national roaming on a case-by-case basis, citing their respective positive effects and competitive implications as follows. Spectrum Pooling • Spectrum pooling may reduce the differentiation capacity of the sharing parties. However, in areas where infrastructure-based competition is not feasible, it could improve coverage, providing better services with higher bandwidth (bitrate). • When NRAs define spectrum pooling conditions, they should ensure that such conditions (a)

(b) (c) (d)

include both technical and operational conditions regarding the use of the spectrum and conditions regarding the rights and obligations of the sharedspectrum users; are defined in a fair, transparent, and non-discriminatory manner per predefined criteria; consider national specificities per the type of existing spectrum users; carefully consider the possibility of effective monitoring and control compliance with the conditions for the shared use of radio spectrum.

National Roaming • National Roaming is very likely to restrict the differentiation capacity of the roaming operator on several major parameters, such as service coverage and quality.

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Table 3 Parameters when assessing network sharing agreements Competitive market forces evolution

• Market share • Number of operators involved in the sharing • Technologies involved (More Technology, More Investment) • The geographic scope • The time frame

Feasible level of competition

• Whether infrastructure-based competition is feasible depends on geographical circumstances and areas concerned • Areas where full infrastructure-based competition is reasonably feasible (e.g., densely populated areas) • Areas, where the feasibility of infrastructure-based competition is not pre-determined, require a case-specific assessment (e.g., moderately-populated areas) • Areas where infrastructure-based competition is not reasonably feasible (e.g., least densely populated areas, indoor coverage, subways, and tunnels)

Sharing type

• Passive sharing may be considered as having less market impact • Active sharing can substantially reduce infrastructure competition

Impact of information sharing between parties • Information sharing between operators on competition should be limited to the level indispensable for the agreement and restricted to persons necessary to the proper functioning of the shared network • The information exchange should not limit the sharing parties’ ability and incentive to compete and invest Reversibility and execution of contract

• The rigidity of sharing agreements should be kept to the indispensable level • The reversibility of the agreement and the co-operation structure between the parties have strong implications for the agreement’s rigidity

Source BEREC

• Roaming is likely inconsistent with the objectives of infrastructure-based competition for end-user benefits and efficient spectrum management and usage. • Therefore, roaming for an undetermined period could be envisaged only in those areas where infrastructure-based competition is infeasible, and investment incentive is very limited.

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3.3 Mobile Operators’ View The GSMA, an industry group representing the interests of mobile operators worldwide, has expressed its public policy position to support members in sharing mobile infrastructure. The GSMA notes that infrastructure sharing can cost-effectively expand mobile network coverage and ultimately benefit consumers, particularly in emerging countries and rural areas often lacking basic infrastructure, such as roads and electricity. The GSMA also notes that the importance and rationality of sharing infrastructure are gaining more significance as we approach the 5G era for the following factors (GSMA 2019b): • Increasing challenges in acquiring sites for base stations to meet indoor coverage demand • Higher cost of 5G deployment to meet throughput requirement and demand • Enabling rationalization of legacy networks (2G or 3G) without completely closing these networks • Introducing new technologies, such as Network Function Virtualization and Software-Defined Networking • Enabling mobile operators to focus on the competition in the service layer and divert investment to other innovation • Enabling significant cost reduction for network infrastructure deployment relative to traditional infrastructure deployment scheme • Social benefits, such as lower end-user price, reduction of energy consumption, and radio emissions of networks. In January 2019, the GSMA and the European Telecommunications Network Operators Organization (ETNO) submitted a comment to the BEREC on their public consultation regarding a common position on mobile infrastructure sharing (GSMA & ETNO 2019). They alleged that technical evolution toward 5G would substantially change the network configuration and management, consequently shifting the competition parameters from the network access layer to the service layer. They noted that the BEREC’s proposal overestimated the impact of active sharing; moreover, it should consider the new and more important role of active sharing in a 5G ecosystem. The GSMA and ETNO also argue that infrastructure sharing agreements should not be subject to ex-ante regulation and evaluation because most agreements in Europe result from commercial agreements, and operators are responsible for sharing decisions. While the GSMA encourages mobile infrastructure sharing, it has taken a negative stance on the WOAN model. The GSMA outlined the performance and risks of the WOAN model (GSMA 2014, 2017), where the proponents of this model, including policymakers in some countries, claim benefits such as efficient use of limited frequency resources and early expansion of network coverage in rural areas. However, the GSMA argued that the traditional network competition model could achieve faster and more extensive network coverage than the WOAN model. It also

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warns that a move to wholesale networks would harm consumers, as network monopolies have led to higher prices and lower infrastructure investments. The GSMA urges policymakers considering implementation of WOAN models to instead support mobile operators’ voluntary infrastructure sharing agreements and set appropriate spectrum license conditions to extend mobile coverages and services to regions where services are insufficient. Further, the GSMA (2019a) indicates that WOANs are being introduced or planned in Kenya, Mexico, Russia, and Rwanda. Thus far, the network has only been deployed in Rwanda, with other countries experiencing slow progress or dropping plans.

4 Examples of Mobile Infrastructure Sharing Most infrastructure sharing deals in the current mobile market worldwide are based on commercial agreements between mobile operators that aim to reduce costs and rapidly deploy networks and services. In some countries, the governments take initiatives in infrastructure-sharing projects to expand mobile coverage nationwide, including rural areas, as policy goals. This section outlines several examples of infrastructure sharing in Europe, the US, and Asia and considers how mobile infrastructure sharing has developed since the 2G and 3G era. It also examines how infrastructure sharing could evolve with 5G.

4.1 Sharing Agreement Between Vodafone and Telefonica In European countries, the auctions of 2.1 GHz spectrum licenses for 3G were held circa 2000. Unexpectedly high license fees and the economic downturn hurt mobileoperator finances significantly. Given a lack of funds and higher costs of deploying 3G networks using a 2.1 GHz band (higher than the band for 2G networks), many European mobile operators built shared networks with competing operators and fulfilled coverage obligations imposed as licensing conditions. The Vodafone Group (Vodafone) is among the most aggressive players in infrastructure sharing. Since the early 2000s, Vodafone has actively shared infrastructure with other operators in European countries it provides mobile services. In March 2009, Vodafone signed a ten-year site sharing agreement with Telefonica, covering Germany, Ireland, Spain, and the UK (Vodafone 2009). The deal included consolidating existing sites and joint construction of new sites. Vodafone and Telefonica claimed the agreement enables them to save costs amounting to hundreds of millions of euros for the next 10 years, deliver mobile service across a wider coverage area, and reduce the network’s environmental impact by reducing the number of sites. Table 4 summarizes the details of sharing the agreement in each country.

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Table 4 Sharing agreements by Vodafone and Telefonica Country

Extent of sharing

Germany

Vodafone and Telefonica (companies) to share existing 2G and 3G sites, including cabinet space, power supply, and shared masts for microwave backhaul

Ireland

Both companies to open all existing sites for sharing by the other party, with sharing of masts, antennas, cabinets, and power supplies Joint construction of new sites where roll-out plans are aligned

Spain

Both companies to extend existing site sharing agreement and add additional sites Scope of sharing includes masts, power supplies, and cabinets

UK

Both companies to consolidate existing 2G and 3G sites and jointly construct new sites Scope of sharing includes power supplies, cabinets, and masts

Source Vodafone (2009)

The agreement in the UK has developed to active sharing, covering 4G LTE and 5G. In June 2012, Vodafone and O2 Telefonica UK (O2 UK) announced the plan to expand the existing sharing agreement in the UK to RAN sharing without spectrum pooling (Vodafone 2012). Both companies intended to improve 2G and 3G indoor coverage and roll out competing 4G LTE networks to deliver a nationwide service faster than could be achieved independently. They established a 50/50 joint-venture company called Cornerstone Telecommunications Infrastructure. Cornerstone owns and manages existing network infrastructure transferred from each company; it is responsible for building new sites to extend coverage into rural areas. In July 2019, Vodafone and O2 UK agreed to share 5G active equipment, such as radio antennas, on joint network sites to speed up 5G roll-out in the UK (Vodafone 2019). Meanwhile, the two companies seek greater 5G network autonomy on approximately 2,700 sites in larger cities, including London. Each party installs its radio equipment, fiber backhaul connection, and power supply at these sites, ensuring more flexibility to meet customer needs and deploy future network technologies. Vodafone and O2 UK also agreed to improve the operational efficiencies of Cornerstone and explore potential monetization options by leasing assets to third parties. In January 2021, they commercialized Cornerstone, each entering into long-term master services agreements with Cornerstone (Cornerstone 2021).

4.2 Shared Rural Network in the United Kingdom In the UK, the government has long been challenged to improve mobile coverage and make 4G LTE service available across the country, including rural areas. In September 2018, the Office of Communications (Ofcom 2018) published a report which offered technical advice to the government on several options to improve mobile coverage. Ofcom originally intended to impose coverage obligations in the 700 MHz licenses,

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which the forthcoming auction would award. However, Ofcom noted that license obligation alone is inadequate to deliver the mobile coverage levels to satisfy consumers and proposed additional measures, including infrastructure sharing. In October 2019, the Department of Digital, Culture, Media, and Sport (DCMS) and four MNOs (EE, O2 UK, Three, and Vodafone) agreed on a new scheme to improve mobile coverage in rural areas and signed a £1 billion Shared Rural Network (SRN) deal in March 2020 (DCMS 2019, 2020). The agreement is based on the MNOs’ proposal and includes the following: • EE, O2 UK, Three, and Vodafone will invest £530 million in total to share newly constructed and existing infrastructure and close almost all areas currently having only coverage from at least one but not all operators (partial not-spots). • A jointly owned company, Digital Mobile Spectrum, will oversee the shared infrastructure. • The government will invest up to £500 million to eliminate areas currently having no coverage from any operator (total not-spots). • The four MNOs will provide guaranteed coverage to 280,000 premises and 16,000 km of roads by 2026. These MNO commitments are legally binding and enforceable by Ofcom. With the SRN agreement, all four MNOs will deliver a 95% combined coverage across the UK by the end of 2025. Since it could achieve higher coverage improvements than those by license obligations, Ofcom withdrew its proposal to impose coverage obligations in the 700 MHz licenses (Ofcom 2020). The MNOs have begun to work toward implementing the SRN. In January 2021, O2 UK, Three, and Vodafone agreed to build and share 222 new mobile masts as the first phase of the SRN (Vodafone 2021). Under the agreement, each company has 74 new sites to be completed by 2024. EE, the largest operator, followed the other operators by announcing that it would improve LTE coverage in more than 500 rural areas in 2021 and share all sites with other operators under the SRN scheme (EE 2021).

4.3 French Government’s Efforts to Expand Mobile Coverage The French government has promoted infrastructure sharing and national roaming among mobile operators since the 2G era to expand mobile coverage in rural areas. In April 2009, the French Electronic Communications and Postal Regulatory Authority (ARCEP) required mobile operators to share infrastructure to expand 3G service nationwide (ARCEP 2009). In February 2010, three MNOs (Orange, Société française du radiotéléphone [SFR], and Bouygues Telecom) agreed to share infrastructure and jointly construct 3G networks mainly in regions with no mobile service available (ARCEP 2010). The agreement expanded to include Free Mobile, a new entrant operator.

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The French government also regards infrastructure sharing as a key measure to expand 4G LTE. At the first National Conference of Territories, held in July 2017, President Macron pledged to eliminate the digital divide and set forth ambitious targets to guarantee high-speed Internet access (above 8 Mbit/s) for every citizen, deploy superfast access networks (above 30 Mbit/s) in every region nationwide by 2022, and achieve ubiquitous high standard mobile coverage by 2020 (ARCEP 2018). To achieve the third goal regarding mobile coverage, the ARCEP initiated discussions with stakeholders, such as mobile operators and local governments, and proposed new roll-out obligations for operators with the government. Per the proposal, the French government, the ARCEP, and mobile operators reached a historic agreement in January 2018, incorporating a trade-off between coverage commitments and renewal of spectrum licenses, which would expire after 2021 (ARCEP 2018). Under the agreement, mobile operators have committed to accelerating coverage expansion, with each operator deploying at least 5,000 new cell sites across the country. Among such sites, 2,000 cites cover more densely populated areas where no operator currently provides good voice and SMS coverage. Moreover, four operators engage in RAN sharing in such locations as far as it would not significantly diminish an operator’s quality of service. Operators also share infrastructure in other 3,000 sites where appropriate. Given operators’ financial burden of massive capital investment, the government reallocated 900, 1800, and 2100 MHz licenses without competitive bidding to keep the license fees unchanged.

4.4 National Roaming for the French New Entrant In France, the national roaming service to a new entrant operator, Free Mobile, has been controversial from a competitive perspective. In March 2011, Orange, the largest incumbent MNO, agreed to provide Free Mobile with 2G and 3G network roaming until Free Mobile’s 3G network coverage reached 90% of the population (Iliad 2011). The agreement allowed Free Mobile to operate in areas without its facilities. However, Bouygues Telecom and the SFR strongly criticized the deal; thus, the government consulted the Autorité de la concurrency (ADLC), the relevant competition regulator. In March 2013, ADLC issued a statement on mobile network sharing and national roaming (ADLC 2013). It affirmed that national roaming effectively lowered barriers to entry for new operators and promoted mobile market competition. However, it warned of the necessity to limit the duration of roaming agreements given competitive risks. Following the consultation result by the competition authorities, the government granted new legal authority to the ARCEP to request mobile operators to amend network sharing agreements when necessary to achieve the objectives of the Electronic Communications Code. Per this authority, the ARCEP developed guidelines that set out policies and frameworks for assessing network sharing agreements between mobile operators (ARCEP 2016a). The guidelines note that national roaming could be beneficial and justified regarding regulatory objectives; however,

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it should only be transitory or limited in scale, as it might discourage operators from investing in their networks. Per the guidelines, Free Mobile and Orange amended their agreement to phase out roaming by the end of 2020 (ARCEP 2016b). In February 2020, at Free Mobile’s request, they submitted an amendment to the roaming agreement to the ARCEP, extending the phasing out of Free Mobile’s national roaming on Orange networks by two years to December 31, 2022 (ARCEP 2020a). Although objections were raised by Bouygues Telecom, the SFR, and the Alternative Telecom association, the ARCEP concluded that it was unnecessary to request Free Mobile and Orange to amend their contract further, considering the current state of the market (ARCEP 2020b). The ARCEP ensured it would continue to monitor Free Mobile’s investment in building its network.

4.5 Site Sharing via Tower Companies in the United States In the US, mobile operators widely implement site sharing through third-party tower companies. Long-established companies such as American Tower, Crown Castle International (CCI), and SBA Communications (SBA) are notable, and some start-ups have entered the tower business in the US mobile market (Table 5). Table 5 Major tower companies operated in the United States Company

Tower count (US only) Description

American Tower

43,000

Founded in 1995; Owns and operates 186,000 communications sites in 22 countries, such as the US, Mexico, Brazil, India, South Africa, and Germany

Crown Castle International 40,000

Founded in 1994; Operations in the US and Puerto Rico The company has expanded its business through acquisitions of other tower companies, such as Wilcon and Lightower

SBA Communications

16,000

Founded in 1989; Operations in 14 markets throughout the Americas and South Africa

Vertical Bridge

6,000

Founded in 2014; Operations in the US and Puerto Rico

Tillman Infrastructure

1,000

Phenix Tower International 620

Source Companies

Founded in 2016; Operations in the US Founded in 2013; Owns and operates more than 86,000 sites in 14 countries throughout the Americas and Europe

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For the rapid and cost-effective deployment of 5G networks, US mobile operators actively pursue deals with tower companies, including emerging ones. In November 2017, AT&T and Verizon announced a joint agreement with Tillman Infrastructure (Tillman) to build and share hundreds of new cell towers (AT&T 2017). Under the terms of the deal, Tillman will construct towers that meet the needs of AT&T and Verizon, and two mobile companies have committed to leasing and co-anchoring the co-located towers and are considering moving some of their existing equipment to new towers. Tillman is a tower start-up founded in 2016. It builds and owns macro towers, small cells, and smart city infrastructure in the US. AT&T and Verizon have long contracted with big tower companies like Crown Castle and American Tower, making efforts to reduce the rental and leasing fees payable to these incumbents. AT&T and Verizon expect that a contract with Tillman would help negotiate renewal contracts with incumbent tower operators, reduce operational costs, and create a new cell tower model. After the merger of T-Mobile US and Sprint, a satellite broadcaster, Dish Network (Dish), entered the US mobile market as a fourth facilities-based nationwide operator to replace Sprint. As part of the deal with the government, Dish has committed to building a 5G network that covers 70% of the US population by June 2023 (Dish 2019). To meet this challenging goal, Dish, with little business experience in the mobile market, is accelerating efforts to select partners, including software, core, BSS/OSS, and 5G radios. As the first major infrastructure deal, Dish signed a long-term agreement with Crown Castle in November 2020 (CCI 2020). Under the agreement, Dish will lease space on up to 20,000 communication towers and receive fiber-optic transmission services and an option including pre-construction services, such as site engineering, zoning, and licensing. Crown Castle is among the most important infrastructure providers for Dish because its portfolio focuses more on urban areas with higher populations where Dish is likely to build a 5G network to first meet coverage targets (FierceWireless 2020). In 2021, Dish struck a series of partnerships with incumbent and emerging infrastructure companies, such as SBA, American Tower, Vertical Bridge, and Tillman (e.g., Dish 2021a, b; SBA 2021; Vertical Bridge 2021). These deals give Dish access to more towers and wireless infrastructure nationwide. Dish aims to reach around 15,000 sites to achieve the 2023 coverage targets.

4.6 Infrastructure Sharing Toward 5G in South Korea and Japan Infrastructure sharing has been more limited in Asian mobile markets than in other regions, but the situation has seen changes ahead of the advent of 5G. The governments and telecommunication ministries in South Korea and Japan have shifted to promoting mobile infrastructure sharing by improving relevant laws and regulations,

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and mobile operators in those countries have become more proactive in the shared use of infrastructure. In 2018, the Ministry of Science and ICT (MSIT) in South Korea announced a plan to promote joint construction of essential facilities to support the early introduction of 5G and efficient infrastructure deployment (FMMC 2018). Under the plan, the scope for joint construction has expanded from wired facilities, such as conduits and poles, to wireless facilities, such as antennas and sites of base stations. The joint construction obligation, which until then applied only to the incumbent fixed-line operator, KT, also expanded to SK Telecom, the largest mobile operator. In addition, the MSIT has strengthened the obligation to open facilities and equipment managed by local governments and public utilities, such as subways and roads. Thus, mobile operators can install repeaters and cables necessary for 5G network deployment in public facilities, such as streetlights and traffic signals. In 2019, the MSIT announced the standard level of usage fees of bottleneck facilities and equipment for wireless communications, developed by the Korea Information Society Development Institute (KISDI), a government-affiliated think tank (MSIT 2019). These fees are not uniform throughout the country but are set separately in urban and rural areas to reflect differences in areas and construction environments. Through these improvements, the Korean government expects to reduce capital costs and investment periods by mobile operators and avoid wireless infrastructure overlaps. Korean mobile operators announced that, through the government plan, the costs for creating a 5G infrastructure would be distributed; further, they anticipate a reduction in costs of up to US$1 billion over the next 10 years (Zaballos et al. 2020). The three mobile operators (SK Telecom, KT, and LGU+) have been assigned 5G frequencies in the 3.5 GHz and 28 GHz bands through a spectrum auction held in June 2018 (Zaballos et al. 2020). The mobile operators give priority to building 5G networks using the 3.5 GHz band with few 28 GHz networks. They are required to build 5G base stations using 28 GHz in 15,000 locations by the end of 2021, but progress has been significantly delayed. In March 2021, the MSIT and three mobile operators agreed to work together to seek ways to utilize the 28 GHz band for 5G and establish a forum for discussion (etnews 2021). They plan to designate areas where mobile operators jointly deploy 5G networks using the 28 GHz band and share essential facilities such as optical fiber cables and transmission equipment. The Ministry of Internal Affairs and Communications (MIC) of Japan envisioned that infrastructure sharing would become more important in the age of 5G. Moreover, it has been developing a policy that promotes the smooth deployment of 5G networks. In December 2018, the MIC established guidelines for infrastructure sharing in wireless communications fields and clarified the scope of application of the Telecommunications Business Law and Radio Law to sharing arrangements and legal procedures (MIC 2018). While creating an environment in which mobile operators can voluntarily share their infrastructure, the MIC has maintained the principle that mobile operators should establish their networks and expand their businesses via allocated frequencies, underscoring that the guidelines do not intend to introduce new regulations on infrastructure sharing.

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The MIC assigned 5G frequencies in the 3.7 GHz, 4.5 GHz, and 28 GHz bands to mobile operators (NTT DoCoMo, KDDI, SoftBank, and Rakuten Mobile) in April 2019 (MIC 2019). In the application for assigning these frequencies, the mobile operators indicated in their 5G base station installation plans that they would utilize infrastructure sharing for smooth deployment of 5G where appropriate. Ever since the MIC published the infrastructure-sharing guidelines, Japanese mobile operators and infrastructure owners have actively pursued partnerships (Table 6). In July 2019, KDDI and Softbank reached an agreement to mutually use their base station assets to jointly promote the rapid build-out of 5G networks in rural areas (KDDI 2019). Per the agreement, both companies conduct joint trials in some cities and verified the effects of 5G network quality improvements and shortened construction periods in rural areas. Through the trials, KDDI and Softbank confirmed the merits of mutual utilization of existing facilities. In April 2020, it established a joint venture, 5G JAPAN Corporation, which promotes infrastructure sharing based Table 6 Recent infrastructure sharing partnership in Japan Date

Companies

Description

March 2019

KDDI, Softbank, Rakuten Mobile, TEPCO Power Grid

For the introduction of 5G, the four companies agreed to work on a joint demonstration to share installation sites and facilities of base stations using electric power infrastructure, such as utility poles

July 2019

KDDI, Softbank

Both companies agreed on the mutual use of their base station assets for 5G deployment

April 2020

KDDI, Softbank

Both companies established a joint venture, 5G Japan per the agreement above

July 2019

NTT, JTOWER

Both companies agreed on a capital and business partnership toward 5G infrastructure sharing

August 2019

Tokyu (Railway), Sumitomo Corp. (Trading firm)

Both companies launch a pilot experiment in Shibuya, Tokyo, to commercialize 5G antenna systems shared by multiple telecommunications companies

March 2021

Tokyu, Sumitomo Corp

Both companies established a new company, Sharing Design, to provide 5G-centered base station sharing services to mobile communications carriers, starting from July 2021 in Tokyu Railways stations and its commercial facilities in the Tokyo area

Source MIC, Companies

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on the mutual use of base station assets held by both companies (KDDI 2020). The joint venture’s role includes construction design and management work for 5G base stations. In July 2019, NTT (the parent company of NTT DoCoMo) and JTOWER (Japan’s leading tower company) agreed on a capital and business partnership to promote the infrastructure-sharing model in the 5G system (NTT 2019). The two companies aim to provide efficient and economical infrastructure-sharing solutions for the communications industry and combine their resource, including the facilities owned by the NTT Group and its store of know-how in areas such as construction, maintenance, and related management, JTOWER’s expertise, and related sales and technical capabilities. The government and local municipalities try to support mobile operators’ 5G introduction efforts by opening up access to public infrastructure. As part of the new IT strategy adopted by the cabinet meeting in June 2019, the Japanese government plans to make available approximately 210,000 traffic signals nationwide as 5G base stations. It also aims to use 5G networks to connect traffic signals across the country to help ease traffic congestion and support autonomous driving (MIC 2020). In August 2019, the Tokyo Metropolitan Government (TMG) issued the “Basic Strategy of TOKYO Data Highway” to create the world’s best mobile Internet network and accelerate the installation of 5G base stations in Tokyo (TMG 2019). As part of the measures under the strategy, the TMG has set up a single contact point to respond to applications and inquiries from mobile operators and other interest parties. It has created a database of the TMG’s assets suitable for 5G antenna base stations. As of March 2021, the database provides information such as location, area, and height for more than 15,000 assets, including buildings, sites, bus stops, and entrances to underpasses and subways.

5 Conclusion This chapter examined the types of mobile infrastructure sharing, its benefits, and impact on the competition in the mobile market and reviewed the development of sharing arrangements in several countries. Mobile operators have engaged in infrastructure sharing to pursue various benefits, such as cost savings, early deployment of new technology and service, and improved coverage. Some types of sharing may affect competition in the mobile market. Active sharing with spectrum pool and national roaming more likely undermines the ability of mobile operators to differentiate their networks and services and reduce infrastructure-based competition. Thus, governments and regulatory authorities tend to examine such sharing arrangements carefully and monitor the market competition. With the transition to 5G, the mobile operators, including those in countries with few cases, seek more infrastructure-sharing opportunities for the following factors: 5G uses higher-frequency bands than those used in previous generations like 3G and LTE. In using such bands, especially mmWave above 20 GHz, mobile operators

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must install many small cells in high density because of the propagation characteristic of mmWave, thereby incurring large capital expenditures. While commercial 5G services have launched in more than 60 countries as of January 2021 (GSA 2021), several years will likely pass before promising use cases for 5G are found and adopted. Moreover, In the current mobile market, unlimited plans are prevalent, and consumers are unlikely to pay a premium for 5G. As increased revenues are uncertain, mobile operators face pressure to reduce network costs. In addition to 5G-specific circumstances, infrastructure sharing would be considered environmentally and landscape-friendly, given its fewer base stations and CO2 emission reduction. In many countries, infrastructure-based competition has, in principle, developed the mobile market. However, for the smooth introduction of 5G, which has unprecedented challenges, the government and regulators must adopt case-by-case measures per the situation rather than a uniform competition policy. In rural areas where infrastructure-based competition is not economically reasonable, it may be an option for the governments to encourage or sometimes mandate infrastructure sharing to eliminate unserved areas and improve mobile coverage, as in the policies of the UK and France. As the BEREC has noted, even in urban areas, the challenge of installing multiple networks in certain areas is due to limited space and other resources. In such places, sharing arrangements between mobile operators, using other providers’ infrastructure, and access to public assets would be increasingly necessary. The WOAN model, which is yet to be successfully implemented, could be one of the solutions to the 5G challenges, provided regulators could establish rules to ensure the appropriate wholesale pricing and non-discriminatory terms and conditions. The implementation of standalone (SA) 5G could create new infrastructuresharing models that take advantage of its network functions and accelerate the shift from infrastructure-based to service-level competition further. Mobile carriers are expected to adopt infrastructure sharing strategically and develop new business models toward 5G and future technologies.

References ARCEP (2009) The Authority takes a first decision on the sharing of third generation mobile networks in metropolitan France in the application of article 119 of the law on the modernization of the economy. https://www.arcep.fr/en/news/press-releases/detail/n/lautorite-prend-une-pre miere-decision-sur-le-partage-des-reseaux-mobiles-de-troisieme-generation-en.html. Accessed 26 July 2021 ARCEP (2010) Under the aegis of ARCEP, operators sign a 3G mobile network sharing agreement that will enable full nationwide coverage by the end of 2013. https://www.arcep.fr/en/news/ press-releases/detail/n/under-the-aegis-of-arcep-operators-sign-a-3g-mobile-network-sharingagreement-that-will-enable-full.html. Accessed 26 July 2021 ARCEP (2016a) Arcep exercises its newfound authority over mobile network sharing: publishes guidelines and finalises its analysis of existing agreements. https://en.arcep.fr/news/press-

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releases/view/n/arcep-exercises-its-newfound-authority-over-mobile-network-sharing.html. Accessed 26 July 2021 ARCEP (2016b) Mobile network sharing—Arcep welcomes the contractual amendments that will underpin the mobile industry deployment model. https://www.arcep.fr/en/news/press-rel eases/detail/n/mobile-network-sharing-arcep-welcomes-the-contractual-amendments-that-willunderpin-the-mobile-indu.html. Accessed 26 July 2021 ARCEP (2018) Signature of an historic agreement between the Government, Arcep and mobile operators to accelerate mobile coverage in the regions. https://en.arcep.fr/news/press-releases/ view/n/signature-of-an-historic-agreement-between-the-government-arcep-and-mobile-operat ors-to-accelerate-mobile-coverage-in-the-regions.html. Accessed 26 July 2021 ARCEP (2020a) Mobile Network Sharing—Two-year extension of the roaming agreement between Free Mobile and Orange: Arcep informs the sector and examines the amendment. https://en.arcep. fr/news/press-releases/view/n/mobile-network-sharing-030420.html. Accessed 26 July 2021 ARCEP (2020b) Mobile Network Sharing—Extension of the roaming agreement between Free Mobile and Orange: Arcep concludes no changes required to the contractual amendment https:// en.arcep.fr/news/press-releases/view/n/mobile-network-sharing-231020.html. Accessed 26 July 2021 AT&T (2017) AT&T, Verizon and Tillman Infrastructure announce collaboration to build hundreds of cell towers. https://about.att.com/story/att_verizon_tillman_collaboration.html. Accessed 26 July 2021 Autorité de la concurrency (ADLC) (2013) Opinion No 13-A-08 of March 11, 2013 relating to the conditions of pooling and roaming on mobile networks. https://www.autoritedelaconcur rence.fr/fr/avis/relatif-aux-conditions-de-mutualisation-et-ditinerance-sur-les-reseaux-mobiles. Accessed 26 July 2021 BEREC & RSPG (2011) Report on infrastructure and spectrum sharing in mobile/wireless networks, BoR (11) 26. https://berec.europa.eu/eng/document_register/subject_matter/berec/ reports/224-berec-rspg-report-on-infrastructure-and-spectrum-sharing-in-mobilewireless-net works. Accessed 26 July 2021 BEREC (2018a) Report on infrastructure sharing. BoR (18) 116 https://berec.europa.eu/eng/ document_register/subject_matter/berec/reports/8164-berec-report-on-infrastructure-sharing. Accessed 26 July 2021 BEREC (2018b) Draft common position on mobile infrastructure sharing. BoR (18) 236 https://berec.europa.eu/eng/document_register/subject_matter/berec/public_consultations/ 8322-draft-berec-common-position-on-mobile-infrastructure-sharing. Accessed 26 July 2021 BEREC (2019) Common position on mobile infrastructure sharing. BoR (19) 110 https://berec.eur opa.eu/eng/document_register/subject_matter/berec/regulatory_best_practices/common_approa ches_positions/8605-berec-common-position-on-infrastructure-sharing. Accessed 26 July 2021 CCI (2020) DISH signs multi-year anchor tenant tower agreement with Crown Castle. https://inv estor.crowncastle.com/news-releases/news-release-details/dish-signs-multi-year-anchor-tenanttower-agreement-crown-castle. Accessed 26 July 2021 Cornerstone (2021) Vodafone and Telefonica commercialise Cornerstone, the UK’s largest tower company. https://www.cornerstone.network/media/vodafone-and-telefonica-commercialise-cor nerstone. Accessed 26 July 2021 DCMS (2019) £1 billion deal set to solve poor mobile coverage. https://www.gov.uk/government/ news/1-billion-deal-set-to-solve-poor-mobile-coverage. Accessed 26 July 2021 DCMS (2020) Shared Rural Network, £1bn deal to end poor rural mobile coverage agreed. https:// www.gov.uk/government/news/shared-rural-network. Accessed 26 July 2021 Dish (2019) DISH to become national facilities-based wireless carrier. https://ir.dish.com/news-rel eases/news-release-details/dish-become-national-facilities-based-wireless-carrier. Accessed 26 July 2021 Dish (2021a) DISH expands nationwide 5G wireless infrastructure with seven new tower agreements. https://ir.dish.com/news-releases/news-release-details/dish-expands-nation wide-5g-wireless-infrastructure-seven-new. Accessed 26 July 2021

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Dish (2021b) American Tower and DISH announce long-term master lease agreement. https://about. dish.com/news-releases?item=123493. Accessed 26 July 2021 EE (2021) EE to extend 4G coverage in more than 500 areas in 2021 to boost rural connectivity. https://newsroom.ee.co.uk/ee-to-extend-4g-coverage-in-more-than-500-areas-in-2021-toboost-rural-connectivity/. Accessed 26 July 2021 etnews (2021) Joint construction of 28 GHz band 5G shared networks: background and challenges. https://www.etnews.com/20210303000212. Accessed 26 July 2021 FierceWireless (2020). Dish inks long-term deal with Crown Castle for up to 20K towers. https://www.fiercewireless.com/financial/dish-inks-long-term-deal-crown-castle-for-upto-20k-towers. Accessed 26 July 2021 Foundation of Multimedia Communications (FMMC) (2018) South Korea to improve shared facilities regime for early commercialization of 5G. ICT World News. Global mobile Suppliers Association (GSA) (2021) Networks, Technology and Spectrum (NTS) data update—February 2021. https://gsacom.com/paper/nts-update-february-2021-statussnapshot/. Accessed 26 July 2021 GSMA (2008) Mobile infrastructure sharing report. https://www.gsma.com/mobilefordevelopment/ resources/mobile-infrastructure-sharing-report/. Accessed 26 July 2021 GSMA (2014) Assessing the case for Single Wholesale Networks in mobile communications. https://www.gsma.com/publicpolicy/resources/assessing-the-case-for-single-wholesalenetworks-in-mobile-communications. Accessed 26 July 2021 GSMA (2017) The risks associated with wholesale open access networks. https://www. gsma.com/latinamerica/resources/risks-associated-wholesale-open-access-networks/. Accessed 26 July 2021 GSMA (2019a) Single wholesale networks, lessons from existing and earlier projects. https:// www.gsma.com/spectrum/wp-content/uploads/2019/12/Single-Wholesale-Networks-LessonsLearned.pdf. Accessed 26 July 2021 GSMA (2019b) Infrastructure sharing: an overview. https://www.gsma.com/futurenetworks/wiki/ infrastructure-sharing-an-overview/. Accessed 26 July 2021 GSMA & ETNO (2019) Joint GSMA-ETNO response to the BEREC public consultation on the BEREC common position on mobile infrastructure sharing. https://www.gsma.com/gsmaeu rope/wp-content/uploads/2019/01/Joint-GSMAETNO-response-to-the-BEREC-public-consul tation.pdf. Accessed 26 July 2021 Iliad (2011) Free Mobile and Orange sign a 2G roaming agreement and agree to extend this to 3G networks. https://iliad-strapi.s3.fr-par.scw.cloud/CP_030311_Eng.pdf. Accessed 26 July 2021 KDDI (2019) KDDI Corporation and SoftBank Corp. to cooperate on rapid build-out of 5G networks in Japan’s rural areas through mutual use of base station assets. https://news.kddi.com/kddi/cor porate/english/newsrelease/2019/07/03/3900.html. Accessed 26 July 2021 KDDI (2020) KDDI Corporation and SoftBank Corp. establish joint venture to promote the rapid build-out of 5G networks in Japan’s rural areas. https://news.kddi.com/kddi/corporate/english/ newsrelease/2020/04/01/4358.html. Accessed 26 July 2021 MIC (2018) Guidelines on the application of the telecommunications business law and the radio law to infrastructure sharing in the mobile communications field. https://www.soumu.go.jp/main_c ontent/000592610.pdf. Accessed 26 July 2021 MIC (2019) Approval to applications for authorization of establishment plans on specified base stations for spreading 5G mobile communications systems. https://www.soumu.go.jp/menu_n ews/s-news/01kiban14_02000378.html. Accessed 26 July 2021 MIC (2020) Promotion of 5G base station development through infrastructure sharing. https://www. soumu.go.jp/main_content/000725672.pdf. Accessed 26 July 2021 MSIT (2019) Confirmation of the fee for use of essential facilities to support the construction of the 5th generation (5G) mobile communication network. https://www.msit.go.kr/bbs/view.do? sCode=user&mId=113&mPid=112&pageIndex=270&bbsSeqNo=94&nttSeqNo=1483738& searchOpt=ALL&searchTxt=. Accessed 26 July 2021

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NTT (2019) Conclusion of a capital & business partnership between NTT and JTOWER. https:// www.ntt.co.jp/news2019/1907e/190704a.html. Accessed 26 July 2021 Ofcom (2018) Advice to government—further options for improving mobile coverage. https:// www.ofcom.org.uk/__data/assets/pdf_file/0017/120455/advice-government-improving-mobilecoverage.pdf. Accessed 26 July 2021 Ofcom (2020) Statement: award of the 700 MHz and 3.6–3.8 GHz spectrum bands. https:// www.ofcom.org.uk/__data/assets/pdf_file/0020/192413/statement-award-700mhz-3.6-3.8ghzspectrum.pdf. Accessed 26 July 2021 Sawada Y (2019) Expanding mobile infrastructure sharing in the 5G era. Mizuho Industry Focus, vol 216 SBA (2021) DISH signs master lease agreement with SBA. https://ir.sbasite.com/news-and-eve nts/press-release-details/2021/DISH-signs-Master-Lease-Agreement-with-SBA/default.aspx. Accessed 26 July 2021 TMG (2019) Tokyo metropolitan government formulates basic strategy of TOKYO Data Highway. https://www.metro.tokyo.lg.jp/tosei/hodohappyo/press/2019/08/30/16.html. Accessed 26 July 2021 Vertical Bridge (2021) DISH partners with Vertical Bridge on long-term infrastructure lease agreement as it builds nationwide 5G network. https://verticalbridge.com/press-release/dishpartners-with-vertical-bridge-on-long-term-infrastructure-lease-agreement-as-it-builds-nation wide-5g-network/. Accessed 26 July 2021 Vodafone (2009) Telefónica and Vodafone announce milestone pan European collaboration. https:// www.vodafone.com/news/press-release/telefonica_and_vodafone. Accessed 26 July 2021 Vodafone (2012) Telefonica UK and Vodafone UK to strengthen their network collaboration. https://www.vodafone.com/news-and-media/vodafone-group-releases/news/uk_network_c ollaboration. Accessed 26 July 2021 Vodafone (2019) Vodafone and Telefonica to strengthen their network partnership in the UK with 5G sharing. https://www.vodafone.com/news/press-release/vodafone-and-telefonica-to-str enghten-their-network-partnership-in-the-uk-with-5g-sharing. Accessed 26 July 2021 Vodafone (2021) O2, Three and Vodafone agree new deal to enhance rural coverage. https://new scentre.vodafone.co.uk/press-release/o2-three-and-vodafone-agree-new-deal-to-enhance-ruralcoverage-srn/. Accessed 26 July 2021 Yoshikawa N (2018) Trends in tower business. A.T. Kearney (in Japanese). Paper presented at the Investment and Miscellaneous Issues Working Group # 40 of the Council for Promotion of Regulatory Reform in the Cabinet Office. https://www8.cao.go.jp/kisei-kaikaku/suishin/meeting/ wg/toushi/20180627/180627toushi02.pdf. Accessed 26 July 2021 Zaballos AG, Rodriguez EI, Kim KW, Park S (2020) 5G—The driver for the next-generation digital society in Latin America and the Caribbean. Chapter 2: South Korea: Home of the World’s First 5G Commercialization. https://publications.iadb.org/en/5g-driver-next-generation-digitalsociety-latin-america-and-caribbean. Accessed 26 July 2021

Issues in Regulating Online Platforms Toshiya Jitsuzumi

Abstract This chapter comprises important economic characteristics of online platforms and their effects on competition regulation and network neutrality. Owing to the emergence of new technologies and new players, debate over online platform businesses has been increasing in many countries. Japan, where mobile operators have established an unshakable position in our daily lives and socio-economic activities, replacing the position of fixed operators, is not an exception. Facing their rapidly increasing dominance in the market, competition authorities in various countries have increased their scrutiny and started considering various disciplinary measures. After describing the general background, this chapter depicts the economic characteristics that enable online platforms to control the overall broadband ecosystem. Subsequently, it details the challenges that the emergence of platform businesses has brought to competition policy and finally discusses its impacts on neutral networks. Keywords Online platform · Neutrality · Competition policy · Regulation · Market dominance · Data monopoly

1 Introduction The debate over the online platform business is heating up in many countries. The broadband ecosystem, which supports every aspect of socio-economic activities of today, is undergoing a major transformation with the emergence of new technologies and new players, thereby marginalizing telecom players that long controlled the entire broadband value chain. Particularly, the rapid growth of some platforms has generated substantial economic dividends (Table 1) while posing a serious threat to competition authorities, especially in developed countries. Until recently, reflecting the rapid progress of information and communication technology (ICT) and the penetration of broadband services into Japanese society, T. Jitsuzumi (B) Faculty of Policy Studies, Chuo University, Tokyo, Japan e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 T. Jitsuzumi and H. Mitomo (eds.), Policies and Challenges of the Broadband Ecosystem in Japan, Advances in Information and Communication Research 4, https://doi.org/10.1007/978-981-16-8004-5_2

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Table 1 Economic impacts of online platforms Macroeconomic Innovation impacts and productivity

Growth

Online platforms (OPs) contribute to innovation and productivity in many ways. • OPs make learning about, sharing, and profiting from good ideas and information easier and faster. • Some OPs support developers to create applications and software and also to provide them with initial customer bases. • OPs introduce innovative products and services and new business models. • Ops enhance productivity by helping economies allocate resources faster and more efficiently by facilitating digital transformation and enhancing competitive pressure in related markets. OPs may damage future innovation via so-called “killer acquisition.” OPs generate economic growth from stronger innovation and productivity, wider market access, and greater competition in input and output markets.

Int’l trade, Major OPs boost international trade by operating as multinational development enterprises themselves and, in some cases, by providing global access to local players, which contributes to develop emerging economies. Impacts on businesses

OPs provide instant access to the global market, simplify and reduce the logistics and payment processing costs, enhance communications between suppliers and consumers, and offer the possibility to target buyers with tailored advertising. OPs spur entrepreneurship by enabling them to get an immediate online presence in a global market, provide entrepreneurial opportunities for vertically connected businesses, and bring small businesses new sources of financing. OPs bring disruptive innovation, putting many companies out of businesses or substantially denting their performance. Dominant OPs may behave anti-competitively and damage other players, generating concerns to competition authorities.

Impacts on consumers

OPs give consumers more information, convenience, choice, and competition, which drive prices lower and quality higher.

Impacts on public services

OPs provide basic “public” services such as maps, mail, messaging, emergency messages, and job listings, suggesting a reconsideration of how existing public services should be adapted in the future.

Making markets work more efficiently

OPs can make markets more efficient by lowering transaction costs and enabling new types of transactions. • OPs make it easier and less costly for players to reach and coordinate multiple sides of a market. • Some OPs excel at addressing consumer needs better than incumbent firms. • Some OPs offer better matching services. • Many OPs offer access and support to local geographic markets.

Source Adapted from OECD (2019, Chap. 3)

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mobile operators have established an unshakable position in our daily lives and socioeconomic activities, replacing fixed operators. They provide vertically integrated services, integrating telecom services with Internet service provider functions, under less stringent regulations than fixed operators. Such service integrations make their services more favorable to end-users while accumulating high switching costs. Moreover, lesser regulation allows them more room for business developments. However, their popularity and resulting dominance in the Japanese market generate concerns for market oligopolization and high fees. Regarding such concerns, the efforts of the Ministry of Internal Affairs and Communications to lower mobile phone charges, triggered by the Chief Cabinet Secretary’s statement in August 20181 that resulted in a series of tariff change announcements of major mobile operators in 2020 and 2021,2 are fresh in our minds. Online platforms such as Google, Facebook, Amazon, Netflix, and Rakuten can be seen as counterweights to dominant mobile operators. They accumulate a wide range of data on personal attributes, current location, and Internet usage via browsers, smartphone apps, and smart Internet of Things devices. By using the latest artificial intelligence (AI) to analyze big data and provide customized services to individual users, major platforms are establishing a new dominance globally to replace the hegemony of mobile operators. Regarding market capitalization, a measure reflecting current performance and future growth expectations, Google has grown 4.7 times; Facebook, 5.5 times; and Amazon, 14.5 times in 10 years since 2010. It is no secret that Google and Facebook dominate the global search and social network services, respectively. Given the above-mentioned situation, competition authorities in various countries have increased their scrutiny of the market dominance of online platforms and started considering various disciplinary measures. For example, the US Federal Trade Commission (FTC) has held industry hearings since September 2018 on addressing anti-competitive behavior of platforms3 and launched a task force to monitor the technology market on February 26, 2019 (FTC 2019). On the other side of the Atlantic, the European Union (2019) adopted the Online Platforms Regulation on June 14, 2019, and the European Commission (EC) opened a second investigation into Amazon’s e-commerce business practices on November 10, 2020 (EC 2020a). Moreover, to increase trust in data intermediaries and attain fairness in the online platform market, the EC proposed the Data Governance Act on November 25, 2020 (EC 2020d), and the Digital Services Act and Digital Markets Act on December 15, 2020 (EC 2020b, c). In Japan, Rakuten’s attempt to mandate free shipping for purchases above a certain amount in 2019 became an issue of abuse of a dominant position. On February 10, 2020, the Japan Fair Trade Commission (JFTC) conducted an on-site inspection of Rakuten, and in March of the following year, it filed a motion 1

Nikkei Asia (2018). Docomo: Nikkei Asia (2020b), Japan Times (2020); Softbank: Nikkei Asia (2020a), Nikkei Asia (2021); KDDI: Japan Times (2021). 3 For details, see “Hearings on competition and consumer protection in the twenty-first century” (https://www.ftc.gov/policy/hearings-competition-consumer-protection). 2

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for an emergency cease-and-desist order with the Tokyo District Court (JFTC 2020b). Further, given the efforts of the Ministry of Economy, Trade, and Industry (METI), the “Act on Improvement of Transparency and Fairness of Specified Digital Platforms” was enacted on June 3, 2020, and became fully operational on February 1, 2021, helping policymakers to alleviate the impact of information asymmetry. This chapter summarizes important economic characteristics of online platforms and their impacts on competition regulation and network neutrality. The next section first summarizes the economic characteristics of online platforms that enable them to control the overall broadband ecosystem. Section 3 discusses the challenges platform businesses have brought to competition policy. Section 4 describes its impacts on network neutrality. Section 5 concludes.

2 Dominance in the Market 2.1 Four Economic Characteristics OECD (2019) defines an online platform as “a digital service that facilitates interactions between two or more distinct but interdependent sets of users (whether firms or individuals) who interact through the service via the Internet” (p. 20). Supporting the interaction of more than one set of users means the platform business is characterized by a “two-sided market” (Rochet and Tirole 2003, 2006); thus, reducing transaction costs is a key element of the business. Hence, the essential functions of platform businesses can be summarized as the 3As: authentication, authorization, and accounting.4 Moreover, providing 3A functions online means that the business is poised to benefit fully from rapidly advancing ICT and their borderless nature. Their business model and services are ready to transform in response to the change in market conditions, and the business itself can scale up globally in a short time. While these online platforms currently compete with network operators vying for control of the broadband ecosystem, four characteristics provide them with a significant marketing advantage and an immediate growth potential. The first is the possible discrepancy between prices and costs in each market. To maximize joint profit in the two-sided market structure where indirect network effects function, rational operators must determine prices independent of the marginal cost level in each market. They set prices above the marginal cost in one market to attract many users and below the marginal cost in another market and attain profit maximization by internally cross-subsidizing the former to the latter. The marginal cost being zero does not necessarily mean that the price in that market is zero, and the price being zero does not always mean the marginal cost is zero. It may be optimal to give users a negative price, or usage subsidy, in one market and recover the total cost from 4

Regarding the 3A functions, “two-sided platform” or “online intermediation services” is sometimes used alternatively.

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the other market. Theoretically, the subsidizer and subsidized are determined by the relative scarcity of each group regarding network effects. Second, the positive network effects that function in a two-sided market create a positive feedback loop regarding market share. Moreover, they are demand-side sources for a natural monopoly. A business that gains a larger market share than others at a certain period can rapidly scale its size by drawing customers of other businesses through competition and eventually dominating the entire market. Such a market has a critical mass (CM), a market share threshold every operator must attain to survive long-term. It acts as a major barrier to entry for new market entrants and causes significant start-up problems. Since falling below the CM level means being forced to exit the market, the still-under-the-CM-level operators must continue investing money to survive and hope for future success. Considering the financial risks involved, newcomers will shy away, thereby solidifying incumbents’ monopoly. On the part of successfully established operators, CM provides room for enjoying stable market dominance without exposure to significant threats from competitors and potential newcomers. Thus, the internal efficiency incentives of the dominant platform are likely to be undermined, creating a so-called X inefficiency (Leibenstein 1966). The stability of a platform monopoly largely depends on whether users can use multiple platforms (multi-homing). Regarding single-homing, where users select a single platform and sign a contract with it, overcoming entry barriers is difficult for new players, and market concentration is inevitable. However, when multi-homing is allowed, it is relatively easy to accumulate CM and overcome barriers to entry. Even latecomers can gain market share and apply competitive pressure on incumbents. As multi-homing gains popularity, it enlarges a platform’s own-brand elasticity and applies downward pressure on prices (Rochet and Tirole 2003), influencing the overall business profitability. Further, from the user perspective, an ability to multihome cannot necessarily end up being better off because the platform has a monopoly on access to the single-home side (Rochet and Tirole 2006). Third, their heavy use of ICT can significantly reduce the costs for intermediary services. If the market allows platforms to engage in price competition, it improves the efficiency of the overall economy while displacing traditional intermediaries and changing the industrial structure. Such a scenario is evident from the impact of Craigslist on newspaper classifieds or the impact of Amazon.com on brick-and-mortar bookstores. Moreover, given the high proportion of fixed costs in their cost structure, common among online service providers, the marginal cost for the service production is extremely small (in some cases, zero), resulting in overwhelming economies of scale. A platform also enjoys economies of scope as it bundles various services on its information system to reduce transaction costs for users. These are the supply-side factors that lead to natural monopolies, allowing online platforms to enjoy super-normal rent. Given the developments in ICT since the turn of the century, we cannot rule out the possibility that new services and innovative business models will emerge in the long term and change the entire future of business. Moreover, the reduction in transaction costs comes from the introduction of new ICT and the use of the vast amount of

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personal data collected by the platform business. By collecting a large amount of data on users to provide free services, AI can optimize intermediary services. Fourth, using platform functions online is (almost) synonymous with the absence of geographical limits for service provision. It will significantly lower the barriers to entry for local firms into global markets while dramatically expanding the choice of goods and services for consumers. Lowering barriers to entry increases market contestability, improving the efficiency of resource allocation in online transactions over the platform. However, greater choice leads to improving the utility of platform users, which is positive for the overall economic welfare. Moreover, such borderless nature creates a synergy to the second (i.e., enjoying network effects) and third (i.e., taking advantage of economies of scale and scope) features, providing online platforms additional merits. Among the above four characteristics, network operators share the first three; thus, they are not unique to online platforms. The fourth is not possessed by network operators, who cannot be borderless given government regulations on spectrum licensing and universal service.

2.2 E-commerce and Online Advertising Markets in Japan Online platforms are active in many areas in Japan. Two areas (i.e., e-commerce market5 and online advertising market) are particularly garnering attention from competition authorities. This section summarizes the status of both markets. There are many advantages for companies to engage in e-commerce. According to METI (2020), the B2C and B2B e-commerce markets expanded to 19.4 trillion yen (up by 7.65% from 18.0 trillion yen in the previous year) and 353.0 trillion yen (up by 2.5% from 344.2 trillion yen in the previous year) in 2019, representing 6.76 and 31.7% of the total transaction of respective markets. Currently, the transaction value of the B2B market is much larger than that of the B2C market. However, the latter is performing better regarding growth rate. The growth rate of the B2C market is projected to be 9.8% over the four years starting in 2016 (JETRO 2017). This rate is small compared to countries like China and the US, which are experiencing double-digit growth; however, it appears very large when compared to other sectors in Japan. According to METI (2020), the increasing popularity of smartphones, the government’s active promotion of cashless transactions, and the growing use of social networking services (SNSs) have greatly influenced the growth of the e-commerce market in Japan. E-commerce via smartphone apps needs fewer steps to connect to a store’s website than via a PC, reducing the time and effort required for consumers. The percentage of B2C e-commerce transactions of goods sold via smartphones increased 5

There is no internationally agreed-upon definition of e-commerce markets. METI (2020) defines e-commerce as “a transaction in which orders are received and placed on a computer network system using the Internet.”

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40,000

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Fig. 1 Situation of the Japanese e-commerce market in 2019. Source Adapted from eccLab (2020)

1.55 times from 2015 to 2019 (from 27.4 to 42.4%), and the value increased 2.15 times (from 1.9862 trillion yen to 4.261 trillion yen). Similarly, the METI’s campaign for promoting cashless payment has increased the availability and ease of online transactions, especially for small and medium-sized enterprises, and decreased consumer resistance to e-commerce. Consumers sharing information about goods and services on SNSs and significantly impacting other users generates a positive network effect that realizes the market expansion of e-commerce platforms. Japan’s e-commerce market is increasingly becoming oligopolized by major players. According to a survey by eccLAB (2020), Rakuten and Amazon Japan occupied the top two positions, far ahead of the rest, in the domestic e-commerce market6 in 2019 (Fig. 1). However, users can arguably multi-home to different sites for each occasion; platforms’ comparative largeness does not necessarily represent the strength of market dominance in the sense of influencing consumer choice. The popularity in consumers’ perception (perception share) can be a more important indicator because it supplies a list of choices among which site to use when trying to perform a particular transaction. A survey of 2,128 men and women aged 18–69 who own smartphones by Mobile Marketing Data Labo (2020) indicate that 52.0% of respondents choose Amazon as their main site, which far outnumbers those who choose Rakuten (28.7%) and Yahoo! Shopping (11.3%), showing a clear sign of Amazon’s dominance in perception share. Despite the possibility of multi-homing, the factor behind this market concentration may be that mass customization using user information (especially purchase 6

Rakuten’s figures include its related distribution services such as Rakuten Travel.

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Fig. 2 Conceptual diagram of the position of online platforms in digital advertising. Source Adapted from JFTC (2020a, Chart 9)

history) collected by each site increases the switching cost for users to cross multiple sites. Jitsuzumi and Koguchi (2013) empirically confirm this hypothesis. Their questionnaire survey found that the collected purchase history and registered personal information are sources of switching costs, large enough to match brand attachment or familiarity with the site. The online advertising market has also attracted the attention of competition authorities in recent years. According to D2C et al. (2020), “Internet advertising expenditures” accounted for 30.3%, or 2,104.8 billion yen (119.7% YoY), of Japan’s total advertising expenditures in 2019. Further, the total revenue of online platform media reached 1,663.0 billion yen (114.8% YoY), continuing its significant growth. In 2020, the market size of platform media was expected to reach 1,845.9 billion yen (111.0% YoY). In this market, online platforms often function as publishers and intermediaries (Fig. 2). Since competition between platforms and other players is asymmetric, there are concerns that competition could be significantly distorted if platforms have market dominance (JFTC 2020a). According to the surveys conducted by JFTC (2020a), Google, Yahoo!, Facebook, Twitter, and LINE address 84.5%, 78.9%, 71.8%, 59.2%, and 52.1% of the responding advertisers, respectively, each with a business relationship with more than most advertising brokers. Google and Yahoo! have a majority relationship with publishers at 81.6% and 55.9%, respectively. These figures indicate a market where multi-homing is the norm; therefore, to evaluate the dominance of an online platform, a micro assessment from the individual client’s perspective is necessary, rather than a macro assessment, such as overall market sales share. JFTC (2020a) also indicates that a significant number of responding companies feel their contracts with online platforms are one-sided. The same level of complaints has been received about changes in ad tech systems by platforms. However, the share of responding companies who complained of excessive restrictions on the use of thirdparty services is small enough to warrant the conclusion that the abuse of market dominance in this regard is not a big concern. Regarding the leveraging of monopoly power in asymmetric competition, 23.5% of publishers claimed Google behaves

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unfairly, and approximately half of the advertisers, ad agencies, and publishers said online platforms do not pay enough attention to supply chain transparency. Other issues include insufficient ad viewability, unfairness in ad rankings displayed, and insufficient information disclosure.

3 Perspectives from Competition Policy 3.1 Abusing Market Power While platform businesses are expected to bring various benefits to the economy, strong concerns have been raised about the “social cost of monopoly,” including shortterm efficiency losses, or deadweight losses, because of suboptimal levels of production, rent-seeking costs to maintain dominance, slacking management (X inefficiency) because of lack of competitive pressure, and social opportunity losses because of underinvestment of resources in R&D (Ohashi 2012a, 2013). Social opportunity losses are also discussed regarding acquisitions of start-ups by dominant online platforms (e.g., Facebook’s acquisition of Instagram) or so-called “killer acquisition.” Arguably, these costs are not confined to the platform market in question but will also spread to adjacent markets, such as content production and handset manufacturing, or the overall economy. Despite these concerns, considering economic characteristics discussed in Sect. 2.1, it is not socially optimal to fight structurally against market dominance. In other words, it is better for competition authorities to primarily curb the abuse of market power than to break up target firms. Concerning the abuse of market power, unfair trading practices (UTPs) in B2B transactions with adjacent markets have received much attention in recent years. According to Duch-Brown (2017), five of the most relevant include the following: (i) imposing unfair terms and conditions, (ii) refusing market access or unilaterally modifying the conditions for market access, (iii) promoting own services unfairly, (iv) inserting unfair “parity” clauses, and (v) lack of transparency. These UTPs undermine the efficiency of the platform’s intermediary function, increasing the uncertainty of market transactions, raising transaction costs, and discouraging new entrants. It leads to higher prices and fewer choices in the B2C market and jeopardizes the long-term welfare of the entire economy. JFTC (2019, Sect. 3) shows similar concerns and categorizes them into the following four: (1) abuse of superior bargaining position, (2) acts that could exclude competing platforms, (3) acts that could restrict clients’ business, and (4) anti-competitive vertical integration. Concern 1 regards an excessive advantage in business negotiation, the possibility that dominant platforms negotiate unfairly and unilaterally force client companies or end-users to accept unfavorable terms. Concerns 2 and 4 regard diminishing competitiveness in the platform market. Particularly, Concern 2 relates to anti-competitive interferences with competitor activities, for example, restraining client firms from using competing platforms. Concern 4

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addresses killer acquisitions that may cause long-term resource allocation losses by reducing future competitive pressure. Concern 3 reflects a problem in the case where a platform may give a direct sale to consumers using its platform function and compete with client companies of similar products. Examples include Netflix’s original content, Amazon’s direct sales business, and Apple’s sales of its applications. In this asymmetric competition, the JFTC foresees a possibility that platforms are motivated to enjoy preferential treatment for themselves, disadvantaging competitors. Understanding the underlying reason is essential to developing an appropriate policy package. Here, it is better to recall the debate over “Internalizing Complementary Efficiencies” or ICE (Farrell and Weiser 2003; van Schewick 2007). According to the ICE, monopolistic platforms facilitate competition in the complementary market and contribute to the overall efficiency, empirically supported by the Korean experience (Lee and Hwang 2011). However, when certain conditions are met, they rationally leverage their market power to distort competition for profit maximization. Utilizing a model that simulates an asymmetric competition in an ad-based online content market, Dewenter and Rösch (2016) conclude that when the platform’s product cannot be differentiated from competing products, monopolistic platforms have a rational reason to block competitors’ business. Hence, the policy intervention should include a content cultivation measure as a key component.

3.2 Challenges for the Competition Authority To address abusing dominant power, competition authorities of many market-based countries have traditionally taken the following steps: (1) define the relevant market, (2) assess the market dominance of the firm in question, and (3) intervene only when a firm with a certain level of market dominance engages or will engage in anti-competitive behavior. Recognizing that the degree of market dominance can be theoretically evaluated via the Lerner index7 (the ratio of the deviation of price from marginal cost), Kaplow (2010, 2015) expressed strong doubt about the effectiveness of this conventional approach by showing that defining a market that covers non-homogeneous goods and services is counterproductive. Moreover, Izumida et al. (2006) explain that the Lerner index is not a perfect measure of market dominance. However, partially agreeing with Kaplow’s point, Kawahama and Takeda (2017) note that the Lerner index analysis is only the first step and, in a complex market where competition occurs in multiple dimensions other than price, the traditional stepwise process remains necessary and useful regarding identifying the group of companies in question. It is ideal if a method to measure the existence of market dominance directly is available. However, practically, market definition and the measurement of the market 7

The Lerner index can be alternatively obtained by using demand elasticity of the firm concerned, or its market share combined with competitor supply elasticity.

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share therein remain important because it is reasonably assumed that market dominance does not exist when there is no market concentration. According to Izumida et al. (2006), when the degree of concentration exceeds a certain level, competition authorities comprehensively determine whether the firm in question has market dominance (i.e., whether it can raise prices above the competitive level) based on a comprehensive assessment of various factors. Factors considered include market entry barriers, sunk costs, switching costs, lock-in effects, network externalities, buyer concentration, buyer bargaining power, and excess production capacity. The following focuses on the first two steps of the traditional approach. (a)

Defining the market

Ohashi (2012b) lists three methods of defining the market: price analysis, small but significant non-transitory increase in prices (SSNIP) test, and natural experiments. “Price analysis” focuses on the correlation of prices between multiple products. A SSNIP test, the original concept of which is mentioned in Adelman (1959) and adopted in the 1982 Merger Guidelines of the US Department of Justice, adopts a hypothetical scenario (hypothetical monopoly test) to estimate price elasticity. The third method utilizes a naturally created pseudo-experimental environment. The platform business poses a great challenge for defining the market. First, considering the newness of the platform phenomenon and the small number of giant platforms, the third method is unlikely to be practical. Moreover, zero price, usual in the two-sided platform market, makes it impossible to assume the “rate of price change,” which is a key factor in the first and the second methods. Since the platform business derives its revenue from trading relationships among multiple markets and tries to maximize the joint profit, Emch and Thompson (2006) propose that all markets platforms face should be treated collectively, and the sum of the fees charged in each market should be used as the baseline for calculating price change. This approach can overcome the zero-price challenge since the sum of the fees is always non-negative for the platforms to survive. Another method that does not rely on price change has also been proposed. For example, Gebicka and Heinemann (2014) note that a SSNIP test is not adequate for rapidly changing markets and does not work “where the remuneration takes another form, for example, attention or personal data” (p. 157). They then proposed to take the quality of a product into consideration. Their proposal focuses on changes in profits because of a “small but substantial non-transitory decrease in quality.” Thus, it is called the SSNDQ test, first proposed by Hartman et al. (1993). However, OECD (2018a) notes that the SSNDQ test faces significant difficulties in obtaining the necessary quality data, and there are high hurdles to its implementation. First, it is challenging to define and measure the “quality” of online platform services. Newman (2016) proposes a “small but significant and non-transitory increase in (exchanged) costs” test, or SSNIC test, focusing on the fact that users are required to provide their information and attention to advertisements as “compensation” for enjoying services at zero price. However, as with the SSNDQ test, Newman notes that the choice of appropriate “compensation” is tricky. (b)

Evaluating the market power

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The logic behind the Lerner index is that the maximization of profits even when prices are set at a level that exceeds marginal costs means that the company is considered to have the power to dominate the market and fend off competitors. However, under a two-sided market where prices and costs diverge, applying the method based on the Lerner index is irrational. Thus, in this setting, the Lerner index must be modified. For example, Rochet and Tirole (2006) proposed substituting marginal cost with opportunity cost, considering the network effect. Alternatively, the index can be obtained from the price elasticity of demand using the Cournot-Nash model (i.e., dividing market share by the price elasticity of demand). However, this approach is again challenging because we cannot measure the market share at zero prices. A penny gap, or zero-price effect (Shampanier et al. 2007), where demand varies discontinuously near the price of zero, also makes the market share estimation even more challenging. When bidirectional indirect network effects are at work, platforms arguably cannot establish market dominance in a way that is limited to one market (OECD 2018b). Hence, measuring market dominance must consider all markets faced by the platform simultaneously. Regarding a merger review, competition authorities have traditionally employed the Herfindahl Hirschman Index (HHI) to determine market power, but this method has certain theoretical limitations. According to OECD (2018b), HHI strongly relies on the assumption of Cournot competition, requires a clear market definition, and does not incorporate efficiency improvements because of mergers. Moreover, it does not adequately incorporate the two-sidedness of the business model. Thus, Affeldt et al. (2013) and Cosnita-Langlais et al. (2018) proposed modifications of “upward pricing pressure” (Farrell and Shapiro 2010) and “gross upward pricing pressure index” (Salop and Moresi 2009). However, it is not easy to estimate the demand elasticity and marginal cost needed to calculate them. Hence, to obtain the magnitude of indirect network effects across markets, required to obtain demand elasticity, OECD (2018b) notes that it is necessary to conduct comprehensive user surveys in multiple markets platforms face. Since market dominance by itself does not constitute a problem, competition authorities must pinpoint a specific abuse of market dominance before intervention. The practice known as “predatory pricing,” where a dominant operator sets a below-average-cost price to drive competitors out of the market and thereafter sets a monopolistic price, is a typical example of such abuse. However, in the two-sided model setting, where a zero price can be the right strategy for efficient platforms, if corrective measures are implemented by primarily focusing on the fee level, the efficiency of resource allocation will be undermined. Behringer and Filistrucchi (2015) propose a new test that modifies the Areeda-Turner test, a traditional discriminant method for looting prices, which considers indirect network effects of all relevant markets. It is also necessary to consider the situation in other relevant markets to ensure unfair treatment in the zero-priced market. Newman (2016) explains that “focusing the recoupment analysis too narrowly in a zero-price market context may yield the incorrect conclusion that recoupment is impossible – how could zero prices yield monopoly profits? Taking into account a defendant’s related, positive-price

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activity … provides the (potential) answer” (p. 105, footnote 327 deleted). Ratliff and Rubinfeld (2014) argue that unless the conduct in question constrains the other party’s behavior in the relevant market, it should not be viewed as an abuse of market dominance. Finally, the imposition of certain usage restrictions on users must be considered an abuse of market dominance and should be corrected from the viewpoint of competition policy in certain situations. Currently, there are no clear criteria for addressing this issue; therefore, OECD (2018b) suggests that decisions must be made on a case-by-case basis. When a platform engages in asymmetric competition, it may abuse market dominance in the form of unfair treatment among users. It is similar to the Japanese telecom market experiences. Therefore, if Japan’s experiences in the telecom market can be applied, possible remedies must include ensuring the appropriateness and transparency of platform usage conditions and the clarification and publication of contract terms and conditions. Although somewhat heavy-handed, regulating fees for platform usage is also effective. However, it is not appropriate to make the same request to platforms that are purely private and unassociated with any privileged status, such as the right of way or spectrum licenses, as in the telecommunications business.

3.3 Addressing Data Monopolies After confirming the abuse of market dominance, competition authorities select appropriate intervention measures to address the specific problems. For some known problems, the choice of measures is straightforward. For others that are novel, the choice requires serious considerations because they may not be properly addressed by traditional means. Issues regarding data monopoly are the textbook example of the latter, which calls for special treatments. As online platforms gain market share, they can accumulate large amounts of data on user behavior. Such data can refine mass customization of services, increase the switching cost for users, solidify the dominant position, and pave the way for market power abuse. This possibility poses challenges for at least three policy areas: the competition policy that regulates efficiency in the platform market; the industrial policy that attempts to incubate prospective domestic platforms that can compete against existing giants in the global market; and the long-term prosperity policy that has to overcome the negative impact of demographic shift in the country. As for the third policy area, to overcome the decrease in productivity caused by the declining birthrate and aging population while minimizing the environmental impact, Japan must realize a super-efficient society via AI, which we call Society 5.0. Since access to large amounts of sample data, known as “training data,” is the key to improving the quality of AI through machine learning, when such data access is unfairly restrained by dominant online platforms, the long-term welfare of society is greatly degraded. Therefore, it is important to build and maintain a system that

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induces platform giants to appropriately and fairly collect and utilize various data and paves the way for small competitors or potential entrants to access necessary data. In Japan, the private sector has started making progress in voluntarily addressing this issue, as evidenced by the launch of the AI Data Utilization Consortium. However, considering the size of the ripple effect (or the positive externality) this initiative will have on the economy and the suboptimal level of incentives for cooperation by platforms enjoying a first-mover advantage through limiting data access, complementary policy involvement is essential. For example, governmental study groups (Future Investment Council 2018; METI et al. 2019) proposed creating data portability rights and requiring platforms to open application programming interfaces that allow open connectivity as a solution to curb the abuse of dominant positions. The data portability rights, allowing end-users to move their information to competing platforms, expand the potential for new entries, generate competitive pressures on incumbent platforms, and enable end-users to claim a fair share of the digital benefit. Furthermore, the realization of the Data Free Flow with Trust, proposed by the Japanese government in 2019, promotes the joint use of the data held by each platform. However, imposing requirements for data utilization in any form means additional costs for platforms. If this causes a reduction of data input, service quality may decline, potentially harming consumer utility. Moreover, it is necessary to design a system that balances maximizing economic welfare and protecting privacy in developing rules.8 Promoting data usage impacts privacy protection significantly, requiring further protection covering the entire value chain. Thus, Yoo (2012) states that “once data becomes completely portable, people can easily evade any privacy restrictions placed by the initial social networking site simply by porting the data over to another venue not subject to those restrictions” (p. 1155).

4 Issues Relating to Neutral Network 4.1 QoE-Based Net Neutrality and More As network services become indispensable to socio-economic activities, policymakers in many countries pay increasing attention to developing and operating a necessary broadband infrastructure and an efficient over-the-top market. Accordingly, “network neutrality,” or “net neutrality,” a term coined by Wu (2003) to connote the equal and fair treatment of internet packets, or equalizing quality of service (QoS), by network operators, has become an issue that has attracted policymaker 8

Regarding privacy issues, it may not be appropriate to assume rational decision-making by endusers because a large discrepancy is observed between the stated preference and revealed preference, called a privacy paradox (for details, see Radin 2001; Schwartz 2000; Norberg et al. 2007). Therefore, requiring an opt-in procedure may excessively restrict data use and even choke off efficient transactions.

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Content and Application Providers • Platform/Search Engine Neutrality • Data Portability

Quality of Broadband Experience Online Platforms • Network Neutrality

Network Operators • Carterfone Rule

Handset Manufacturers

Fig. 3 Layers of the broadband value chain and issues in each interface. Source By author

attention, reflecting the emerging scarcity of broadband capacity that accommodate the increasing demand. Despite many studies on the subject, there are no universally applicable solutions for net neutrality. Easley et al. (2018) conducted an extensive literature review, concluding that whether a certain intervention to achieving net neutrality can enhance welfare depends on the model structure assumed and parameter values employed. Some models, as in Bauer and Knieps (2018), Choi et al. (2018), Gans and Katz (2016), and Lee and Kim (2014), even show that pursuing net neutrality is counterproductive and against social welfare. Since maximizing social welfare is a governmental policy objective, it is better to redefine net neutrality as a concept to maximize the quality of experience (QoE) of end-users.9 Equalizing packet treatment for individual content or application does not help that objective because required capacity depends on content or application. Moreover, from a higher perspective, guaranteeing QoE-based net neutrality is not sufficient. Since an end-user consumes broadband access by combining his/her handset functions with various content and applications, the QoE must be protected along the entire broadband value chain. The value chain for broadband services can be described as a layered structure (Fig. 3), where net neutrality is an issue of the interface between network operators and online platforms. In formulating the necessary policies to maximize the QoE of broadband users, we must calculate the required resources for QoE improvement 9

This idea was inspired by the idea of network diversity proposed by Yoo (2009).

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and their marginal benefits. Since QoE is determined by the technical specifications of each content and application and the heterogeneous preferences of end-users, it is almost impossible to expect authorities to incorporate all of them. Therefore, policymakers must utilize market dynamism as much as possible; hence it is better to achieve economic efficiency of production activities in each layer and ensure fairness of the interface between them. Before the emergence of giant online platforms, network operators were the only significant market powers (SMPs) that can control the QoS/QoE of broadband services for their own sake. Therefore, all measures proposed for net neutrality to equalize QoS have so far aimed at curbing their anti-competitive behaviors. The acquisition of market dominance by online platforms poses a new challenge for policymakers because additional SMPs today can influence overall QoE. It has been discussed that one of the most typical behaviors that require immediate policy intervention is when a network operator limits access to the last mile to maximize its profits. However, under the new structure, platform actions, such as requesting special treatment from network operators to gain unfair preferential treatment for affiliated content or demanding content or application providers to engage in exclusive deals, are equally problematic.

4.2 Neutrality in Content Moderation One issue quickly becoming a hot topic, especially in the US and Europe, relates to the editing and management of user-generated content (UGC) by platforms, especially by SNSs. These debates stem from the June 2016 referendum in the UK, the 2016 and 2020 presidential elections in the US, and former President Trump’s tweets that allegedly led to the attack on the US Capitol on January 6, 2021. The debates address whether such SNSs should actively moderate UGC and whether suspending accounts of users who publish inappropriate content should be allowed or required. The legal framework for this matter is provided by Sect. 230 of the Federal Communications Act in the US or the Provider Liability Limitation Act in Japan,10 both of which embody the spirit of the Good Samaritan Law and allow platforms a great deal of discretion in handling posted content. On the one hand, attention to the social costs of leaving inappropriate content unattended has resulted in a growing demand for more active regulatory intervention, leading to the argument that the current legal system should be modified to increase the cost of inaction by platforms. On the other hand, active involvement by giant platforms is sometimes condemned as a form of “private censorship,” as it may suffocate free speech space on the Internet. Particularly, regarding dominant platforms, editing or deleting specific content or suspending or deleting user accounts that post such content can constitute abuse of 10

The official name of this Act is the “Act on the Limitation of Liability for Damages of Specified Telecommunications Service Providers and the Right to Demand Disclosure of Identification Information of the Sender (Act No. 137 of November 30, 2001)”.

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a dominant position or illegal restraint of trade, which calls for the intervention of competition authorities for controlling platforms’ excessive moderation. The matter of who should assume the responsibility of ensuring freedom of expression deserves another attention. It may not be appropriate to attribute that responsibility to private operators whose management does not pass through a democratic election. For example, at the Internet Governance Forum, French President Macron (2018) negatively evaluated the current platform hegemony by stating that “The first [Californian form of the Internet] is the dominant possibility, that of an Internet driven by strong, dominant, global private players, …, but which … are not democratically elected. … That is the self-management model, … and it is not democratic.” Their standards for content moderation written in service agreements are constructed by the platforms for profit maximization and do not need to reflect the democratic values of the society. Given that what constitutes inappropriate speech depends on the heterogeneous audiences, it is desirable and appropriate to construct a market where multiple platforms have their unique modification standards to attract respective audiences and compete for market share. However, this proposal can divide society into subgroups according to individual preferences for content. It can create a “filter bubble,” where individuals enjoy content that perfectly matches their preferences (as generated by the personalized engine of the platform) but unconsciously lose the chance to encounter unknown or notpreferred but important content, thereby damaging the social tie to the community. Pariser (2011), who coined “filter bubble,” proposed several countermeasures to fight against this possibility, including expanding our scope of information search, deleting cookies, requiring platforms to increase transparency, and establishing an ombudsman. Using the browser safe mode sometimes and checking the degree of personalization can be another solution. However, given that audiences’ attention and time are scarce resources and that mass customization can improve users’ QoE significantly, such solutions are not incentive-compatible or welfare-increasing, thus unsustainable in the long run. It seems challenging to find practical solutions on the user side other than strengthening literacy education on SNSs and voluntarily altering their behavior in cyberspace. Even so, requiring platforms to deliver content that does not necessarily match user preferences by altering algorisms is not compatible with their popular business model, which basically competes for more attention from users, thus unsustainable in the long run. Moreover, making their operation open or introducing external audits creates security concerns. However, considering the incident on January 6, 2021, in the US Capitol, we also have to introduce a binding regulation as a “minimum safeguard” for platforms’ content moderation to mitigate harmful speeches. Considering that market dynamism is the best way to attain efficient resource allocation, policymakers must balance the economic and societal perspectives to solve this issue. Getting input from multi-stakeholders and practicing a co-regulatory approach is required to overcome information asymmetry.

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5 Conclusion Online platforms are economically expanding, with the potential to suffocate market dynamism. From the viewpoint of maximizing social welfare through market competition, authorities have no reason to hesitate in introducing the necessary regulatory framework. It is essential to specify the problem and determine the appropriate regulation level. If regulations are not properly designed, short-term allocation efficiency will be compromised, and long-term production efficiency will be undermined through suboptimal investment and innovation. Whatever policy package to introduce, it is important to minimize uncertainties for market players; otherwise, the impact of government intervention cannot reach its potential. METI et al. (2019) note the need to improve the foreseeability of applying antitrust regulations. Platform regulation also requires flexibility to respond to rapid changes in the market environment and if we rely solely on policy decisions made at the desks of policymakers tormented by information asymmetry, we cannot hope to enjoy the benefits of ever-advancing ICT. Thus, policymakers are expected to implement evidence-based policymaking using solid theoretical analysis of empirical data to ensure platform business transparency. Japan has recently introduced the “Act on Improving Transparency and Fairness of Specified Digital Platforms,” which requires large online platforms to disclose contract terms, ensure fairness, and report their operational status. Furthermore, since platforms are vital for global competitiveness, policymakers must also contemplate an industrial policy perspective. The government could consider the drastic approach of treating platform businesses like public utilities and micromanaging them through the conventional web of laws and regulations or direct governmental supervision. However, in the current situation where the market changes dramatically, efficient results cannot be expected. In this regard, the use of the co-regulation approach, which utilizes the knowledge of the private sector in the policy design process, should be promoted. Moreover, as online platforms expand beyond borders, it is important to promote regulatory harmonization in the international community and efforts to international cooperation regarding regulatory enforcement. Platform regulation differing per country means that the cost of dealing with individual local markets increases, which negatively impacts consumers’ welfare of each nation. However, from the platform perspective, such differences enable regulatory shopping for the most favorable regulatory environment. Therefore, there is a concern that excessive inter-institutional competition (the so-called “race to the bottom”) among policymakers in attracting platforms’ operating facilities, which can generate tax revenue or employment for the local community, will result in welfare loss of the global economy. Regarding global fairness in taxation, the EC leads the discussion by issuing a document on March 21, 2018, for stronger taxation for global Internet companies (EC 2018). In conclusion, the function of selection pressure from general users is important as a check against the abuse of market dominance by giant platforms. From this perspective, improving the platform literacy of general users is also an important policy tool.

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Lastly, one of the most important aspects missing in this chapter is the lack of empirical analysis given the focus on theoretical considerations. Since our policy resources (manpower, financial resources, related knowledge, etc.) are quite limited, it is necessary for our government to prioritize the gravest issues. In principle, expected deadweight losses, which have to equal the benefits of solving the problem, must exceed the intervention costs in order to guarantee efficient government intervention. Therefore, we have to gather the market data to empirically determine the size of expected losses, which must include forward looking opportunity costs via an econometric approach, and acquire government data to estimate intervention costs. Without empirical analysis, we cannot derive meaningful policy guidelines for policymakers to follow in dealing with issues surrounding online platforms. This is the area we have to focus on in the next research agenda. Acknowledgements This work was supported by JSPS KAKENHI Grant Number JP 16K03630.

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Interdependency on the Data Platform and Its Effect on the Diffusion of Autonomous Driving Hitoshi Mitomo

Abstract This chapter aims to investigate how social science can shed light on the diffusion process of autonomous driving. Autonomous or automated driving is expected to improve the efficiency of road traffic and, consequently, of society. Therefore, it is one of the most crucial social applications of big data and artificial intelligence (AI) that is expected to be realized in our society. Two theories are employed to explain the diffusion: the theory of network effects and the tipping point theory. The former stems from economics, while the latter stems from sociology. Both theories investigate how interdependencies among people affect the adoption of a new innovative change. The existence of “data network effects” in data platform services is a key concept for applying the theory of network effects. Its influence is conspicuous in services that utilize data as a platform and affect the diffusion of services. The level of interdependencies among users is affected by various factors that represent social conditions. The tipping point theory assumes that four social factors shape public opinion. Depending on the level of the factors, public opinion does not change easily, but when social pressure increases, it suddenly changes dramatically. Taking autonomous driving as an example, this chapter discusses how interdependencies among users affect the diffusion process. Keywords Autonomous driving · Automated driving · Data platform · Network effect · Data network effect · Diffusion · Driving automation · Connectivity · Tipping point · Critical mass

1 Introduction In recent years, businesses are built on the accumulation and utilization of data. Thus, various platforms have emerged. Apart from purely private-sector businesses, some public services are sustained by the private sector. The transportation sector is a typical case; it is expected to utilize data to increase efficiency. People regularly H. Mitomo (B) Graduate School of Asia-Pacific Studies, Waseda University, Tokyo, Japan e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 T. Jitsuzumi and H. Mitomo (eds.), Policies and Challenges of the Broadband Ecosystem in Japan, Advances in Information and Communication Research 4, https://doi.org/10.1007/978-981-16-8004-5_3

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suffer from traffic congestion, accidents, and delays, many of which can be avoided if the appropriate information is provided. People should bear the social cost, given insufficient information and traffic control. Further, the advancement of car electronics and vehicle management systems has enabled us to enjoy a driving support system. It is also expected to contribute to controlling traffic instead of human drivers. Though private sectors mainly provide such technology services, they target a wider range of people who often find the services to be essential to their lives. This study aims to present a socio-economic investigation of the diffusion of autonomous driving. Investigations from the social science perspective evidently lag technological advances. Thus, for autonomous driving to spread, social and economic considerations are crucial. Notably, interdependencies among users can be a driver and an obstacle to the widespread adoption of the technology. This chapter first investigates the existence of “data network effects” in services based on data platforms such as those utilizing Big Data, Internet of Things (IoT), and artificial intelligence (AI), as well as their influence on the diffusion of the services. Moreover, from a sociology perspective, it discusses how society will shape public opinion about automated driving. Social attitude toward the acceptance of autonomous driving is affected by many factors. In addition to the development of infrastructure and technology, autonomous driving must diffuse influenced by economic and sociological factors. Autonomous driving employs a social platform with socio-economic characters. From the economics perspective, factors to consider are as follows: (1) (2) (3)

Cost (e.g., price and maintenance) and personal benefit Interaction among users, especially interdependence between users Dependence on data sources.

From the sociology perspective, Scheffer et al. (2003) advocated that public opinion is formed under the influence of social factors: (1) (2) (3) (4)

Peer pressure: Influence from others Leadership: Opinion leaders or government policies Complexity: Ease of understanding the importance of the issue Homogeneity of population: How people are homogeneous or heterogeneous.

Squire (1973), Rohlfs (1974), and Littlechild (1975) first noted that the demand for and the benefit from interactive telecommunications services depend on the number of the users, defined as the network externalities or network effects. Moreover, the concept has been repeatedly investigated by many scholars. Katz and Shapiro (1985) termed it “network effects” without a rigorous definition. The concept has since been extensively applied to explain similar dependencies. The two-sided market theory is an extension of the concept that addresses interdependencies between two or more interrelated markets on a platform. Apart from the proliferation of human-centric data services, recent sensor and network technology advancements have enabled a non-human-centric use of the Internet (i.e., IoT). In addition, the advancement of data processing technologies has reached a level close to human intelligence; thus, they are expected to increase

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efficiencies, reduce costs, improve convenience, and make the seemingly impossible possible. However, despite the technological advances, economic investigations have lagged recent developments as data platform services have been studied as the same. The accumulation of data enhances the advantage in providing data platform services. Relative to the dependency on the number of users, this dependency can be defined as “data network effects.” Turck (2016) defined it such that “data network effects occur when your product, generally powered by machine learning, becomes smarter as it gets more data from your users. In other words, the more users use your product, the more data they contribute; and the more data they contribute, the smarter your product becomes.” The fact that market dominance originates from data dominance is widely recognized in the data industry. As suggested by Parker et al. (2016), for rapid diffusion of data platform services, it is efficient to make the most of data network effects. Moreover, the perception and acceptance of autonomous driving technology depend on how public opinion is formed in favor of its spread. Whether society accepts such a drastic change in the social system remains an open question. A psychological barrier impedes social momentum toward the new service and application even if an individual thinks the new technology is beneficial and attractive. If an individual is extremely innovative and does not care about the risk of adopting it, that individual can be an early adopter. However, most people will observe how the technology is accepted by other people and note the reputation. That is, user attitude is affected by the relative attitude of others. The World Economic Forum (2015) surveyed people on self-driving vehicles in 12 countries. Accordingly, acceptability varies per country. Japan is less acceptable; 36% of respondents answered “very likely” or “likely” to “How likely would you consider taking a ride in the fully self-driving vehicle?” while 41% answered “unlikely” or “very unlikely.” The global average is 23% and 58%, respectively. India, China, and the UAE are very open to the technology. However, Japan, Netherlands, and Germany seem to be skeptical. Car crashes of automated driving system cars negatively impact public opinion since security is a priority issue. Drivers who enjoy driving may not be happy about automated driving. Thus, many factors influence personal thoughts and public opinion.

2 Interdependencies Among Vehicles on the Data Platform Autonomous driving is expected to be an innovative social application of Big Data and AI, drastically changing lives and social structure. It enhances safety and frees drivers from driving, promoting effective use of time, which creates new value in society. Although expectations for the realization of automated driving are high, the path to reach there is unclear. Unlike driving support systems, if driving is fully automated, the system assumes responsibility for steering the car. Autonomy of driving does not mean each vehicle is completely independent of other vehicles. As

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Fig. 1 The stages of automated driving in terms of connectivity and data platform. Source Made by author

far as it is on the road, the driving must be affected by other vehicles. For a vehicle to be driven automatically, it must instantly assess its surroundings. Sensors are utilized to gather information from the surrounding environment. However, the information sensors can gather is limited. Various information collecting technologies support autonomous driving, generally expressed as “Vehicle-to-X (V2X),” where X represents elements such as infrastructure, device, home, grid, vehicle, and pedestrian. Connectivity is inevitable for establishing these communications. Figure 1 shows how vehicles communicate with their surroundings and other vehicles. If a vehicle is unconnected (Stage 1), it must be fully armed with the equipment to get the information. If cars communicate with each other or their surroundings (Stage 2), information collection would be more efficient. Developers of automated driving systems have an incentive to collect data from cars and surroundings and develop a data platform to access the available data (Stage 3). The information-gathering capacity of each car does not have to be 100% if each car can access the data platform to share the data and acquire necessary information. Once a car manufacturer has built a sufficient data platform, it can maintain a competitive advantage over others. The technology development creates interdependence among vehicles, which increases the system dependency of vehicles. However, the question arises as to whether this state is desirable for society because Company A’s (B’s) car cannot communicate with Company B’s (A’s), and Company A (B) cannot use the data of Company B (A). This state can be described as a state of inter-platform competition. From the social efficiency perspective, these data platforms should be unified or shared (Stage 4). Multiple platforms will be integrated to form a single social data

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platform. All vehicles will share the same data platform, thus creating a situation where no car is at an advantage or disadvantage. The platform works as the social data platform for the autonomous driving system. Table 1 summarizes the stages of automated driving in terms of connectivity and platform. There will be debates about whether such a social platform should be built or whether one platform will survive given the emergent platform competition. Obviously, the latter will take some time. However, the government or a relevant authority must take a leadership role in building a platform for the former to happen.

3 Data Network Effects 3.1 Data Platforms Cars on the road influence one another. If Stage 4 in Fig. 1 is realized, the efficiency of driving a car depends on other cars on the road. A network externality exists when the value or benefit of the service provided depends on the number of users of the service. Network externalities are known to cause a critical mass phenomenon. Namely, a certain mass of users is required for the system to diffuse. In the case of autonomous driving, two-level interdependencies evidently exist among users. Once a data platform is built, autonomous driving requires data from other vehicles. Thus, a traditional network externality works. In Stage 4, traffic is fully controlled via a data platform. We can see that its usefulness depends on the scale of the data. In general, this type of data comprises data collected from vehicles (users) and those collected directly or indirectly from sources such as other devices and interactions. Therefore, interdependencies in the data layer affect the efficacy of the data platform, resulting in two-layer network effects.

3.2 Two-Layer Data Network Effects Vehicle layer: Network effects Vehicles are dependent on each other. The benefit to a vehicle (users including a driver and passengers) depends on the number of other vehicles on the system, which reflects the same concept as demand externalities, consumption externalities, or bandwagon effects. Data platform layer: Data network effects Data is dependent on the data others create. The more users use the service, the more data they contribute, and the smarter the service becomes. Table 2 demonstrates how technology related to vehicle automation is affected

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Table 1 Connectivity, data platform, and the stages of automated driving Stage

Connectivity

Platform

Description

1. Unconnected

• Unconnected (Independent)

• No

• Each vehicle is equipped with automated functions such as driving assistance/support systems. Monitoring and censoring systems support drivers. • These functions are independent of other vehicles.

2. V2x without data platform

• Connected (Vehicle layer connection)

• No

• Solely depends on V2x technologies connecting vehicles and roads. • No data platform exists.

• Segmented

• Single-homing platform. • Independent data platforms exit. Thus, platform competition exists. • Vehicles are partially interconnected at the traffic-on-road level through vehicle-to-vehicle and road-vehicle communication or traffic control systems.

• Social (integrated)

• Multi-homing or unified social platform. • All vehicles are driven on the social traffic data platform managing all traffic data to control the whole traffic efficiently. • Fully autonomous (driverless) driving can be realized.

3. V2x with segmented • Connected + data platforms Platform (Vehicle layer + Platform layer connections)

4. V2x with a social data platform

Source Made by author

• Fully Connected + Platform (Vehicle layer + Platform layer connections)

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Table 2 The two-layer network effects and automated driving technologies Vehicle layer

Platform layer Data network effects (Dependency on “other users or data sources”)

Network effects (Dependency on “other users”)

No

Yes

No

Independent driving assistance system

Vehicle–road communication system

Yes

Vehicle-to-vehicle communication system

Autonomous driving

Source Made by author

by the two network effects. An independent driving assistance system, such as automatic braking and adaptive cruise control has been so far developed by many car manufacturers. The technology in this category has been widely adopted in vehicles as an electronic driver support system. The existence of two-layer network effects creates a complicated critical mass phenomenon, which seriously affects diffusion. Moreover, once autonomous driving is on the growth path, two phenomena will emerge because of the network effects: the first-mover advantage and market dominance often seen in data-driven services. The Appendix presents a preliminary formal analysis of the two phenomena that will be observed in the diffusion process of automated driving.

4 Data-Driven Services and Platforms Data network effects stem from the dependency of users’ demand on the strength of the data scale. A formal approach is proposed to represent the impact of data network effects on service diffusion and market dominance. As in the case of telecommunication services, a critical mass phenomenon will occur. The ultimate diffusion level would be lower than the socially optimal level because of positive externalities. The necessity of taking policy measures emerges to bridge the gap between a lower realized diffusion level and the social optimum when positive data network effects exist. However, this situation would not be compatible with creating a platform competition and may result in market concentration. Another type of data service collects data from alternative data sources, such as physical sensors or people other than users. Here, demand externality is less likely to occur. Although the supply-side benefits from the scale effect of data created by many data sources, it may have a limited effect on users. Thus, the competitive advantage of the antecessor relies on the dependency between demand and supply. If the dependency is low, competition is more likely to occur. Parker et al. (2016) investigated how online platforms work and what they mean for business and economics

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and suggested the two-sided market theory (see, e.g., Parker and Van Alstyne 2005) can explain the dependency to a certain extent. As Information Communication Technology (ICT) advances, the traditional network effects in telecommunication are no longer significant in the markets. However, a different type of externality effect has emerged. Table 3 lists the top 10 companies in the size of current market capitalization worldwide. Many of them provide platform services in digital markets. This situation suggests that by attracting more users, the value of data services increases dramatically and exceeds the value of manufacturing. As Turck (2016) noted, the value of “data” is enhanced by the dependencies on the number of users. From the economics perspective, interactions among users can also be observed. Interdependency typically arises among users when vehicles communicate and share the driving data, such as vehicle location, speed, and direction, to controlling the traffic efficiently. It happens through instantaneous vehicle-to-vehicle communication and the data platform for managing traffic through an integrated big-data-based intelligent system. The former can be regarded as a “vehicle layer” and the latter as a “platform layer.” In business, accumulating data is a business advantage; to secure a preferred position over other competitive firms, collecting more data is necessary to provide the best service to customers. Satisfied customers mean more customers become loyal to the company, resulting in greater profit margins. The US GAFA (Google, Apple, Facebook, and Amazon) has consistently dominated market capitalization over the past few years (Table 3). These companies collect data from their customers, building their businesses into dominant positions. Similarly, China’s big four ICT companies, BATH (Baidu, Alibaba, Tencent, and Huawei), have also increased their market dominance by exclusively collecting data, rising to the top worldwide. However, there is growing concern about the monopolistic control of these companies. Countries that use such services also experience several problems regarding data exfiltration and the lack of domestic regulation. Table 3 Top 10 companies ranked by current market capitalization ($ Billions)

1

Apple Inc

$2256.0

United States

2

Saudi Arabian Oil Company

$2051.0

Saudi Arabia

3

Microsoft Corporation

$1682.0

United States

4

Amazon.com, Inc

$1634.0

United States

5

Alphabet Inc

$1185.0

United States

6

Facebook, Inc

$778.0

United States

7

Tencent Holdings Limited

$697.3

China

8

Tesla, Inc

$668.9

United States

9

Alibaba Group Holding

$648.3

China

10

Berkshire Hathaway Inc

$543.7

United States

Source Value. Today (2021)

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Certainly, from the perspective of security and protecting the public, the abuse of the dominant position by the ICT giants is highly problematic. According to the traditional theory of industrial organization, monopoly is bad, and competition is the only way to bring down prices, improve services, and improving consumer benefits. However, what these ICT giants have in common is that consumers benefit from exclusivity and are highly satisfied with their use. E-commerce has the characteristics of a typical two-sided market, and as the number of users increases, the benefits to the users generally increase. However, if the service is public, there may be a divergence between the private interest of the corporation and the public interest of users. It can be easily imagined that the pursuit of monopoly profits is incompatible with the maximization of social surplus, which is the justification for the regulation of monopolies in traditional public utility theory. The same is true for the provision of data-based social services, where it is sometimes more socially desirable for individual companies to share and make use of the data they collect, even if the choice is to make exclusive use of it and not share it with others, guaranteeing the superiority of each company. For example, in automated driving, which is discussed later, automotive and IT companies are currently involved in the development race. However, as long as each company develops technology based on its data platform, data sharing with other companies’ vehicles will not occur. This situation accords with free-market principles regarding competition in the formation of platforms. Even so, from a social perspective, more efficient traffic management would be possible if the vehicle and infrastructure data of different companies were shared on a single data platform. This situation brings us to the issue of competition and cooperation in platform formation. If the market formation is left to competition among different data platforms, a natural monopoly eventually emerges, and a limited number of players (sometimes only one) win the market competition. However, if the platform becomes a cooperative domain (i.e., if a social data platform is developed as social infrastructure and competition occurs on that platform), then competition is service competition and does not include investment in infrastructure development, allowing a wider range of participation. Thus, the service level is expected to improve.

5 Possible Growth Paths of Autonomous Driving 5.1 Driving Automation Levels Autonomous driving is designed to realize safer and more efficient road transportation. Moreover, it is expected to create new opportunities for elderly or disadvantaged people who do not have a means of transportation. Given the development of sensor

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and network technologies, IoT, Big Data analysis, and AI, driverless driving is closer to reality. In addition, 5G is expected to accelerate the technology development of automatic and autonomous driving. 5G technological specifications such as low latency, massive, and high-speed communication will enable instantaneous vehicle communication for sharing and processing data. However, relative to technological advancement, investigations from the social science perspective seem to lag technological advances. Table 4 shows the driving automation levels of the Society of Automotive Engineers (SAE International 2019). SAE released an updated visual chart for the “levels of driving automation” standard for self-driving vehicles, called J3016. The standard defined the six levels of driving automation, from no automation to full automation. As the level of automation advances, a driver’s (the system’s) responsibilities reduce (increase). The responsibility of driving is expected to transfer from drivers to the system in the future. Per media sources, the current driving automation levels of major motor companies are around Levels 2 and 3 (see Table 4). They are expected to reach Level 4 by the mid-2020s. Table 4 Levels of driving automation

Source SAE International (2019)

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Beyond such expectations of autonomous driving, there are skeptical views on the realization of autonomous driving. Recent car manufacturer views do not seem to exhibit a strong attitude toward advancing autonomous driving technology. For example, the chief technology head at Nissan’s Silicon Valley development center publicly denied the concept of completely driverless vehicles (DRIVE 2017). CEO of Ford warned against being too optimistic about self-driving, saying that the industry “overestimated the arrival of autonomous vehicles” (WIRED 2019).

5.2 Possible Diffusion Scenarios The diffusion of automated driving depends on various factors. In considering diffusion scenarios, it is a prerequisite that automated driving should be technologically feasible. Despite cases where demand for automated driving is significant, the technology is not yet at a level of complete autonomy. It is also necessary to develop the infrastructure to make automated driving viable. We focus on user acceptability based on user benefits. As discussed before, given the existence of network effects, the benefit subjectively perceived by a user is strongly influenced by the opinions and attitudes of other users and the completeness of the system. Further, to increase the number of users of automated driving, user benefits should be greater than associated costs. For current users, each user benefit must be greater than actual costs. For potential users, they must be induced to anticipate benefits that are greater than costs. Of course, the magnitude of this expectation is also affected by the number of other users or public opinion. Once the conditions are satisfied and potential users remain interested, the benefit to some will exceed the switching cost necessary to launch a self-driving society, serving as an incentive to adopt autonomous driving. The switching cost is high if users have to buy a new car. If the government subsidizes the purchase, the cost significantly reduces, facilitating the switch. If the expected user benefit constantly exceeds the switching cost and people remain interested in the new technology, it will continuously attract users. Thus, the number of users gradually increases (Fig. 2 ➀). Widespread adoption follows the technology evolution. If the technology draws much attention and people are more willing to adopt it, a larger user benefit will be perceived. Thus, positive public opinion drives further

Fig. 2 Diffusion paths. Source Made by author

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Table 5 The factors affecting the three diffusion scenarios Scenario

Data platform

Users’ perceived benefit

➀ Gradual shift

• A single social platform or multi-homing

• User benefit constantly • Interest + exceeding switching • Attracts users costs gradually

➁ Drastic or leapfrogging

• A single social • Larger user benefit • Interest ++ platform is readily perceived from fully • Attracts a lot of users available automated driving drastically • Strong Gov’t initiative • Positive public opinion for platform coordination

➂ No diffusion • Segmented, single homing • No social platform

• Users’ perceived benefit is low as compared to the switching cost • Fails to shape public opinion

User attitude

• Interest +− • Fails to attract users to exceed the critical mass

Source Made by author

adoption. Even if users are initially cautious about automated driving, a larger perception of benefit will drastically change attitudes and public opinion. Automated driving will suddenly and rapidly spread, and drastic diffusion will occur (Fig. 2 ➁). In both cases, if the number of users exceeds the critical mass, autonomous driving will become widespread. If the above condition is not satisfied (i.e., people are not very interested in or are cautious about the technology), users’ perceived benefit will not be high. Even though early adopters will have a higher expected benefit, their actual benefit would not be adequate to remain users. Others will estimate a smaller benefit and will not be proactive in using the technology, resulting in the failure of the technology to shape public opinion and attract sufficient users. Thus, automated driving will not be widespread (Fig. 2 ➂). See Table 5 for important factors affecting the three diffusion scenarios. The level of data platform development also affects the diffusion. As far as each company forms a data platform, and there is no social data platform, the efficiency and usefulness of automation would be limited. If individual platforms are combined or built on a common foundation, they will become more efficient. The creation of a single social platform or at least multi-homing of the individual platforms seems to be essential to the diffusion of autonomous driving. Once a single social platform is created, strong positive network effects occur. However, if platform dominance is achieved given fierce competition, the high cost of the winner-take-it-all model should also be considered.

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6 Technological Feasibility Versus Social Acceptability For autonomous driving to be accepted, shaping public opinion is vital regardless of whether it is technologically feasible. Further, social momentum affects public opinion. Even if a system or application is technically feasible, social feasibility or acceptability is not assured. As long as a driver takes responsibility for driving, a driving support system ensures safety. As technology advances, machines will replace the responsibilities and roles of drivers. They will no longer operate vehicles; they will be passengers and give up the enjoyment of driving. Whether drivers hand over the responsibility to machines and accept the new technology is not a technological but a societal and user acceptability problem. Regarding the responsibility of driving, we have thus far established a subjective norm of which we assume responsibility while somewhat relinquishing our freedom of movement. Developers of autonomous driving technology advocate that it enhances traffic safety and increases convenience without any disadvantages. This dream technology will realize an ideal transportation system. Developing technology can solve technological problems, but problems of the human mind cannot be solved by technology. From the sociology perspective, diffusion is affected by the formation of public opinion. Scheffer et al. (2003) have theorized how public attitude will change from passive to active regarding the perceived seriousness of the problem. They assume that a shift in public opinion is defined regarding the interaction between individuals. People affect one another via the four factors of “peer pressure,” “absence of leaders,” “complexity of problem,” and “homogeneity of population.” For example, the more homogeneous society is, the more likely people will follow the idea of others. Similarly, the more complex the problem is (or when there is a lack of leadership), the more likely people will follow the crowd. Whether there is a gradual or sudden shift depends on user perceptions and the social situation regarding the four factors. A tipping point may appear if the influence of the four factors increases. Figure 3 shows a schematized presentation of how the factors shape public opinion. When the influence of the factors is not serious, public attitude will shift gradually as the severity of the problem increases. However, if the influence of the factors is significant, the surface of the curve will be distorted, and smooth changes will not be possible. When a tipping point emerges, individual opinion is hidden until a social movement happens. People will then suddenly change together.

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H. Mitomo Gradual/linear shift Active Passive Not serious

Serious

Sudden/non-linear shift Active Passive Not serious

Serious

Fig. 3 The tipping point theory. Source Scheffer et al. (2003)

7 Conclusion Automated driving is a social ICT application that is expected to become most prevalent in the future. This is because the benefits that people can receive from its widespread use are extremely large. Although the race to develop the technology is progressing, at present, the technology being developed is only a driving aid. It may be technically feasible to develop a system in which driving is completely automated in the near future. Particularly in the case of social applications, however, people’s acceptability does not necessarily depend on the excellence of the technology. Rather, it is affected by the social dominance of the application, and interdependencies among users can be a driver and an obstacle to the widespread adoption of autonomous driving technology. In this context, analysis of automated driving from a social science perspective is essential but evidently lags technological advances. Thus, it should be recognized that for autonomous driving to spread, social and economic considerations are crucial. Accordingly, this chapter presented a socio-economic investigation of the diffusion of autonomous driving and discusses how society will shape public opinion about automated driving. This chapter explained how social science could approach the diffusion of autonomous driving. From an economics perspective, the number of users influence the adoption of new technology services. Since autonomous driving relies on the connectivity between its users, interdependencies among them are conspicuous. Social science should cope with the interdependencies to explain the diffusion of autonomous driving. This chapter addressed the problem from the perspective of network effects and the tipping point theories. Interdependencies in the user layer could be explained by applying the theory of network effects, a traditional theory for network formation. Moreover, since data

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network effects can be defined as depending on the data generated by other users, it can be analyzed analogously to the traditional network effects. Following this direction, the Appendix formally examines the effect. Once the antecessor could attract a certain user scale, the user set grows automatically until reaching the ultimate expansion level. However, positive data network effects may cause a lower expansion level than the social optimum. From a sociology perspective, this chapter noted how the tipping point theory could explain the shaping of public opinion regarding the societal acceptance of autonomous driving. Whether public opinion on autonomous driving is favorable will determine the direction of its widespread use. More rigorously, the theory is based on the bifurcation theory from nonlinear dynamics. However, this chapter did not address it. Generally, developers’ expectations differ from public opinion and people’s assessment. There is also a discrepancy between public opinion and individual expectations and evaluations. However, when public opinion moves in a certain direction, individuals who think differently will resist, but when frustration reaches a certain level, they will change their minds and follow public opinion. The acceptance of automated driving technology will be a typical example. This chapter utilized the two theories in economics and sociology to approach the diffusion of autonomous driving. Predictions based on different theories are possible, which is an avenue for future research. The most important thing to emphasize is that realizing autonomous driving should be considered a technological and social issue. For the social sciences to contribute to the resolution of these issues, more academic accumulation is needed. It is expected that this study paves the way for a social scientific analysis of automated driving, which has rarely been conducted. The analysis has only just begun. In this chapter, emphasis was placed on how to explain the factors that contribute to and hinder the spread of automated driving by drawing on existing economic and sociological theories. Further investigation of data network effects and the impact of interdependence among users on their perceived benefits, and the identification of factors affecting the adoption of automated driving are important tasks for the future. Furthermore, in addition to theoretical analysis, empirical approach based on the data collected is also important as a future task.

Appendix: Formal Approach to Data Network Effects: A Case of User-Generated Data Formulation of Network Effects Among the most typical data businesses is when a company collects data from its users and creates a data platform (see Fig. 4). Users then get useful information from the data platform. They can access product or service information and additional

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Fig. 4 Data service based on data collected from users. Source Made by author

information such as user evaluations. The abundance and reliability of such information rely on how many users contribute to the data platform. This type of service is expected to have demand externalities in that the benefit to a user depends on the total number of users. As the number of users increases, the benefit each user can obtain from the service also increases. Suppose there is a data platform service composed of a set of users. The number of the total users is denoted by y, where y is a subset of the total potential users N. Each user acquires information from the platform. In return, they provide various data, including personal information, to the service. We assume a benefit to a user does not depend directly on the information provided but on the number of users because the service quality and quantity depend on how many people use the service. Following Oren and Smith (1981) and Mitomo (1992), let us assume each user has a unique index i, and without loss of generality, distributed uniformly between 0 and N such that i ∈ [0, N ]. Assumption 1 Users are distributed in the order of the size of their potential demand. Let the index of the user with the minimum potential demand be N and that of the user with the maximum potential demand be 0. The potential demand for the service can be defined as v p = D( p, i, y), where p is the unit price for the service. This demand function explicitly defines the dependencies of each user’s demand on the number of users. Most platform services today are provided for free, or users do not pay for the service directly. Alternatively, some services are provided at a flat rate. A two-part tariff can deal with both usage-sensitive and non-sensitive price settings. The total charge that the user i should pay for the   service C v p is represented by a combination of the usage and flat fees:   C v p ≡ C(D( p, i, y)) = p D( p, i, y) + F.

(1)

Assumption 2 The demand for the service is finite, even when the service is provided free of charge. That is, D(0, i, y) = V (i, y),

(2)

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where V (i, y) denotes the potential demand of user i for the service for the user set y. The gross benefit for user i from consuming the service depends on the unit price and the potential demand, defined as. v p B( p, V (i, y)) =

D −1 dv where v p = D( p, i, y)

(3)

0

Therefore, the net benefit from this service is   N B( p, i, y) ≡ N B( p, V (i, y)) = B( p, V (i, y)) − C v p = S( p, i, y) − F

(4)

Since the gross benefit can be illustrated by the area under the relevant demand curve, the net benefit is formulated as the consumer surplus S( p, i, y) net of the fixed charge, F. For a user set to be feasible, the net benefit for the smallest user i = y should be non-negative: N B( p, i, y) ≥ 0 for i = y. Per Mitomo (1992), stable and unstable equilibria can be defined in terms of the user set. For an equilibrium point y = y ∗ , if d N B( p, y, y)/dy is negative, the user set [0, y ∗ ] is a stable equilibrium, and if positive, it is an unstable equilibrium. An unstable equilibrium defines a “critical mass,” a well-known concept in the diffusion theory. Regarding user-generated data, each user benefits from the service depending on the number of users. Thus, interdependencies among users create a mass effect, resulting in the advantage of attracting many users. If the services provided by competitive suppliers are homogeneous, as in an online information retrieval system, the antecessor can take advantage. Figure 5 illustrates a case of a single modal net benefit function. N B( p, y, y) has a single modal parabolic curve at each unit price level. The fixed price is F, which is a cutting plane parallel to the bottom plane. At the price p ∗ , the curve has two points of intersection with F. The lower intersection,y0∗ , is defined as a “critical mass” and the upper one, y1∗ , an ultimate expansion level of the user set. The supplier can attain a user set exceeding y0∗ to expand autonomously to y1∗ , suggesting the existence of the first-mover advantage given the data network effects. If an antecessor can overcome difficulties associated with the start-up stage of business and reach a critical mass level, the business can acquire a dominant position. Although the figure does not reflect the revenue from the business, the combination of a unit price and a fixed charge can cover a variety of tariff settings, and the supplier can select an appropriate setting as a strategic tool for attracting users. Early adopters

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Fig. 5 The net benefit for the smallest subscriber: existence of equilibria. Source Made by author

are usually those with a greater demand for the service. It is less attractive in the early stage of service delivery because they do not know its usefulness. The supplier can apply a low introductory price or zero price to facilitate the subscription. Regarding a flat rate (F > 0, p = 0), the nearest parabola depicts the net benefit. A critical mass is lower than in the case of a positive unit usage charge. As an extreme case, the figure illustrates the advantage of freemium or an advertising model.

Competition in the Presence of Data Network Effects As shown in the previous section, the antecessor has an advantage in providing the service over potential entrants and can occupy a dominant position. Suppose there is an entrant that seeks to provide a service identical to the antecessor’s service. From a marketing perspective, the entrant will employ a strategy of product differentiation to avoid fierce competition with the antecessor. If the service is homogeneous, a successful entry will be a cream-skimming entry. That is, the entrant would focus on large-scale users.

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Fig. 6 The consumer surplus function. Source Made by author

From the assumption, the consumer surplus or net benefit is monotone decreasing regarding user index i (Fig. 6). At i = y, it should be equal to zero since the net benefit for the smallest user must be equal to zero at equilibrium. The success of a new entry depends on the shape of the net benefit function. Figure 6 illustrates the consumer surplus function, defined as the gross benefit net of the total unit usage charge. Assume p 0 and p 1 are the prices for services provided by the antecessor and the entrant, respectively. If the services from the two suppliers are substantially homogeneous, the entrant cannot set the price higher than the antecessor. Thus, p 0 ≥ p 1 . Since ∂ S( p, i, y) = −D( p, i, y), ∂p

(5)

and the demand is monotone decreasing regarding i, for p 0 ≥ p 1 , we obtain that   ∂ S( p, i, y)  ∂ S( p, i, y)  ≥  0  1. ∂p ∂p p= p p= p

(6)

It means that the consumer surplus curve for the antecessor is less steep than that for the entrant. Depending on the setting of the fixed charges, F 0 and F 1 , an intersection can be found (Fig. 7a). It implies that the entrant can obtain the users 0 ≤ i ≤ e and the antecessor’s share is e ≤ i ≤ y. However, there is a case where the benefit from the antecessor’s service exceeds that from the entrant’s for all users (Fig. 7b). The success or failure of the entrant depends on the shape of the benefit function and the tariff setting. If the antecessor’s service is provided for free or at a low price by utilizing other revenue sources, such as advertisement, it would be difficult for the entrant to gain market share.

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(a). Cream-skimming Entry

(b). Failure of entry

Fig. 7 a Cream-skimming entry. b Failure of entry. Source Made by author

Efficiency Versus Dominance Over a Data Service Platform The previous section overviewed the possibility of competition in the market. In reality, it is challenging to enhance competition in the dominant platform business even when a potential entrant seeks to start a competitive service as far as there is no substantial product differentiation. However, a policymaker intends to realize a liberalized market. Despite the challenge of intervening in the private business directly, policymakers can promote further service diffusion. Given positive externalities, the equilibrium diffusion level tends to be lower than the socially optimal level (See Mitomo and Jitsuzumi 1999). Data network effects can apply to this case. Suppose there exists a potential user willing to use the service. He will perceive the benefit from using the system with the total number of users y + 1. His perceived benefit is given by NB(y + 1). All users also benefit from his participation. Thus, the increase in the social benefit is (y + 1)N B(y + 1) − y N B(y) = y[N B(y + 1) − N B(y)] + N B(y + 1).

(7)

In addition to his benefit, N B(y + 1), the new user creates additional benefits to all other users, y[N B(y + 1) − N B(y)]. He will not perceive this additional benefit created by his participation. Hence, the private benefit is lower than the social benefit created by him by a specific amount. The equilibrium point where the marginal private benefit is equal to the marginal (private) cost is lower than the socially optimal point where the social marginal benefit is equal to the (social) marginal cost. If left to the market mechanism, a lower diffusion level will be attained. The gap justifies policy support to bridge it and attain a socially optimal diffusion level.

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References DRIVE (2017) Autonomous vehicles without human intervention “useless”, Nissan claims. https:// www.drive.com.au/news/autonomous-vehicles-without-human-intervention-useless-nissan-cla ims/. Accessed 29 Aug 2021 Katz ML, Shapiro C (1985) Network externalities, competition, and compatibility. Am Econ Rev 75(3):424–440 Littlechild S (1975) Two-part tariffs and consumption externalities. Bell J Econ 6(2):661–670 Mitomo H (1992) Heterogeneous subscribers and the optimal two-part tariff of telecommunications service. J Operat Res Soc Jpn 35(2):194–214 Mitomo H, Jitsuzumi T (1999) Impact of telecommuting on mass transit congestion: the Tokyo Case. Telecommun Policy 23, Elsevier Science Oren SS, Smith SA (1981) Critical mass and tariff structure in electronic communications markets. Bell J Econ 12(2):467–487 Parker GG, Van Alstyne MW (2005) Two-sided network effects: a theory of information product design. Manage Sci 51(10):1494–1504 Parker GG, Van Alstyne MW, Choudary SP (2016) Platform revolution: how networked markets are transforming the economy—and how to make them work for you. W. W. Norton & Company Rohlfs JA (1974) A theory of interdependent demand for a communications service. Bell J Econ Manage Sci 5(1):16–37 SAE International (2019, January 7) SAE Standards news: J3016 automated-driving graphic update. https://www.sae.org/news/2019/01/sae-updates-j3016-automated-driving-graphic. Accessed 29 Aug 2021 Scheffer M, Westley F, Brock W (2003) Slow response of societies to new problems: causes and costs. Ecosystems 6:493–502 Squire L (1973) Some aspects of optimal pricing for telecommunications. Bell J Econ Manage Sci 4(2):515–525 Turck M (2016) The power of data network effects. http://mattturck.com/2016/01/04/the-powerof-data-network-effects/. Accessed 29 Aug 2021 Value. Today (2021) World top 1000 companies list and world ranks as on Jan 1st, 2021 from Value. Today. https://www.value.today/. Accessed 29 Aug 2021 WIRED (2019) Ford taps the brakes on the arrival of self-driving cars. https://www.wired.com/ story/ford-taps-brakes-arrival-self-driving-cars/. Accessed 29 Aug 2021 World Economic Forum (2015) Are we ready for self-driving cars? https://www.weforum.org/age nda/2015/11/are-we-ready-for-self-driving-cars/. Accessed 29 Aug 2021

Audio-Visual Content Industry in Japan Takashi Uchiyama

Abstract After a long period of laissez-faire, Japan’s content policy on film and broadcasting has shifted to a more moderate level of active policy in the twentyfirst century, particularly in terms of export promotion. Simultaneously, there is a high level of policy interest in the potential of internet video distribution as a third video medium, and the hope of transmitting Japanese values to the world through this medium. However, the development of internet distribution has not progressed as per expectation, as the traditional transmission channel-oriented philosophy has become an obstacle to content multi-use. Keywords Netflix · Broadcasting system · Video content industry · Media policy · Internet video distribution · Inter-media competition · Act on protecting personal information · IP multicast broadcasting · Quota regulations · Content promotion policies

1 Introduction The Japanese government’s policy on film, television programs, and Internet video can be summarized as follows: in the twentieth century just Laissez-Faire! in the 2000s turning point to positive commitment. in the 2010s considerable political investment by the government. Compared with European policies, which involved a heavy government commitment, and American policy, affected by strong lobbying activities by Hollywood majors, the long history of Laissez-Faire or sparse relationship between industry and government and that between film and television industries have created free audience markets in film and television. Moreover, Japan’s domestic market is institutionally free even now regarding domestic productions and imports (of course, the T. Uchiyama (B) School of Cultural and Creative Studies, Aoyama Gakuin University, Tokyo, Japan e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 T. Jitsuzumi and H. Mitomo (eds.), Policies and Challenges of the Broadband Ecosystem in Japan, Advances in Information and Communication Research 4, https://doi.org/10.1007/978-981-16-8004-5_4

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Table 1 Global players of content business Examples of global players

Domestic majors, ethnic

Film

Six (or five) Hollywood majors

In most countries, American movies have the lion’s share of the market; domestic movies have the second-highest share. Movies made in other countries have an independent-like presence

Television Program

Hollywood dramas Japanese anime BBC

As broadcasting required approval in all countries, domestic majors were protected; relative to other industries, it was challenging to achieve a global presence

Music

Universal, Warner Bros., Sony

In countries with ethnic or domestic majors, the level should be rated highly (although many countries do not have this)

natural barrier of the Japanese language cannot be ignored). A trained audience can arguably savor the international appeal. DX: Digital Transformation in film, television, and Internet distribution sectors can be traced from the competition in the domestic to international markets, particularly in the television sector. Film and Internet distribution are international businesses, while broadcasting has been a national license business per the allocation of spectrum in each country. Further, there has been no need to expand overseas (Table 1). In the worlds of film and music, major US capital companies are highly competitive and command large shares of the global market and markets in countries worldwide. Domestically capitalized competitive companies may be strong in their own countries but are on par with independents overseas. However, global players in most countries are sufficiently competitive vis-a-vis the said domestically capitalized companies. Such industrial organizations are gradually forming an Internet video distribution business. Broadcasters have erected barriers via public regulation, but Internet movie and music distribution is a free market. In the era of broadcasting and telecom convergence, broadcasting is under pressure to consider expanding its area and domain of business to include Internet distribution. It is also the case in the UK, which is advanced regarding overseas program sales.

2 The Policy on the Video Content Industry 2.1 Regulators and Promoters The regulatory and promotional authorities of the Japanese audio visual industry are not centralized (Fig. 1). Currently, the Ministry of Internal Affairs and Communications (MIC) has jurisdiction over broadcasting using radio-electric signals, while

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Cabinet Office, Intellectual property strategy headquarters

MIC Ministry of Internal Affairs and Communications Telecomminications and Broadcasting industries

METI Ministry of Economy, Trade and Industry Film, Animation, Publishing, Music, Game industries

ACA Agency for Cultural Affairs media art, copyright issue

Organizations that entrust frequently VIPO, UniJapan, DCAj, CODA, JETRO, Japan Arts Council, BEAJ, etc.

Fig. 1 Political organization for media contents

the Ministry of Economy, Trade, and Industry (METI) and the Agency for Cultural Affairs (ACA) have jurisdiction over films. Internet distribution is under the jurisdiction of the MIC, METI, and ACA. As part of cultural policy, copyright-related matters are under the jurisdiction of the ACA. Furthermore, regarding “content,” the structure spans three ministries: the Content Promotion Division in MIC, the Content Industry Division in METI, and the ACA. The Intellectual Property Strategy Headquarters has been established in the Cabinet Office to coordinate these three ministries. The reason behind this division of roles is that it is based on the boundaries of hardware technology. Hence the different transmission technologies and terminals, and the fact that films and broadcast programs are also under the jurisdiction of different ministries,1 which is a particular difference from Europe. However, issues such as the cross-functional paradigm from business and utilization will be a crossministry issue and take time to coordinate. For example, the overseas development of broadcast programs is a matter between the MIC and METI (and the Ministry of Foreign Affairs). Regarding the vertical business relationship between stations, production companies, and freelancers, the structure spans the MIC and METI. The copyright discussion related to the simultaneous distribution of broadcasting over the Internet, which has been under discussion since 2016, is an issue between the MIC and ACA. Internet piracy is an issue that cuts across the ACA, which has jurisdiction over the Copyright Act, METI, and MIC, which have jurisdiction over the content industry side, and MIC, which has jurisdiction over the provider liability Act.

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2.2 Japanese Media Policies that Focus Primarily on Hardware During the second half of the twentieth century, media policy thinking in Japan has traditionally centered on hardware regulation. Thus, a vertically divided administrative division makes it easy to determine the jurisdiction. In Japan after the Second World War, democratization became a central social issue for Japan, and the policy was intended to induce the independence of the government and media and democratize media contents. This situation contrasted with the situation in European countries. During the interwar period in European countries and the trade war of films with Hollywood, various protection and promotion policies were struck, which continued even after WW2. However, in Japan, the relationship between the government, cinema, broadcasting industry is strongly linked to the Laissez-Faire relationship. Even so, the idea of equal opportunity nationwide (regarding information contact) was strong, which induced the inclination toward transmission via diffusion policies. In one of the reports, the UK’s past regulator, Independent Television Commission (hereinafter referred to as ITC), published the report, “Comparative Review of Content Regulation” (May 1, 2002), that analyzed the policy stance of some countries (ITC 2002). Among them, the position of Japan is the opposite of that in France. If France has a content-intensive policy, Japan’s broadcasting policy is analyzed as a transmission-intensive policy (Fig. 2).

Direct involvement

Content focused

Access and content focused

France

Germany

Canada*

Sweden

Australia Quality content

NZ

Italy

Little involvement

Korea

Relatively hands-off

Japan* U.S.

Access focused Direct involvement

Little involvement Access

Fig. 2 Country classification: approaches for regulating quality and access. Source ITC (2002), p. 12

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Thus, Japan has traditionally had a fast and proactive policy in embracing new transmission channel technologies. For example, it is among the first worldwide, along with South Korea, to implement the spread of broadband Internet and introduce 4 K and 8 K broadcasting.

2.3 The Content Regulation Policies for TV Programs and Films [Entry Barriers] Entry regulations per radio frequency allocation exist for terrestrial and satellite broadcasting. Broadcasting licenses are required to be renewed every five years. Moreover, foreign investment in Japanese TV stations (as opposed to programming) is restricted by law by up to 20%. Cable television is registered with the MIC. There are no foreign investment restrictions. [Content Regulations] Provisions on regulations are set out in Articles 4 and 5 of the Broadcasting Act. In practice, MIC rarely takes concrete action on this basis, leaving it to private self-regulation. The text of Articles 4 and 5 reads as follows。 Article 4 of the Broadcast Act; (Editing and Other Matters Related to the Broadcast Programs in Domestic Broadcasting). Article 4(1) A broadcaster must comply with the following when editing domestic broadcast programs or domestic and international broadcast programs (hereinafter domestic broadcasts…): (i) (ii) (iii) (iv)

it must not negatively influence public safety or good morals; it must be politically fair; reporting must not distort the facts; and. it must clarify the points at issue from as many angles as possible where there are conflicting opinions concerning an issue.

Article 5 of the Broadcast Act; (Program Standards). Article 5(1) A broadcaster must stipulate standards for editing the broadcast programs (hereinafter “program standards”) per the classification of the broadcast program (i.e., categories such as cultural programs, educational programs, news programs, entertainment programs; the same applies hereinafter) and the target audience of the broadcasts and must edit the broadcast programs per those standards. [Censorship] The Broadcasting Act stipulates that each station shall have Deliberative Bodies for Broadcast Programs (Article 6). Further, there is no government censorship where broadcasting is concerned, apart from self-regulation by broadcasters. Guidelines

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are published by NHK2 and the Japan Commercial Broadcasting Association.3 The stations have also drawn up their guidelines. If necessary, the ruling can be given by a private organization, the Broadcasting Ethics and Program Improvement Organization (BPO).4 There are four levels of rating by Film Classification and Rating Organization, Eirin5 : G, R18, R15, and PG126 when films are exhibited in theaters. [Quotas] Article 106 of the Broadcast Act means there is a genre criterion applicable to general broadcasters that guarantees room for educational, cultural, and news programming alongside entertainment programming. It ensures that broadcasters operate per the official directive of the MIC, which issues broadcasting licenses. The guidelines state that terrestrial basic broadcasters must dedicate 10% of broadcast hours to educational programming and 20% to cultural programming. There are no programming quota rules for independent producers in Japan, unlike in the UK, where broadcasters must include a percentage of programs produced by independent production companies in their schedules. There are no content-windowing control regulations, unlike in France. Windowing strategy is governed by business strategy and customs, not public regulation. Moreover, there are no legal obligations for broadcasters to invest in movies. However, broadcasters do so anyway because it is an important business element. There are no import quota rules on TV programs and films. Many are surprised to hear there are no broadcasting quotas between domestic and foreign programs, unlike in EU states.7 Therefore, there is no need to introduce the cultural test system in Japan. There are no screen quota rules for film exhibition.

2.4 The Beginning of the Promotion Policies on Media Content However, relative to Europe, the history of promotion policy is very young. As noted, the policy on media content by the Japanese government can be summarized as follows: in the twentieth century just Laissez-Faire! in the 2000s turning point to positive commitment. in the 2010s considerable political investment by the government. The 2000s was a turning point for a positive commitment.8 The Cabinet Office also began a commitment under Prime Minister Junichiro KOIZUMI to establish the intellectual property (IP) strategy headquarters based on the Intellectual Property Basic Act (Act No. 122 of December 4, 2002). Cabinet Office IP strategy headquarters 25 Feb 2002 Decision of conference of IP strategy.

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03 July 2002 Decision of outline of IP strategy. 04 Dec 2002 Promulgation of IP Basic Act. 01 Mar 2003 Enforcement of IP Basic Act. 01 Mar 2003 Establishment of IP strategy headquarters. Since 2003, the office has published the IP Strategic Program 20XX every year. As the office itself has not had a sufficient political budget, the actual policies are enforced by the ministries in charge. Thus, the role of the office is to coordinate among ministries. One more policy, the e-Japan strategy, has been discussed by the Strategic Headquarters for the Promotion of an Advanced Information and Telecommunications Network Society (IT Strategic Headquarters) in the Cabinet Office from 2000. Moreover, MIC, assuming control of telecommunications and broadcasting, has committed to this policy. Further, Japan had a top-class high-speed Internet infrastructure based on the high diffusion rate of ADSL and optical fiber networks. Rather than content transmitted in narrowband, the focus was on the broadband network. In parallel, the activities of the content development office in the MIC have been observed since 2002. From the production, preservation (archive), and distribution of IP or content perspective, the division has attempted to provide menus in the three fields. For example, regarding production, there have been experiments involving copyright clearance of television programs in digital networks. The office was promoted to a division (Promotion for Content Distribution Division) in 2007. The 2010s was the beginning of positive investment by the Japanese Government. After the Great East Japan Earthquake in March 2011, the Liberal Democratic Party of Japan replaced the Cabinet of the Democratic Party of Japan, and Shinzo ABE became Prime Minister. One of the policies adopted by the new Cabinet was the Cool Japan policy, a term inspired by Cool Britannia, which Tony Blair used in the election campaign in the late 1990s.

2.5 The Export Promotion Policy Content export is an important policy for Japan in our history. Regarding the international trade of film and media content, major disputes have continued from the interwar period between the US and other countries (e.g., France, Canada, South Americas and so on) on elements such as General Agreement on Tariffs and Trade, World Trade Organization/General Agreement on Trade in Services (WTO/GATS), UNESCO, and Free Trade Agreement (FTA) negotiations. It is not far-fetched to say Japan has stayed out of such international disputes and that the Japanese government and Japanese industry have remained uninvolved. As an outsider, until at least the end of the Democratic Party of Japan era (till 2012), – there were no restrictions or special tax benefits relating to film and television imports and exports (these have not been introduced as of 2021);

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– no domestic systems favor domestically produced content such as screen and broadcasting quotas (these were not introduced as of 2021); – The government budget for promoting produced content was approximately 4 billion JPY/year in the 2000s, on a par with midsize countries in Europe; – Via the Structural Impediments Initiative talks, the US–Japan Framework Talks, the US–Japan Regulatory Reform and Competition Policy Initiative, and the US– Japan Economic Harmonization Initiative, domestic laws, such as copyright law, had come relatively close to US systems; and – the policy focus regarding the media tended strongly toward distribution and transmission channels rather than content production. Hence, Japan did not become embroiled in the dispute among the US, Europe and others. Just as there were no WTO/FTA-type tariffs or non-tariff barriers in film and television that were obstacles to free trade, Japan’s domestic film and television market was based strongly on free competition, including domestic productions and imports. However, as aggressive protection and support policies of the type discussed in the UNESCO Universal Declaration on Cultural Diversity (Convention on the Protection and Promotion of the Diversity of Cultural Expressions) have been modest regarding the size of the country, this issue did not become an international problem in Japan. International co-production agreements between countries were also rare, and a sense of exclusivity regarding other countries was not created. However, to avoid any misunderstanding (rather than my unclear views outlined above), Japan’s legal stance on WTO/GATS is that it is “opposed to the argument that measures for protecting the ‘cultural value’ of audio-visual services should be allowed as GATS exceptions because audio-visual services represent a major area of trade in services, and excluding them from the scope of GATS based on the ambiguous concept of ‘cultural value’ would be inappropriate.”9 However, it failed to ratify the UNESCO declaration though Japan had voted in favor at the then UNESCO General Conference. That is, superficially, Japan has adopted a stance similar to the US, with its measures vis-a-vis content being more industrial than cultural. As earlier noted, Japan’s domestic market is quite free institutionally for domestic productions and imports (not ignoring the natural barrier of the Japanese language). Again, a trained audience can arguably savor the international appeal. For more details, see (Uchiyama 2012, 2017).

2.6 Export Promotion Policies for Broadcast Program by MIC MIC’s content promotion division runs programs focused on developing overseas sales of broadcast programs. The targets of the subsidies are businesses whose central focus is developing overseas sales of broadcast programs (Table 2).

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Table 2 The policy budget for overseas promotion by content distribution division of MIC FY implemented Policy

Budget (bil. JP¥)

2013

International co-production to promote the content business in overseas markets

1.504

2014

Model project to strengthen and promote the broadcasting 2.100 content business in overseas markets

2015

Project to support the expansion of the broadcasting 1.650 content business, which contributes to regional economic revitalization into overseas markets

2016

General support project for the expansion of broadcasting 1.200 content business in overseas markets

2017

Establishment foundation for broadcasting content business in overseas markets

1.340

2018

Comprehensive strengthening project for a broadcasting content business in overseas markets

1.280

2019

Strengthening the project for the broadcasting content business in overseas markets

1.654

2020

Strengthening the project for the broadcasting content business in overseas markets

1.552

2.7 Export Promotion Policies for Broadcast Program by METI METI, which oversees trade, has jurisdiction over broadcast programs and media content, including movies, music, animation, games, and publishing. Traditionally, METI’s policy interest in export promotion has been high.10 Since 2012, it has promoted export as among its major policies and has offered subsidies through a relatively large budget for Japan (Table 3).

2.8 Discussion on Appropriate Production Transactions Appropriate production transactions are part of the nation’s overall labor policy, and discussions are underway to review the business relationships between prime contractors and subcontractors and freelancers in film, animation, and broadcast programs. Films and animation are under the jurisdiction of the METI, while broadcast programs are under the jurisdiction of the MIC. The professional guild systems in film and television in each function have not developed into a strong bargaining and organizational force in Japan like in Hollywood. When guilds have power, the negotiation process leads to developing labor customs and practices, which has been slow in Japan. Thus, staff and freelancers, in particular, have lost their bargaining power. Further, the disadvantages of bad

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Table 3 The policy budget of oversea promotion by media and content industry division of METI Abbreviation

Period in effect

Official name

Budget (bil. JP¥)

J-LOP

2013.3–15.3

FY2012 supplementary budget, METI, MIC fund for “Promoting Content Worldwide”

12.33 (METI), 3.20 (MIC)

J-LOP +

2015.3–16.3

FY2014 supplementary budget METI “Fund for promoting content produced by Japanese broadcasters worldwide that contributes to regional revitalization”

5.997

JLOP

2016.2–16.11

FY2015 supplementary budget, METI “Subsidy for expenses arising from the establishment of the foundation for distribution of locally produced content overseas”

6.694

J-LOP4

2016.12–17.11

FY2016 supplementary budget, METI “Subsidy for expenses arising from the establishment of the foundation for creating global demand for content”

5.999

The above is a support system: Japan content Localization and Promotion (J-LOP) The following is a support system with a different scheme: Japan content Localization and Distribution (J-LOD) n.a

2018.04–19.01

FY2017 supplementary budget, METI “Project to create a global content ecosystem with a focus on creators”

3.020

J-LOD

2019.02–20.01

FY2018 supplementary budget, METI “Subsidy for projects to promote the creation of global demand for content”

3.010

J-LOD

2020.03–2021.01

FY2019 supplementary budget, METI “Content Global Demand Creation Promotion and Infrastructure Development Project”

3.101

J-LOD

2021.03–2022.03

FY2020 the third 5.450 supplementary budget, METI” Content Global Demand Creation Promotion / Infrastructure Strengthening Project Cost Subsidy” (continued)

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Table 3 (continued) Abbreviation

Period in effect

Official name

Budget (bil. JP¥)

The following is a support program for measures against coronavirus infection for the entertainment industry J-LOD live

2020.05–2021.03

FY2020 supplementary budget, “Content Global Demand Creation Promotion Project Cost Subsidy”

87.800

J-LOD live 2

2021.03–

FY2020 the third supplementary budget, “Content Global Demand Creation Promotion Project Cost Subsidy”

40.130

Japanese customs and practices of not actively signing written contracts are negatively reflected in this group. Such customs are also not conducive to co-productions with foreign countries or attracting filming locations. Globally, there is a trend to stimulate the local film and television industries by attracting rich global majors to shoot on location, but Japan does not follow this trend. This policy measure is necessary to ensure compliance with the acceptance of local-language-based productions by Hollywood and global Internet distribution players (regardless of a deal).

3 The Industrial Organization of Content Industry 3.1 Broadcasting (TV, Radio, Cable, and Satellite) For the past 20 years, the Japanese broadcasting industry has run at a scale of 4 trillion yen ($38.64 billion or e31.46 billion). The breakdown in 2018 is shown below (Table 4). In Japan, terrestrial broadcasting is the central and mainstay of the broadcasting industry. Japan’s television system is based on a dual public broadcasting system (NHK) and commercial broadcasting. NHK broadcasts under a nationwide license. Like the BBC, it is financed by license fees,11 with no advertising revenue or commercials. However, commercial broadcasting, which depends mostly on advertising revenue, is licensed on a prefectural basis, with one to five broadcasting companies operating terrestrial TV broadcasting in each region. There are more than 120 commercial broadcasters in Japan. However, Japan is centralized, and there is a strong need for information from Tokyo from all over Japan. Thus, a station in Tokyo is responsible for the network function of producing and programming for the entire country, and other regional stations act as affiliate stations to relay programs through a network agreement. This structure is similar to that of the United States. Such

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Table 4 The turnover of Japanese broadcasters (2018)

N. of players

Turnover (bil. JP¥)

Public broadcaster NHK

1

Terrestrial basic broadcasters

526

Satellite broadcasters

41

361.9

Cable operators

492

503.0

(sum.)

737.3 2,339.6

3,941.8

Data source MIC (2020) WHITE PAPER Information and Communications in Japan.

network agreements connect five group affiliates. The stations in Tokyo are a local stations in the Tokyo metropolitan area and a national networks. While cable retransmissions are common in urban areas, direct reception of terrestrial radio waves is more common nationwide. Unlike in the US and Europe, cable penetration has been slower and less rapid, with a current household penetration rate of 52.3% (December 2019). As in the US and Europe, Japan is at the forefront of the convergence of broadcasting and telecommunication and was among the first to offer triple-play services, combining multi-channel broadcasting, telephony, and ISP. Meanwhile, the cord-cutting problems seen in the US have so far not materialized. Of course, there is a strong sense of urgency among operators. The Japan Cable and Telecommunications Association,12 an industry association, has signed comprehensive agreements with content producers such as Netflix and Discovery, and obtained their content through cable systems. Among the above, satellite television is complex in Japan. Historically Japanese satellite broadcasting began in 1989 with the broadcasting satellite (BS) system with eight analog channels. It was followed in 1996 by the communication satellite (CS) system with hundreds of channels. These were categorized by satellite. Today, they are digitalized and have more channels. Since the amendment of the broadcasting law in 2009 and 2011, two categories of satellite broadcasting have been established: satellite basic broadcasting and satellite general broadcasting. Such legal categorizations are determined by whether they target general or more specific audiences. The production entity of TV programs is on a case-by-case basis. Some are broadcasters’ productions and some are programs by the production company that serves as the prime contractor. Thus, there are no production quota regulations for independent producers, such as the UK government’s 25% independent quota or the BBC’s Window of Creative Control rules. Many of the leading TV program production companies are capitalized by TV networks, such as NHK Enterprise, NHK Educational (NHK), Nippon TV AXON (Nippon TV), TBS Sparkle (TBS), Kyodo Television (Fuji Television), TV Asahi Video (TV Asahi), and TV Tokyo Production (TV Tokyo). This situation is similar

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to ITV Studios in the UK, StudioCanal in France, and Fremantle media, an RTL affiliate. Granted, there are many leading independent companies (e.g., TV Man Union) and companies that produce movies and commercials. The capital relationship between television networks and film companies is not as strong as in Hollywood. Historically, the relationship between Fuji Television and Toho and between TV Asahi and Toei can only be observed. Program production is funded by license fees in the case of NHK and transactions with advertisers in the case of terrestrial commercial broadcasting. Further, subscription fees from viewers further fund satellite broadcasting. Regarding animation and dramas intended for multiple uses after a broadcast, funding is provided by a production partnership system similar to that used for Japanese films (see Fig. 3).

3.2 Film Regarding box office revenue, Japan is the third-largest worldwide after North America and China. Regarding the number of films produced, Japan produces about 600 per year, making it second only to markets such as India, the Philippines, North America, and China (before the COVID-19 pandemic). Further, for the past 30 years, the top-grossing films at the Japanese box office have been characterized by the animation genre and films financed by TV stations. Regarding the latter, particularly in the “film partnership system” unique to Japan, film distributors, TV stations, and publishers with the original rights act as managing companies in many cases (see also 3–5). The industrial organization on film production can be summarized as three layers: film partners as an ordering party (mentioned later), producing companies as a prime contractor, and small and personal companies and freelances as a sub-contractor. In the primary contractor layer, there are member companies of the Japan Film Maker Association (about 50 companies) and 200 to 400 independent companies (estimated). In the sub-contractor layer, there are member organizations of the Personal Motion Picture Workers Association Japan13 and independent freelances. The Personal Motion Picture Workers Association Japan is a coalition of eight organizations. These are each organization of directors,14 cinematographers,15 lighting,16 sound,17 production designers,18 editing,19 scripters,20 and writers.21 It is not uncommon for companies and individuals belonging to the prime contractor and sub-contractor layers to produce films and TV dramas and, more recently, distribute them.

3.3 Package (DVD, BD) Japan differs from other Western countries in that it still has a considerable video rental market. In the US and Europe, the market for retail still exists, but rental

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Fig. 3 Overall of Japanese traditional broadcasting industrial organization

has almost disappeared. As in the US and Europe, if the rental market is eventually replaced by the Internet distribution market, there would still be room for expanding the distribution market in Japan (Fig. 4).

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JAPAN

000 mil JP ) 8000 7000 6000 5000 4000 3000 2000 1000 0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Retail

Rental

UK

3,000.00

Internet Distrobuution France

1,500.00

2,000.00

1,000.00

1,000.00

500.00

0.00

0.00 2014

2015

retail

2016

rental

2017

2018

2019

2015

retail

Germany

3,000.00

2014

internet

2016

rental

2017

2018

2019

internet

Italy

1,000.00

2,000.00 500.00 1,000.00 0.00

0.00 2014

2015

retail

2016

rental

2017

2018

2019

internet

2014

2015

retail

2016

rental

2017

2018

2019

internet

Spain

800.00 600.00 400.00 200.00 0.00 2014

2015

retail

2016

rental

2017

2018

2019

internet

Fig. 4 The share of Retail, Rental Video, and Internet Distribution. Data source European audiovisual observatory yearbook and JVA Japan video software association

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3.4 Internet Distribution (Pure Players and Broadcaster Video-On-Demand Players) [Players] The progress and diffusion of the Internet distribution business in Japan lag that of the US and Europe by several years because the two major global players, Netflix and Amazon, have been slow to enter the Japanese market to create a competitive environment. Moreover, since the market is characterized by Japanese language and culture, diffusion will take time (Table 5). However, DAZN, a specialized sports distribution player, was quick to enter the Japanese market. Perform Group announced its acquisition of exclusive worldwide media rights to Japanese J-League football under a 10-year, ¥210 billion (US$2 billion) contract, succeeding a ¥5 billion deal with SKY Perfect in July 2016. Under the contract, all matches from the three J-League divisions (J1, J2, and J3) would be broadcast by DAZN beginning in 2017. The league described the contract as the largest broadcast rights deal in the history of Japanese sport. The J-League exclusive broadcast was the killer content of the CS broadcasting station, SKY PerfecTV. Therefore, it damaged their business. However, those with domestic capital can be divided as follows (Table 6). Moreover, Hulu started as a JV for TV networks in the US. As their world’s first overseas expansion, Hulu made its way to Japan in August 2011. However, its activities in Japan underperformed (the Subscription Video-on-Demand (SVoD) Table 5 Expansion of internet distribution by global majors into other countries and states Major operating nations

Japan

Netflix

US (est.1999, Internet dis.2007), 2010: Canada (Feb.) 2012: UK & Ireland (Mar.), Scandinavia (Oct.), 2013: Netherlands (Sep.) 2014: France, Belgium, Germany, Austria, Switzerland (Sep.), 2015: Australia & New Zealand (Mar.) Spain, Portugal, Italy (Oct.)

September 2015

Amazon Prime Video

2011: US (Feb.) 2014: UK, Ireland, Germany, Austria (Feb.)

September 2015

DAZN (UK Capital)

2016 Germany, Switzerland, Austria 2017 Canada 2018 US, Italy 2019 Spain, Brazil

August 2016

Disney +

2019 (Nov.) US, Canada, Australia, NZ 2020 (Mar) UK, Switzerland, Germany, Italy, Spain, Austria, (Apr) France, India

June 2020

HBO Max

2020 (May) US

Planned in 2021?

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Table 6 Japanese major internet video distribution players Categories

Major players

Broadcaster Video-On-Demands (BVoDs) by terrestrial broadcasters

(see Table 8 Japanese BVoD) Japanese Hulu is one of them

BVoDs by pay-TVs

WOWOW Members on-Demand by Satellite broadcaster WOWOW, J:COM on-Demand, by cable MSO J: COM

Pure players

dTV, by telecom giant NTT Hikari TV, by telecom giant KDDI DMM, originates from a video rental shop U-NEXT, originates from a cable music radio Abema TV (a joint venture [JV] by a TV network [TV Asahi] and a platformer [CyberAgent]) GYAO!! (by a platformer Yahoo! Japan),

market was underdeveloped), and it was sold to a Japanese TV network, Nippon Television Network. Since then, it has become more of an SVoD service for Nippon Television Network. The current shareholders of Hulu in Japan are Nippon Television Network Corporation, their affiliate stations, Hulu in the US, Yahoo!, and a Japanese film major Toho. Among Yahoo’s content distribution services, Yahoo’s pay service has also been integrated into Hulu (thus, Yahoo!’s video distribution service GAYO! now specializes in free video distribution services). Further, AbemaTV was launched in April 2016 as a JV between a TV network TV Asahi and an Internet platformer and ad agency CyberAgent. It operates on a freemium business model (a combination of Ad-based Video-on-Demand and SVoD). Initially, CyberAgent’s CEO stated that the service aims to become an online TV station that includes a news channel operated in collaboration with the All-Nippon News Network, in which TV Asahi is involved. With more than 59 million application downloads, 12.11 to 14.23 million WAU, and 844,000 pay membership, it is a distribution service with a strong presence in Japan (FY2020 financial result statement22 ). [Market Size] Several estimated statistics regard the market size of Internet video distribution by the Japan Video Software Association (JVA), Digital Content Association of Japan (DCAJ), and a research agency GEM standard23 (Fig. 5). The DCAJ data is a basic estimation of the market size, and the GEM standard estimates the market share of major players in Japan. The JVA data is valuable for comparisons with the package video market. The market size was approximately 250 billion JP¥ in 2019, almost the same size as the Japanese movie box office revenue and a little higher than the retail package video sales. The growth rate remained at over 20% before the COVID-19 pandemic. Japan still has a video rental market, although it is declining.

T. Uchiyama

000 mil.JP¥)

84

4500

3973

4000

3710 3500

3238

2770

3000

2404

2500

1850

2000

1630

1500

1230

1255

1410

1016

961

1000

597

614

2013

2014

1510 1680

1256 1228

2200 1980

2392

DCAJ(estimation) JVA(estimation)

1429

GEM(estimation)

500 0 2012

2015

2016

2017

2018

2019

2020

Fig. 5 The estimation of market size of internet video distribution. Data source DCAJ, JVA, GEM standard

[Market Share] The market share is divided between global and domestic players. Relative to Europe, Netflix and Amazon in certain US capitals are relatively small. (Fig. 6). However, 100%

80%

60%

40%

20%

0%

Germany

Netflix

Amazon

Spain

France

Apple TV+

U.K.

Disney Life /Disney+

Italy

HBO

Japan

others than U.S.

Fig. 6 The Market Share of SVoD and “Over the Top” services in 2019 (estimated). Data source European data are from the European Audiovisual Observatory Yearbook in estimated subscribers;Japanese data are from GEM standard in estimated

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85

Netflix is rapidly gaining market share (Fig. 7). “others than US” in Fig. 6 includes Germany; DAZN, SKY, Maxdome, TV now Spain; DAZN, SKY, Rakuten, Atresplayer, Mitele U.K.; Sky, ITV Hub Italy; DAZN, Sky, TimVision, Mediaset Japan; U-NEXT, DAZN, Hulu, dTV. [Production Cost]

(%)

The expansion of the Internet distribution business, especially the entry of global players into Japan, as well as the activation of local-language-based production, will inevitably impact how existing broadcasters and filmmakers produce programs. For some time, Japan’s program production budget has been low relative to other G7 developed countries (Table 7). Thus, far, there seems to be a difference between the way local-language production is done by global distribution players and the local-language production of films by traditional Hollywood majors. In Japan, local production of films by the Japanese branch of WB (Warner Bros. Japan LLC) has been active. These films aim to be successful in the Japanese film market first. WB has produced “Japanese” films that have been commercial successes on par with the major Japanese national players, such as Toho, Toei, and Shochiku. Hence, some of them have been remade in Hollywood and are now being developed worldwide. This situation is a step-by-step process of global development. However, many local productions by Internet distribution majors aim for global release at the onset. Alternatively, even if there is a slight lag because of rights processing, they will launch worldwide within a short period. It is challenging to determine the appropriate strategy. At least Internet distribution players face a higher risk; however, given their strong fundraising ability, they may absorb enough.

20.0

19.5

13.8 10.0

8.4 6.4 4.3 0.0 2016

2017

2018

2019

2020

Fig. 7 The Market Share of Netflix in Japan. Data source GEM standard

86

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Table 7 TV Program Buying Cost (as a Suggestion of Production Cost). The figures below are the international transaction prices from the Television business international (TBI). From this price, it is possible to estimate the level of production costs Pre-Sale

Acquisition

US Network

300,000–1 m

–

France free to air

25,000–150,000

20,000–100,000

JAPAN free to air

25,000

16,000–35,000

JAPAN Pay TV

13,300

3,000–8,000

US Network

10,000–100,000

5,000–100,000

France free to air

15,000–30,000

8,000–20,000

JAPAN free to air

20,000

8,300

JAPAN Pay TV

1,600–5,000

2,000

US Network

–

20,000–50,000

France free to air

–

10,000–25,000

JAPAN free to air

–

10,000–30,000

JAPAN Pay TV

–

–

DRAMA

(in US$) Per one episode (50 min)

ANIMATION

Per one episode (25 min)

FORMAT

Per one episode (50 min)

TV MOVIES

Per one episode (75–90 min)

US Network

1-5 m

-

France free to air

25,000–200,000

25,000–150,000

JAPAN free to air

–

10,000–35,000

JAPAN Pay TV

5,000–25,000

FACTUAL

Per one episode (50 min)

US Network

100,000–1 m

France free to air

25,000–120,000

7,500–40,000

JAPAN free to air

25,000–150,000

8,000–20,000

JAPAN Pay TV

13,200–25,000

6,000–20,000

US Network

5,000–150,000

5,000–100,000

France free to air

10,000–50,000

10,000–60,000

JAPAN free to air

5,000–20,000

2,000–20,000

JAPAN Pay TV

2.000–5,000

2,500

CHILDREN’S

Per one episode (25 min)

(In US dollars. Source: TBI Oct/Nov 2014). The TBI gathered all information from a cross-section of distributors familiar with each region. Prices quoted are in US dollars at current exchange rates. Prices can be affected by several factors such as the sale of the program as part of a package, the number of transmissions, whether it has aired first in markets where broadcast signals overspill (e.g., France and French-speaking Belgium), and competitive developments in each market (e.g., the launch of new TV networks). Price ranges suggest an average; thus, exceptional, one-off high and low prices have been stripped out.

Audio-Visual Content Industry in Japan

87

3.5 Film/Content Partnership The film/content partnership is a method of raising funds to produce visual works such as films and TV programs by having multiple companies invest in the project rather than a single investor.24 Most major films are made this way, with only a few financed solely by the majors.25 Recently, this method has been increasingly used in TV animation and TV drama productions. Legally, it is a voluntary partnership under the Civil Code, and as a “partner,” the sponsors of the investment have unlimited liability. It is also an organizational format adapted to the Japanese media ecosystem and does not assume temporary investors. It is also similar to the LLC/LLP method observed in major film and drama productions in U.S. and European states. However, it is not and cannot be a vehicle/corporation that receives tax benefits although there is heated tax incentive competition in the world,26 because there is no tax incentive system for content production in Japan; thus, there is no need to spend money on corporate operations. Therefore, there is no need to prepare financial statements as rigorously as in the LLC/LLP system, and the taxation system is a pass-through to the investor.

4 Internet Video Distribution 4.1 Brief History As in other countries, video transmission over the Internet has had several phases of entry. Although the start of video transmission via the Internet in Japan was early in the 2000s, it noticeably lags the rest of the world in the 2010s. The arrival of global players such as Netflix and Amazon Video Services and the late start of simultaneous broadcast distribution by broadcasters have resulted in a late emergence of a competitive environment. First phase before 2005: On-demand service for feature phone and the first IPTV service (IP multicast transmission) Second phase around 2005: VoD service of original contents by TV stations and pure players. (e.g., TBS BooBo BOX、Nippon TV No.2, TV Asahi BB in 2005). Third phase around 2008: Pay VoD service of TV archives content and some catch-up service. The year 2008 saw the launch of VoD services for broadcast programs by the major broadcasters (e.g., NOD, FOD, TBS on-Demand, TV Asahi Video、Nippon TV on-Demand). Fourth phase in 2011: Retransmission of terrestrial broadcastings by IPTV multicast; However, this service is limited to the reception in the same area as radio broadcasting.

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T. Uchiyama

Fifth phase in 2015: Free catch-up service of terrestrial broadcastings, integrated platform TVer, the arrival of global player Amazon video service, and Netflix. Sixth phase in 2020 and beyond: Simulcasting (unicast transmission) and playback (start-over) of TV broadcasting; Meanwhile, the revision of copyright law and the use of viewing data will be discussed. With the start of simultaneous distribution, Japan will finally have an Internet distribution service that transcends spatiotemporal limitations. The 2020s are expected to be the era of DX for Japan’s broadcasting industry and Internet video distribution business.

4.2 The Analogy from Film, Music, and Publishing Industries for Intermedium Competition In the Japanese examples of the following three medium industries, the new media has taken 10 years to become competitive and replace the old media. Meanwhile, it will take 20 to 25 years for the old media to establish a new business model and business domain that will serve as a differentiation strategy under the new environment.

Audio-Visual Content Industry in Japan

89

Table 8 Japanese BVoD internet distribution service NHK VoD for Internet original content

VoD of NHK broadcasted on-Demand program (free & premium) 2008/12/01 (Re-Brand) (Re-Brand)

Nippon TV

TBS

Nippon TV No.2

2005/10/27

Fuji Television

TV Asahi

TV Tokyo

TBS BooBo Fuji TV BOX on-Demand -> TBS on-Demand

TV Asahi BB AbemaTV TELASA

Anime Express -> AniTele & TV Tokyo Play

2005/11/01 2008/12/01

2006/03/01 2000/06/06 2016/04/16 2005/12/12 2020/04/07 2014/05/30

2005/09/

Nippon TV TBS Fuji TV TV Asahi on-Demand on-Demand on-Demand Video -> Nippon TV on-Demand ZERO 2008/11/01

TV Tokyo Business on-Demand

2010/12/01 2012/10/01

2009/02/03

2009/06/25 2013/03/18

Hulu

Paravi

Paravi

2011/09/01

2018/12/01

2018/12/01

Hulu (JP) 2014/04/01

Catch-up (free)

NHK Nippon TV on-Demand Free TADA!

TBS FREE

Fuji TV + 7, FOD Catch-up Free

2008/12/01

2015/10/01

2015/01

2014/01

Integrated Catch-up (free)

TVer (Joint portal site by commercial broadcasters)

Simulcast (unicast)

NHK Plus

2019/08/26

2020/04/01

TV Asahi Catch-up

NET. By TV Tokyo

2015/04/13

2015/10/26

Planned in Oct. 2021

Planned in Q1 2022

Planned in Jan. 2022

Planned in Q1 2022

Planned in Dec. 2021

Case 1: Film industry in 1955–1965 As in other countries, the rise of the television medium hit the film industry hard in Japan. The situation almost reversed in the 1958–1967 decade, during which cinema attendance fell by 70% (from 1,127.45 to 335.07 million) while television penetration increased by a factor of ten (from 1.98 million to 20.27 million households subscribed to NHK license fee). In 1958, the relationship between the film and television industries was at its worst when the six major Japanese film companies refused to supply television with feature films, exclusive actors, and directors (until

90

T. Uchiyama

Table 9 Japanese case of the competition and transition between alternative old and new media Peak of the old 10 years after medium the old medium

10 years after 20 to 25 years the new after the old medium medium

In the world

1958; the peak −70% in the of number of Cinema-goers theatergoers

TV penetration by 10 times

The success of the media mix Full-scale entry of TV stations

The success of Hollywood style (High concept and blockbuster movies)

Music from 1998; the peak Decreased by package to of package one-half the Internet sales package sales distribution

Internet piracy Expansion of subscription models

Expansion of Digital festivals and transformation concert markets; the music distribution market, which is the sum of downloads and subscriptions, began to expand in 2013

Publishing from paper to Internet distribution

Internet piracy Expansion of subscription models

Expansion of IP Digital business and transformation subscription models in the comic genre

Film to television

Second half of the 1990s; the peak of circulation

1964). Some of the six majors (e.g., Shin-Toho, 1947–1961) and others (e.g., Daiei, 1942–1971) went bankrupt. The opportunities for Japanese cinema to find new and sustainable business models afterward include the following: (a) (b) (c)

Second half of the 1970s: The success of media-mix strategy by publishing company KADOKAWA Commercial success of animation films in the second half of the 1970s The 1980s: TV stations’ voluntary and active participation in film investment. The so-called “film partnership” business model in the Japanese style.

Competitive Japanese animation films and programs are also financed and produced under the film partnership model. For details, see (Uchiyama 2021).

Audio-Visual Content Industry in Japan

91

Fig. 8 The transition and digital transformation among the media

Case 2: Digital Transformation in the Japanese Music Industry from 1998 to Date. Sales of music software (e.g., records and CDs) in Japan peaked in 1998 at about 607.5 billion yen and have been declining ever since. Circa 2000, fiber-optic networks and ADSL were recognized by the public, and broadband networks spread, making the transmission of sound data practical. It was preceded by the massive illegal distribution of software and content through P2P sharing software such as Napster (1999–), Share (2004–), and Winny (2002–). In contrast, the literature argues that even if the illegal distribution has a promotional effect, the correlation with the decline in sales of official editions is undeniable. That is, Internet piracy is of sufficient quality and availability to reduce and cannibalize legitimate sales, and there is a promotional effect for artists through the free availability of content, both legitimate and illegitimate. However, official versions were also distributed via the launch of downloadable music services for the Japanese mobile phones of the time (i.e., Chaku-Uta [2002– ] and Chaku-Uta Full [2004-]) and legitimate (downloadable) digital music data distribution services such as the iTunes Music Store (2004–). However, the resistance to pay-as-you-go services was a hurdle that did not fit in with the ubiquitous culture of the Internet (i.e., the ease associated with “anytime, anywhere”). Thus, the downloadable format never really took off, peaking at 90.98 billion yen (2009) and declining thereafter. The decline in package sales had not abated. At one time, data suggested that young people were moving away from CDs and were even fearful of moving away from music.27 Fortunately, a reversal of this trend has been observed in the most recent data; we now observe a different style of music-loving than in the heyday of CDs. The penetration of (pop culture) music has changed. There used to be much

92

T. Uchiyama

promotion in the lead up to the final sale of CDs via TV music programs and concert activities. Since the beginning of the twenty-first century, the Japanese music industry has seen a huge growth in festivals and concerts. Much promotion is done before the festival or concert to maximize excitement, including ticket prices and sales. CD sales and the distribution of promotional videos on the Internet are part of this process. Furthermore, the supply within the Internet has also seen a shift and penetration of subscription-based services from download-based services. Spotify’s penetration has been noted in Europe and the US for some time. In Japan, the launch of Spotify and other similar services have gradually been observed. Here as well, Spotify had been slow to launch. *Major Music Distribution Players in Japan The following shows the market entry of Internet music distribution players in Japan. The global players (Spotify, Amazon, and Apple) are estimated to have a significant share of the market in Japan. AWA: Launched in May 2015. Jointly owned by CyberAgent and Avex Digital. LINE MUSIC: Launched in June 2015. Jointly owned by LINE, Avex Digital, Sony Music Entertainment, and Universal Music. Apple Music: Launched in July 2015. Google Play Music: Launched in September 2015. Rakuten Music: Launched in August 2016. Spotify: Launched in September 2016 in Japan. Case 3: Digital Transformation in Japan’s Publishing Industry in the Late 1990s to Date Among the print media, sales and circulation of books and magazines in Japan peaked in the 1996–1999 and 1996–1998 periods, respectively; those of newspapers peaked in the 1997–1999 period, after which they began to decline. The trend for the number of items published has been upward for some time. The number of books and magazines peaked in 2013 and 2005, respectively. Later, this indicator entered a phase of decline. It is not easy to establish a causal link between them and the spread of the Internet and Web, but it is clear that, regarding function and desire, the Web has satisfied people’s demand for print. People may have moved away from the physical medium of paper, but print continues to be supplied through the Web and other media. While publishers and newspapers continue to see a decline in paper sales, leading to a contraction of their B2C business, the B2B business of newspapers, news agencies, and magazines supplying news materials and scripts to various online news sites is becoming even stronger. Among the print media, the IP business continues to support a certain percentage of the revenues of the major publishers, while the penetration of subscription services has been observed in recent years, especially for the comic genre. Electronic publishing in Japan, which started to take off around 2012 and 2013, is overwhelmingly dominated by comics.

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93

Particularly, 2018 and 2019 were periods in which a bottoming out of publishing, including paper, was observed. The “paper + electronic” category bottomed-out in 2018 (1.54 trillion yen) and began to grow in 2019 (+0.2%, 1,543.2 billion yen). In the comics-only category, the bottom was reached in 2017 (430 billion yen), and the market entered a rapid growth mode (2018–2019, + 12.8%) because of the significant growth in e-publishing, which increased by 23.9%, while the paper market decreased by 4.3%. Electronic publishing now accounts for 19.9% of the total publishing market, thus refocusing on IP business to exploit stories and characters (three major publishers).

4.3 The Corporate Strategies of Global Pure Players The 2010s have been a decade of market development and growth for online video distribution worldwide, with Netflix and Amazon being the two strongest dedicated players. Given the trends in their business strategies, the 2020s will see them enter a full-scale competition with the film and broadcasting industries. [Competitors] The history of the expansion of pure Internet distribution players shows how they have competed with other industries (Table 10). First, it was the video rental industry, followed by cable and satellite. In recent years, it has increasingly been the film and broadcasting industries. In the 2020s, competition may involve the film and broadcasting industries, making online distribution the third most important media in the 130-year history of video, after film and television.

94

Table 10 The competitors and competition mode for NETFLIX

T. Uchiyama

Audio-Visual Content Industry in Japan

95

4.4 The Policy on Internet Distribution, Including Copyright Issue and the Act on Protecting Personal Information As elsewhere, Japan aims for broadcasting to be extended beyond radio transmission to Internet transmission. However, two hurdles remain under discussion as of 2020: rules on copyright and personal data protection. As mentioned, there has been some form of distribution business like IP multicast retransmission in Japan since the mid-2000s. However, Japan lagged the US and Europe in the simultaneous distribution of broadcast programs via unicast transmission. Various reasons can be considered. (a)

Traditional broadcasting (regarding audience and advertising markets) has not been as affected as in the US and Europe. The video rental business had a competitive edge (as shown in Fig. 4). The slow entry of global players in the distribution has slowed down the promotion of competition (as shown in Table 5).

(b) (c)

Regarding (a) above, for example, we have seen a reversal in the size of the broadcast and Internet advertising market. In the US: 2012–2013 (when Internet advertising outpaced network TV advertising, Fig. 9); 2015–17 (when Internet advertising outpaced the combined total of network TV and cable TV, Fig. 9) In 28 EU countries: 2014–2015 (Fig. 10 and Table 11). In Japan: it was around 2018–2019 (Fig. 11). i

Copyright Issue

internet broadcasting (networks + cable) TV networks

125.0

124.6

107.5

($billion)

100.0

75.0

68.7

68.5

72.1

88.0

74.5

72.0 65.7

66.3

70.1

71.0

70.6

2017

2018

2019

72.5 59.6 50.0 38.5

39.6

49.5 42.8 40.1

40.5

40.6

2013

2014

2015

36.3 31.7

25.0 26.0

0.0 2010

2011

2012

2016

Fig. 9 US advertising market. Data source IAB internet advertising revenue report each year

96

T. Uchiyama

60000.0

Television

52,323.9

Internet

50000.0

47,143.1

39,789.9

40000.0 35,974.5 32,504.3 28,539.0

30000.0 29196.0

28865.4

27,594.9 22,040.3

24,816.3 27,574.9

29,015.3

2013

2014

30,692.6

30,961.8

31,120.8

31,830.7

31,762.7

2015

2016

2017

2018

2019

18985.7

20000.0 16326.4

10000.0

0.0 2010

2011

2012

Fig. 10 EU advertising market. Data source European audiovisual observatory

In Japan, the copyright system is always an issue when broadcasters try to distribute broadcast programs over the Internet. In the 1997 amendment to the Copyright Act, the right of public transmission was arranged as follows: “public transmission” refers to interactive transmission, whether wireless or wired, to be received directly by the public; “automatic public transmission” refers to transmission made automatically in response to a request from the public, whether wireless or wired. This automatic public transmission is intended for distribution via the Internet, which is a telecommunication line. At the time of this amendment, “transmittable rights” were granted to performers and record producers in the form of license rights. Rights of Public Transmission (Communication) (Articles 2 and 23) = broadcasting right = wire broadcasting right = automatic public transmission right In hindsight, it is no exaggeration to say that this was a major fork in the road. It is in direct contrast to the European stance, for example, which established “technological neutrality” in COM (1999) 657 final28 and Framework Directive.29 This situation highlights the difference between Japan, with its segmentation, and the EU, with its convergence policy. There is a paucity of broadcasting and copyright laws in each country that make the differences strict. In Japan, this difference in transmission paths becomes a constant issue. Between 2003 and 2005, IP multicast broadcasting started in Japan. The Ministry of Public Management, Home Affairs, Posts, and Telecommunications, which has

Audio-Visual Content Industry in Japan

97

Table 11 The reversal of tv advertising and internet advertising in Europe. Data source Warc, European audiovisual observatory yearbook 2020

in mEUR State

year

Television

Internet

AD. Total

Austria

2019

1,164.1

682.2

4,261.6

Belgium

2015 2016

978.0 875.8

816.7 945.7

3,095.2 2,932.0

Germany

2012 2013

4,441.5 4,537.7

4,253.0 4,929.2

18,597.9 18,978.4

Spain

2017 2018

2,143.3 2,127.2

1,870.4 2,857.0

5,759.3 6,709.4

France

2013 2014

3,589.2 3,592.5

3,493.9 3,723.6

12,578.9 12,519.7

U.K.

2010 2011

5,004.2 5,044.1

4,773.5 5,556.7

16,644.7 16,969.8

Italy

2019

3,594.6

3,230.2

8,389.5

Neitherlands

2009

791.5

815.1

3,745.8

Poland

2018 2019

1,052.1 1,037.8

1,024.6 1,136.9

2,697.3 2,789.0

Portugal

2019

3,578.7

641.5

4,912.7

Sweden

2011 2012

693.8 748.1

686.8 859.5

2,812.7 2,928.1

EU28

2014 2015

29,091.0 30,692.6

28,539.0 32,504.3

92,330.2 97,576.9

98

T. Uchiyama 25,000

Television

Internet 21,048

20,000 17,321

17,237

17,757

17,913

18,347

18,088

18,374

18,178

17,848

17,345

17,589

(000 mil JP¥)

22,290

15,386

15,000 15,094 13,100 11,594

10,000

10,519 7,747

8,062

2010

2011

8,680

9,381

5,000

0 2012

2013

2014

2015

2016

2017

2018

2019

2020

Fig. 11 Japanese advertising market. Data source Dentsu, “Advertising expenditure in Japan” https://www.dentsu.co.jp/news/release/2021/0225-010340.html

jurisdiction over broadcasting, amended the Act on Broadcast on Telecommunications Services to treat IP multicast broadcasting as “broadcasting,” with the expectation that it would be a means to resolve viewing challenges. However, in the Copyright Act, it was still treated as “automatic public transmission” or “telecommunication.”

Table 12 IP Multicast Broadcasting Service in Japan in the 2000s

Brand

Operator

Service launch date

BBTV

BB Cable Corporation

2003.3

Hikaru plus TV

KDDI CORPORATION

2003.2

4th MEDIA

Online TV corporation

2004.7

On-Demand TV

I-Cast, Inc

2005.6

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The Copyright Act was amended in 2006 because of requests for amendments from various quarters being submitted to the ACA, which has jurisdiction over the Copyright Act. To facilitate the simultaneous retransmission of broadcasts through “IP multicast broadcasting,” the right of performers and record producers to make their works transmittable was restricted, and the right of performers to grant permission was replaced by the right to claim remuneration, limited to the simultaneous retransmission within the area of broadcasting. However, the “right to claim remuneration” was established for cable broadcasting, which had been “unlicensed.” The 2010 amendment to the Copyright Act applied a compulsory license system. In response to the inability to obtain permission for secondary use on the Internet of television programs, broadcast in the past was a disincentive for reasons such as the whereabouts of the copyright holder or performer (actor) being unknown; thus, the compulsory license system was made available even in cases where the performer’s whereabouts are unknown. In the 2011 amendment to the Copyright Act, the position of cable broadcasters and IP multicast broadcasters was reviewed per the 2010 amendment to the Broadcasting Act. Accordingly, they were treated as “general broadcasters,” subject to the obligation of simultaneous retransmission. Therefore, the Act does not apply to making available automatic public transmissions that must be conducted by those who receive broadcasts and carry out automatic public transmissions per the provisions of the Act. These systems above were related to retransmissions only in the “same area” and “simultaneously” with radio broadcasting. As noted, Japan has discussed the feasibility of simultaneous Internet transmission of more generic (unicast transmission) broadcasts since 2015. Without waiting for a legal response, the public broadcaster, NHK, will start simultaneous transmission of terrestrial broadcasts, including playback (start-over) and catch-up services in April 2020 under the brand name NHK +. As of March 2021, it remains under discussion in the Diet. Thus, a fairly significant revision of the Copyright Act is planned. This time, the request was for a revision of the system that would contribute to the efficiency of rights processing work, which has to be handled in large volumes within a limited time. The following options were discussed, basically covering “broadcast to simultaneous, play-back (start-over) and catch-up.” • Expansion of the application of rights restriction on broadcasting to simultaneous, play-back (start-over) and catch-up Internet distribution • Improving the efficiency of rights processing by introducing a presumption of licensing provisions • Application of the right restriction provisions with compensation to rights holders who are not members of the rights holders’ association • Enhanced compulsory license system Particularly, the introduction of a presumption of licensing system is expected to advance the intended operational efficiency. However, it is not as drastic as the introduction of the “Country of origin principle” and “mandatory collective management of rights,” as in the EU amended cat/sat directive (789/2019). Moreover, the

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thorn in the side of “automatic public transmission rights” remains since the 1997 regulation, and it is increasingly challenging to remove it. Webcasting services by pure players are expected to be more active, and the issue of the boundary between telecommunication and broadcasting will come to the fore again. As mentioned in 2–2, such a “transmission channel dependent” attitude is a characteristic of Japanese policy. ii

The Issue of Internet Advertising and Protection of Personal Data

The Japanese broadcasting industry, like that of Europe, is based on a dual system of public and commercial broadcasting systems, but commercial broadcasting has a relatively strong presence. Thus, Internet distribution of TV programs must be shifted to consider the cannibalization of the radio transmission audience and the phase relationship between broadcast advertising and Internet advertising. In general, relative to traditional broadcasting advertising, it is possible to pursue marketing convergence from targeting and addressable advertising distribution by taking advantage of interactivity. Even so, there is the problem of the low unit price of advertising. Further, Internet distribution will enable transmission to areas beyond those of existing radio transmission, which will affect the traditional compensation relationship between network and member stations. As in the US, theoretically, the flow of money, such as network compensation, which is used to be paid by the networks to the affiliate stations, may flow back to the networks from the affiliate stations to the networks regarding the burden of programming costs. This situation is because in Japan, measurements such as TCR (Total Content Ratings) and four-screen ratings have not yet been established between the media and advertisers, and a shift to the Internet would mean a reduction in broadcast advertising. Relative to the US, the Japanese movement lagged such that simultaneous distribution started late. The main player in measuring viewership in Japan is Video Research Ltd. This company was formed in 1962 as a JV between Japanese broadcasters and advertising agencies. It is the source of more indicators used in the Japanese market other than Nielsen. Per major trends in the US and Europe, Video Research is gradually shifting its focus from household to individual viewership, creating cross-device data panels, collecting time-series data including time-shifted data, and expanding the scope of data collected. Meanwhile, like the General Data Protection Regulation (GDPR) in Europe and the California Consumer Privacy Act (CCPA) in California, Japan has a Personal Information Protection Act. It is subject to amendment every three years and, like the GDPR and the CCPA, continues to be amended to provide greater protection for personal information. The current situation in Japan from 2019 to 2021 is an ongoing public experiment to see how far the one-way medium of television can be connected to the Internet and understood as a two-way media terminal.

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5 Conclusion The global 2020s will undoubtedly be a decade of strong inter-industry competition between traditional broadcasting and Internet video distribution. At the moment, there is no huge global player in Japan like GAFA or Netflix; and as in the EU, foreign and domestic players are expected to compete in the Japanese market. In countries where there is no GAFA-level player, there are high expectations for traditional broadcasters. Traditional Japanese broadcasters are not uncompetitive. Nor do they have a history of reluctance. Indeed, compared to the US and Europe, Japan has lagged in the development of Internet video distribution. However, this can be seen as a counterbalance to the relatively high competitive advantages of traditional broadcasting and packaged video services. In terms of business strategy, there is also a fear of cannibalization of revenues between radio and Internet transmissions. However, that is not all. There are various institutional obstacles for traditional broadcasters to enter the Internet distribution business. For example, in the copyright system, Japan does not have a system or practice with a high degree of freedom like the fair use system in the US. For this reason, even for the same program, radio transmission and Internet distribution have been treated as different permissions, and Rights permission processing has been required. Some right holders may grant permission for broadcasting but not for Internet distribution. After five years of discussion, the amendment came into effect in January 2022. Other issues, such as the stagnation of ad-tech and convergence technologies due to the Personal Data Protection Act, and the growing global trend toward the protection of big data, are of course also being discussed in Japan. The difference between the US and other countries is that the US was able to try out ad-tech before regulations such as the CCPA came into force, while Japan was unable to do so, and we fear that this difference may have an impact on the future. Notes 1. 2.

3.

4. 5. 6. 7. 8.

The films are under the jurisdiction of METI and ACA. See (Cabinet Office 2017), (ACA 2003), (METI 2009) and (Uchiyama 2021). (Japan Broadcasting Corporation 1998). NHK Broadcasting Ethics, amended in 1998 (in Japanese). http://www.nhk.or.jp/pr/keiei/kijun/index.htm [Accessed 11 July 2021] in Japanese. The Japan Commercial Broadcasters Association. (n.d.). Broadcasting ETHICS, amended 1996, 1999, 2014. https://www.j-ba.or.jp/category/english/ jba101019 [Accessed 11 July 2021] in English. https://www.bpo.gr.jp/ https://www.eirin.jp/english/index.html https://www.eirin.jp/english/008.html Rather, Japan is in the position of calling on the EU to deregulate broadcast quotas in the EU. See (MFA 2007). See the details in (Uchiyama et al 2009).

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9. 10. 11.

(METI 2013), p439. Cf. (Tanigawa 2016), (Murakami Ogawa 1999). Exactly saying, NHK calls it “receiving fee”. https://pid.nhk.or.jp/jushinryo/ multilingual/english/index.html https://www.catv-jcta.jp/p/english/index.html https://eishokuren.jimdofree.com/ Directors Guild of Japan https://www.dgj.or.jp/ Japanese Society of Cinematographers https://www.thejsc.net/ Japanese Society of Lighting Directors http://www.jsl-light.com/ Japan Cinema and Television Sound Creator Association https://www.sound. or.jp/. about 300 members. Association of Production Designers in Japan https://www.apdj.or.jp/ Japan Society of Editors http://jse1983.com/jse1983/HOME.html about 100 members. Japan society of script supervisors http://scripter.sakura.ne.jp/ about 50 members. Japan writers guild http://www.j-writersguild.org/ CyberAgent FY2020 Presentation Material. October 2019 to September 2020, Oct 28, 2020. https://pdf.cyberagent.co.jp/C4751/BYOH/TlVs/maq7. pdf?_ga=2.196099308.1778439739.1609636193-410502885.1609636193 [Accessed 11 July 2021]. GEM Standard https://gem-standard.com/ [Accessed 11 July 2021]. Cf. (METI 2016). eg, Godzilla series by TOHO. See the argument among (MPA 2016) and (Thom 2018) (Thom An 2017). Cf. RIAJ. Music Media User Survey reports. In particular, the 2015 survey figures released in March 2016 showed a sharp increase in the number of indifferent listeners (those who do not pay for music, especially those who do not listen to music by themselves) and a decrease in the number of free listeners (those who do not pay for music and those who listen to new music from free video sites or TV); since the 2016 survey figures, there has been a sustained improvement in these figures. “Principles and guidelines for the community’s audiovisualpolicy in the digital age” Brussels, 14.12.1999COM(1999) 657 final. https://eur-lex.eur opa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:51999DC0657&from=EN [Retrieved on December 11, 2019]. “A common regulatory framework for electronic communications networks and services (Framework Directive)” directive 2002/21/EC (March 7, 2002) https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX: 32002L0021&from=EN

12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22.

23. 24. 25. 26. 27.

28.

29.

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References Agency for Cultural Affairs (2003) For the promotion of future Japanese cinemas—For the revival of Japanese cinemas. https://www.bunka.go.jp/seisaku/bunkashingikai/kondankaito/eiga/eigash inko/pdf/korekara_nihoneiga_shinkou.pdf, Accessed 11 July 2021 Cabinet Office (2017) The report of review meeting on movie promotion measures. Task Force on Promotion Measures of Films in IP strategy headquarters of Cabinet office Independent Television Commission (2002) Comparative review of content regulation. A McKinsey Report for the Independent Television Commission UK Japan Broadcasting Corporation (1998) NHK Broadcasting Ethics, amended in 1998. http://www. nhk.or.jp/pr/keiei/kijun/index.htm, Asscessed 11 Dec 2019 Ministry of Economy, Trade and Industry (2009) A report of study group for business models in film industry Ministry of Economy, Trade and Industry (2013) “Service trade,” in 2013 Unfair Trade Report, Part2-chap. 11:439 Ministry of Economy, Trade and Industry (2016) Survey on overseas development of video content and procurement of funds—issues and countermeasures plan in our content industry Ministry of Foreign Affairs (2007) Japan’s proposal for regulatory reform dialogue (between Japan and EU). https://www.mofa.go.jp/region/europe/eu/overview/dereg0712.pdf, Accessed 11 July 2021 Motion Picture Association. (2016) When analyzing data on film incentives, you have to start with the right data. https://www.motionpictures.org/press/when-analyzing-data-on-film-incent ives-you-have-to-start-with-the-right-data/, Accessed 11 July 2021 Murakami Y, Ogawa N (1999) The forefront of the Japanese film industry. Kadokawa, Tokyo RIAJ. Music media user survey. (RIAJ Yearly Report). https://www.riaj.or.jp/f/report/mediauser/, Accessed 11 July 2021 Tanigawa, K (2016) Japan film export promotion association and contents for export. Monster film production by using government funds and its story. In: Tanigawa K (ed) Industrial space of Postwar films. Capital, Entertainment, Exhibition, chap. 2. Shinwasha Tokyo The Japan Commercial Broadcasters Association. (n.d.). Broadcasting ETHICS, amended 1996, 1999, 2014. https://www.j-ba.or.jp/category/english/jba101019, Accessed 11 July 2021 Thom M (2018) Lights, camera, but no action? Tax and economic development lessons from state motion picture incentive programs. Am Rev Public Admin 48(1):33–51 Thom M, An B (2017) Fade to black? Exploring policy enactment and termination through the rise and fall of state tax incentives for the motion picture industry. Am Politics Res 45(1):85–108 Uchiyama T, Ishikawa T, Shirayone E (2009) Japanese film & video content policy. In: M Sugaya M, Nakamura K, Uchiyama T. (eds). (2009). Video Content Industry and Film Policy, chap. 14. Maruzen, Tokyo Uchiyama T (2012) Oversea expansion of the Japanese content industry. Regeneration of Japan through Technology and Culture. Research and Legislative Reference Bureau of National Diet Library. http://dl.ndl.go.jp/view/download/digidepo_3533035_po_20120110.pdf?contentNo=1, Accessed 11 July 2021 Uchiyama T (2017) Global film and TV distribution policy disputes and overseas development of Japanese TV programs. The Current State and Challenges of International Broadcasting in Key Countries. 25th JAMCO Online International Symposium. http://www.jamco.or.jp/en/sym posium/25/7/, Accessed 11 July 2021 Uchiyama T (2021) Film and the Other Video Contents (TV program and Internet Video). In: Sugaya M (eds) Advances in Information and Communication Research, vol 2, chap. 7. Springer

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Acts Related to Content Act on Promotion of Creation, Protection and Exploitation of Contents. Act No. 81 of 2004. http:// www.japaneselawtranslation.go.jp/law/detail/?vm=04&re=01&id=1581, Accessed 11 July 2021 Act on the Protection of Personal Information, Act No. 57 of 2003. http://www.japaneselawtransla tion.go.jp/law/detail/?id=2781&vm=04&re=01, Accessed 11 July 2021 Act on the Limitation of Liability for Damages of Specified Telecommunications Service Providers and the Right to Demand Disclosure of Identification Information of the Senders, Act No. 137 of November 30, 2001. http://www.japaneselawtranslation.go.jp/law/detail/?id=2088&vm=04& re=01, Accessed 11 July 2021 Basic Act for the Promotion of Culture and the Arts. Act No. 148 of 2001, Amended to Basic Act of Culture and the Arts in 2017. http://www.japaneselawtranslation.go.jp/law/detail/?vm=04&id= 1494&re=02, Accessed 11 July 2021 Broadcasting Act. Act No. 132 of May 2, 1950. http://www.japaneselawtranslation.go.jp/law/det ail/?id=2954&vm=04&re=01, Accessed 11 July 2021 Intellectual Property Basic Act. Act No. 122 of December 4, 2002. http://www.japaneselawtransla tion.go.jp/law/detail_main?vm=&id=129. Accessed 11 July 2021

Trends and Use Cases of 5G Issei Kanno

Abstract This chapter describes the service trends and various use cases of 5G technology, which is being launched worldwide, along with a brief review of the related standardization of communication technologies. In addition, concrete examples of 5G trials of communication technologies and some use cases are also introduced. These are trials and demonstrations that have been conducted to verify the possibilities of 5G by mobile network operators and network device vendors, in collaboration with companies in a variety of industries from 2016 onwards. Through these descriptions, it is demonstrated that 5G is not only an evolution of 4G communication technology and a very high-speed smartphone service, but also has the potential to create new businesses in a variety of fields, and 5G can be used as a platform to enrich the quality of our lives. Keywords 5G · Trends of commercial service · Use case · Spectrum · Technical requirement · Standardization · Communication technology · Use case trials in Japan

1 Introduction 5G services were launched in various countries worldwide in 2018. A wide range of use cases for 5G were discussed in the early stages of standardization of the communication technology by forums like the International Telecommunication Union Radiocommunication sector (ITU-R) and the 3rd Generation Partnership Project (3GPP), and thereafter, the technology has been extended to reflect the requirements and findings of these use cases. Specifically, 5G is evolving to meet communication requirements such as ultra-high reliability, low latency, and massive device connections, in addition to higher speed and capacity, which is an extension of the evolution of communication technology up to 4G. It is claimed that 5G has the potential to I. Kanno (B) Wireless Communications System Research Group, KDDI Research Inc., Saitama, Japan e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 T. Jitsuzumi and H. Mitomo (eds.), Policies and Challenges of the Broadband Ecosystem in Japan, Advances in Information and Communication Research 4, https://doi.org/10.1007/978-981-16-8004-5_5

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create many new businesses because of numerous possible applications of communication in industry, in addition to enhancing the speed of communication services on smartphones for consumers. This chapter outlines the global 5G trends, the process of standardization to date, and possible future scenarios, while also describing demonstration experiments conducted around the author as concrete examples of use cases that show the various application possibilities.

2 Trends of 5G Commercial Service Verizon is the world’s earliest operator to launch 5G services in the United States. Verizon launched fixed wireless access services based on its own specifications in October 2018, and mobile services using telecom equipment compliant with global specifications of 5G New Radio (NR) standardized in 3GPP in April 2019. This was followed by service launches by AT&T, T-Mobile, and Sprint. In the U.S., the millimeter-wave band, represented by the 28 and 39 GHz bands, the 2.5 GHz band, and the 600/850 MHz band, have been used, with some operators using all three bands and others using selections. The millimeter-wave band, which has not been used for mobile communications previously, is difficult to use for the deployment of services over a wide area owing to its characteristics that limit the reach of the radio waves, but it has a wide bandwidth that enables ultra-high data rates and highcapacity communications that cannot be achieved with 4G. Operators deploying this band can differentiate themselves from other operators in terms of their peak data rates. Spectrum licenses in the U.S. are allocated on a regional basis, and the winner of the auction can use the network both as a public and private network. In other words, it is possible to operate private or local 5G. In South Korea, KT, SK Telecom, and LGU + simultaneously launched 5G commercial services in April 2019. While building its 5G network, KT also built a trial network and provided trial services to the Pyeongchang Olympics in December 2018. The 3.5 and 28 GHz bands have been allocated to different operators. South Korea also allocates a spectrum for private or local 5G use. In China, China Mobile, China Telecom, and China Unicom launched their services simultaneously in November 2019. China Mobile has been allocated the spectrum of 160 MHz in the 2.6 GHz band, while China Telecom and China Unicom have been allocated the 100 MHz spectrum in the 3.5 GHz band. In addition, the China Broadcast Network has been allocated 50 MHz in the 4.9 GHz band, and has announced that 96 MHz of its 700 MHz band will be used for mobile communications. By the end of 2020, more than 700,000 base stations were erected and deployed in more than 300 Chinese cities. The first 5G mobile communication service in Europe was launched by Swisscom in May 2019, followed by Vodafone, BT, DT, TIM, Telefonica, and other operators in the U.K., Italy, Spain, Germany, and other countries. The 700 MHz, 3.4–3.8 GHz, and the 26 GHz band frequencies which have been identified by the European Commission’s radio spectrum policy group as pioneer bands for 5G, will be allocated on a

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common basis within the EU. The spectrum is allocated through frequency auctions in various countries. In the U.K., EE, Vodafone, Telefonica, and O2 have acquired the 3.4 GHz band and have already started operations. In Germany, a spectrum auction was held for the 2.0 GHz and the 3.6 GHz bands; DT, Vodafone, Telefonica, and the mobile virtual network operator, 1&1 Drillisch, all won both bands. Many industrial and corporate services, like for the automotive industry, have already been launched. Regarding private or local 5G, Germany has decided to grant frequencies in the 3.7– 3.8 GHz band and part of the 26 GHz band, for vertical industries upon application as local licenses for self-management. Sweden will also reserve the 3.7–3.8 GHz band as a local license. The U.K. has begun accepting license applications for the 24.25– 26.5 GHz band, with the intention of allowing local use only indoors. In France, on the other hand, the spectrum for 5G is allocated to telecom operators, such as Orange, SFR, Bouygues telecom, and Free Mobile, who are expected to collaborate with industries and municipalities through frequency leasing and network slicing. In Japan, the Ministry of Internal Affairs and Communications approved the 5G specific base station establishment plans applied for by four mobile network operators (NTT docomo, KDDI, SoftBank, and Rakuten Mobile) in April 2019, and allocated 5G frequencies to each operator. Then, each operator launched 5G commercial services from March 2020. GHz bands of 100 or 200 MHz bandwidths were allocated to each operator from the Sub 6 frequency band (the 3.6 and 4.5 GHz bands), and 400 MHz bandwidths were allocated to each company from the 28 GHz band. In addition, 300 MHz bandwidths from the Sub 6 and 900 MHz bandwidths from the 28 GHz band have been reserved for local 5G use, and applications have been solicited. 5G is expected to solve social issues and engender economic revitalization by providing services to people, the economy, and businesses. Therefore, it was considered important to set up indicators enabling flexible area expansion in both rural and urban areas for business development, and those that evaluate early area expansion in rural areas. For this reason, the 5G infrastructure deployment rate (one of the indicators of the number of regions in which 5G will be deployed) was employed as the criterion for the 5G deployment plan, instead of the population coverage rate that had been used in the screening criteria for 4G and the ones before. The plan also incorporated the timing of service launch in all prefectures, the number of specific base stations opened nationwide, and the plans for 5G utilization.

3 Use Cases of 5G and Its Standardization There has been extensive discussion of 5G use cases worldwide, even before the fundamental standard communication technologies for 5G were established. One initial widely held international consensus was ITU-R Recommendation M.2083 (ITU-R 2015), which defines three typical usage scenarios: enhanced mobile broadband (eMBB), ultra-reliable and low latency communications (URLLC), and massive–machine type communications (mMTC), as shown in Fig. 1. In most cases,

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Enhanced mobile broadband Gigabytes in a second 3D video, UHD screens Work and play in the cloud

Smart home/building

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these usage scenarios have been used as a common base when discussing specific use cases and technologies for 5G. Until 4G, conventional mobile communication systems were designed mainly for human communication, that is, for voice and mobile broadband data communication, and the communication system evolved mainly to increase the peak data rate, communication capacity, and service area coverage. Hence, the advent of 4G meant that we could enjoy high-definition videos through smartphones even outdoors. However, 5G covers a wider range of usage including non-human communication such as URLLC and mMTC, and the direction of the evolution includes many changes. The following subsections describe these usage scenarios in detail, and examines how 5G will spread and evolve with standardization.

3.1 eMBB So far, mobile communication systems have met the explosive increase in traffic associated with the spread of smartphones by increasing the speed and capacity to fulfill these needs. However, the need for high-definition images and video content is expected to increase even further in the future, not only for entertainment but also for education, medical care, security, and due to the increasing capacity/size of the content, such as 4/8 K videos. For example, a typical use case would be for a doctor to remotely view and diagnose medical images that require high definition.

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Virtual reality (VR), augmented reality (AR), and mixed reality (MR) are becoming increasingly popular as applications that provide a new visual experience with a sense of realism. To enable users to comfortably peruse these large-volume contents, the requirement for high throughput communication will grow with the increase in the quality of those video contents. Assuming this, the amount of traffic in the 2020s is expected to increase 1000-fold from 2010, and a 5G system is necessary to support this increase in capacity.

3.2 URLLC Even with 4G, browsing the Internet with a smartphone can be done without feeling stressed about communication latency. However, in the case of non-human communication, there are instances where minor communication latency that is unperceived by humans can have a critical impact. If, for example, by using sensors for remote monitoring and controlling equipment, the speed and efficiency of work execution is enhanced beyond that of humans, many new applications can be realized. Communication is required to assess and grasp a situation and send control information remotely, and 5G is required to sufficiently shorten the time required to do so. It is not difficult to imagine then, that a disconnection of communication would have an adverse impact. In addition, retransmissions will increase the delay in communication if there are transmission errors during the connection, therefore, it is very important to achieve unprecedented reliability. Car crash avoidance through vehicle-to-vehicle (V2V) communication and remote control of robots for industrial manufacturing are typical use case examples in which communication latency and reliability are of critical importance. For these use cases, low end-to-end network latency to the order of milliseconds (ms), which corresponds to less than 1/10 of 4G, is required. Especially in the wireless communication part of the network, stringent, high standards, such as transmission latency of less than 1 ms and 99.999% reliability, are required.

3.3 mMTC Expectations for non-human communication, as represented by the Internet of Things (IoT), are increasing. The installation of communication modules for electricity and gas meters is currently in the dissemination stage. In addition, there is growing demand for the installation of sensors in agriculture, animal husbandry, and social infrastructure such as buildings and roads. Furthermore, the installation of communication modules in a wide variety of objects is expected to improve the quality of life, increase security, and reduce costs in various operations. There are high expectations for mobile communications in transportation equipment such as cars and trains, and specific use cases such as driver support, including automated driving, entertainment, and safety improvement, will become even more important. Remote

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control and security for home appliances, houses, and offices will become more widespread. There will also be more diverse ways to communicate with humans, such as wearable devices. Eyeglass-type terminals are a typical example. But in the 2020s, tactile communication is expected to be put to practical use, and services using tactile sensation are also likely to spread. Another use case being considered is the installation of devices with sensors and communication functions in clothing for healthcare. Considering these diversified use cases, it is expected that there will be a massive increase in the number of devices, and 5G networks might be required to support more than 100 times the number of current device connections. Even for IoT devices that do not have special requirements, such as the URLLC mentioned above, new technological innovations in 5G will be required to accommodate a much larger number of IoT devices in the network than previously utilized.

3.4 Technical Requirements for Various Use Cases and Standardization of 5G For realizing the above usage scenarios, the target communication capabilities were also discussed and established in the ITU-R as shown in Fig. 2. 5G aims at a considerably higher level of the communication capability than achieved by 4G for satisfying the requirements of all the usage scenarios: • • • • • • • •

Peak user throughput: 20 Gbps (100 times from 4G), User experienced data rate: 100 Mbps (10 times from 4G), Spectrum efficiency: three times from 4G, Area traffic capacity: 100 times from 4G, Latency (air interface): 1 ms (a few tenths from 4G), Connection density: 1 million/km2 (several hundred times from 4G), Network energy efficiency: 100 times from 4G, Mobility speed: 500 km/h (300 km/h for 4G).

To realize eMBB, certain variables such as the peak data rate, the data rate of each user, area traffic capacity, and frequency utilization efficiency must be satisfied. To cope with the significant increase in requirements, it is necessary to use a very wide bandwidth and improve the efficiency of bandwidth use, or the frequency utilization efficiency. In terms of URLLC, latency requirements should be improved as well as communication reliability, which is a key performance indicator. For mMTC, the requirements for connection density are important capabilities. There are many possible use cases of mMTC, where several small-sized sensor modules are installed in a place where power supply is not possible. In this case, the sensors must be small, but also battery powered. Therefore, there is also a strong need for communication systems to reduce power consumption by operating communication devices to the utmost limit, thereby extending battery life and reducing the huge effort required to replace the battery and the sensor itself. In addition, there is also need to improve the

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energy efficiency of the entire network to reduce the operating expenses of network operators and to solve social and environmental issues such as pollution and high CO2 levels. The evolution of higher mobility support is also an important indicator to expand the vehicular use case. It is noteworthy that these maximum requirements may not be simultaneously realizable. From a technical point of view, some of these capabilities in communication systems are often a trade-off. For example, it will be difficult to realize high-throughput communications for a massive number of simultaneously connected devices. Therefore, to satisfy them all, at full scale and at the same time, an extension to even more advanced communication technologies is required, in addition to expanding each capability, which is expected to be the scope of beyond 5G or 6G (ITU-T FG-NET-2030 2019). To realize these capabilities in communication devices, including various infrastructure and terminal devices with interoperability, 3GPP is working to standardize concrete communication technologies. The first version of the 5G standard is specified in 3GPP Release 15. Discussions on Release 15 started in 2016 and were completed in 2019, and its next version Release 16’s specifications were completed

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Fig. 3 3GPP schedule and its assumed commercial phases

in 2020 as shown in Fig. 3. Currently, detailed technical discussions for Release 17 are underway. Release 15 includes technical specifications to realize eMBB and some part of URLLC and this it is called NR Phase 1 (3GPP SA 2019). For realizing eMBB, the communication technologies required to support wider bandwidth transmission, and the related technologies are specified. In terms of global spectrum usage, the bandwidth for super wideband transmission is difficult to attain, except at high frequencies like the millimeter-wave band. Hence, one of the remarkable characteristics of the system is the inclusion of the functions necessary to utilize the millimeter-wave band. Essentially, the supporting maximum bandwidth per single frequency band is expanded to 400 MHz, which corresponds to 20 times that of 4G. One example specified for wideband transmission is the ability to manage beamforming technology, which selects and controls high-gain sharp beams adaptively with the communicating user equipment, to widen the coverage efficiently. For URLLC, for example, the definition of a transmission time interval suitable for this purpose, and the specifications for efficient retransmission, are included. It is expected that standardization after Release 16 will expand the functions and enable technologies to support a wider range of use cases and capabilities. Release 16 includes a framework for specific use cases for industrial IoT (IIoT) and V2X (V2V and V2N (Vehicular to network)) within its scope, in addition to the enhancement of eMBB, URLLC, and mMTC functionalities; this is called the NR Phase 2 (3GPP SA 2020). For example, there is growing need to build and operate communication networks in a closed space with limited usage locations as done by IIoT, and thus, a mechanism for existing and new operators to introduce independent private networks separate from the existing public networks has been specified. In addition, a mechanism to introduce 5G in unlicensed frequency bands, named NR unlicensed (NR-U), has been specified. By enabling the use of 5G in the unlicensed band alone, operators that have not been previously assigned a license band will be

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able to operate the communication service. In addition, mobile network operators who operate in other frequency bands that have been allocated to them will be able to provide wider bandwidth communication services by increasing the spectrum. Release 17 will contain updates like the capability to optimize operations for various specific IoT use cases, such as wearable devices or surveillance cameras, small size data transmission devices, and the capability to improve high-speed communication with higher frequency bands. Additionally, functionalities for direct communication schemes among devices, called sidelink transmission, such as for V2V and/or public safety use, will be added, and the number of supportable use cases will be expanded further. 5G services that are currently launched in several countries, mainly use devices that conform to the Release 15 specifications meant mainly for eMBB. However, it is expected that equipment that conforms to the expanded specifications will be developed, and thus spread around the world to support a wider range of use cases. It can be assumed that products with the functionalities of Release 16 and Release 17’s features will be commercialized from around 2022 and 2024, respectively. In other words, 5G is still under development as a communication system, and the technologies that support it will continue to evolve. We can thus expect our lives to continue to become safer, more secure, and comfortable as these technologies gradually spread through the market. With the expansion of communication capabilities for various use cases, 5G may involve a shift from a “horizontal” service model that defines services independent of consumer needs, to a “vertical” service model that provides services tailored to specific industries and business types. The shift to a vertical delivery model is expected to have a strong impact on the underlying business models of mobile networks. The use cases that will be enabled by 5G cover a variety of industry segments that were not effectively covered by 4G. Therefore, mobile network operators will move toward business-to-business (B2B) or business-tobusiness-to-consumer (B2B2C) revenue opportunities, with a particular focus on industry verticals, in addition to the traditional business-to-consumer (B2C) models. To demonstrate its real cases, various use case trials have been conducted by mobile network operators in collaboration with vertical industries in various fields, and some of these examples are introduced in the next section.

4 5G Trials A great number of demonstration trials of 5G are being conducted globally. Specifically, a number of mobile network operators in various countries, and network device vendors, such as Ericsson, Huawei, Nokia, Samsung, and ZTE, have been experimenting from various perspectives since 2015. Initially, the focus of the trials was on verifying candidate elemental communication technologies, mainly through experiments using millimeter-wave bands such as

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28 and 39 GHz, which would be used for the first time from 5G. These include demonstrating the technical feasibility of utilizing millimeter waves in mobile communication systems. The millimeter-wave band has a wide bandwidth, which allows for highspeed, high-capacity communication. Conversely, it has never been used for mobile communications before because radio waves generally do not spread widely, and until recently, there were no clear requirements to utilize such wide bandwidths. Hence, various wireless devices suitable for wideband millimeter-wave mobile communication had not been sufficiently developed, nor demonstrated. However, one of the aspects of 5G, as described in Sect. 3.1 on eMBB, is the need for significantly higher speed and capacity; however, it is difficult to satisfy this requirement with the frequency bands that have been used thus far. Therefore, the introduction of millimeter waves in 5G is considered a drastic measure. Given this background, many technical verifications of communication functions were conducted during this period, as telecom operators and network device vendors sought to confirm the feasibility of high-speed, large-capacity transmission using the millimeter-wave bands, while also exploring how service areas could be built using radio waves with different characteristics. Another elemental wireless communication technology for 5G is massive multiple-input multiple-output (MIMO), which utilizes a massive number of antenna elements and realizes higher spectrum and energy efficiency, and better coverage. Various prototypes with massive MIMO technologies have been developed and demonstrated by vendors and research institutes, with many implementation technologies for various frequency bands. For millimeter-wave frequencies, a large number of antenna elements are utilized mainly for shaping sharp beams, called beamforming, to enlarge the communication distance; these are regarded as an essential technology for this band. Hence, the demonstration trial for the millimeter wave includes a feasibility test of this beamforming functionality. For lower-frequency bands, a large number of antenna elements are also utilized for spatially multiplexing many users simultaneously to enhance spectrum utilization efficiency, which is called multi-user MIMO. This has also been demonstrated through many trials. From around 2017, in addition to the progress of the above-mentioned verification of the elemental communication technologies, and the use of millimeterwave frequency, various use case trials that aware more specific services have been conducted, as standardization and frequency band allocations gradually take shape in each country. As for the frequency band, not only the millimeter wave but also various other frequencies are used. Even after the 5G service was launched, demonstration experiments continued to be conducted to explore new specific use cases. The technical trials of communication capability are mainly experiments in which mobile network operators conduct demonstration tests of new communication systems using prototype devices developed by network equipment vendors; and the latter are characterized by telecom operators collaborating with vertical industries to demonstrate various use cases. In this chapter, some typical examples of these use case trials, conducted in Japan around the author, will be introduced in detail.

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4.1 Stadium Entertainment One of the typical use case scenarios that takes advantage of the eMBB features of 5G is the provision of new entertainment services in stadiums. To realize the sophistication of entertainment in stadiums, 5G is expected to provide new experience value by transmitting large-volume videos to mobile terminals and large screens in real time, for sport and concert spectators. Simultaneous connection and transmission of high-definition large-volume video contents to a large number of spectators require huge communication capacity, which has been difficult to achieve with existing wireless communication systems such as 4G or Wi-Fi. This is expected to become possible with the use of 5G owing to its enhanced capacity capability. As an example, the details of the demonstration experiment conducted by KDDI and Samsung Electronics are introduced (Samsung 2018, March). It was conducted during an official Japanese professional baseball game between the Hokkaido Nippon Ham Fighters and the Fukuoka SoftBank Hawks held at Okinawa Cellular Stadium, Naha (Naha City, Okinawa Prefecture). In this demonstration experiment, a 28 GHz 5G communication area was established at the Okinawa Cellular Stadium using a 5G prototype system developed by Samsung, and it was successfully demonstrated that free-viewpoint images in the stadium can be viewed in real time within the communication area. Free-viewpoint images are a technology that freely creates images from various viewpoints by reconstructing images taken from angles set at multiple locations. Figure 4 presents a brief description of the demonstration system. It consists of a 5G base station and a server for reconstructing free-viewpoint videos by utilizing real-time high-definition movies taken by many video cameras, and the 5G tablet terminals that are connected to the 5G base station. Each user of the tablet

Fig. 4 5G demonstration trial for real-time distribution of free-viewpoint movies

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terminal requests a free-viewpoint movie by indicating the direction of the favorite viewpoint, and it is sent to the server via a 5G uplink. The server then reconstructs the movie by following the request of each of the user and sends it to the requesting user via the 5G downlink. The prototype system utilizes a 700 MHz bandwidth in the 28 GHz band, and realizes about 3.0 Gbps throughput. It employs massive MIMO technology to operate beamforming to enhance coverage. In the stadium, two massive MIMO antennas are deployed that could cover an entire stadium area of about 200-m square. Sixteen high-definition video cameras aimed at the batter’s box were set up to capture the freeviewpoint images, and ten prototype 5G tablet terminals were prepared as viewing terminals for free-viewpoint images. Customers could view the players in the batter’s box from any angle through the operation of the tablets and by utilizing free-viewpoint images. The video was then processed into a free-viewpoint video from different angles, and then successfully distributed to multiple 5G tablets in real time. This demonstration shows the possibility of enabling customers to watch sports games remotely from any angle via 5G mobile devices, providing a new style of spectating at stadiums, and conveying a different sense of realism compared with TV broadcasts.

4.2 Smart Security Security against unforeseen incidents is extremely important for large-scale events, such as international sporting events and conferences, where stricter security measures are required. For this reason, there are growing expectations for security systems that can monitor a wide area while reducing blind spots, and for security systems that enable early detection of abnormalities, such as those that use high-definition camera images to build a real-time monitoring system. KDDI, KDDI Research Inc., and SECOM, which provide various security services, jointly conducted a demonstration experiment at a stadium regarding security operations using 5G (KDDI, KDDI Research, and SECOM 2019, August). In this demonstration experiment, the following systems were collaboratively operated via 5G: • Smart drone, developed by KDDI, which takes 4 K images from a controlled position, • SECOM’s autonomous patrol monitoring robot, SECOM Robot X2, • High-definition cameras mounted on security guards. The high-definition images taken from the cameras are transmitted via 5G to establish SECOM’s mobile monitoring base, On-Site Center. With these systems, the demonstration reveals that it is possible to check a wider area with high-definition images, and that it is possible to take a series of security measures, including the recognition and capture of suspicious persons. Furthermore, it has been demonstrated that the 4 K video received by the On-Site Center via 5G can be analyzed by the AIbased human behavior recognition function to automatically recognize abnormalities

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and notify the control staff, enabling early detection of abnormalities in the target security area and emergency responses. In this use case, various high-definition images are transmitted in real time simultaneously by utilizing 5G, which could help improve security operations.

4.3 Autonomous Driving and Remote Driving The communication functions for autonomous driving and its related technologies can also be considered as one of the typical use cases of 5G. Autonomous driving is classified into six levels according to the automation level that can be achieved (NHTSA 2018). • Level 0: No automation: where the driver performs all operations related to driving the car. • Level 1: Driver assistance: where the vehicle is controlled by the driver, but some assistance features are operated, such as a system that performs acceleration, deceleration by braking, or steering operations when approaching a curve. • Level 2: Partial automation level: where the vehicle combines automation functionality for both acceleration and deceleration, and steering operations, but a driver must remain engaged in driving. • Level 3: Conditional automation level: where the system can perform all driving operations, but a driver must be on stand-by and ready to control the vehicle at all times without notice. • Level 4: High automation level: where the vehicle basically performs all the operations, but a driver is required only under certain circumstances, like when entering a narrow residential area. • Level 5: Full automation level: where all operations are performed by the system without restrictions and under any/all circumstances. Various technologies are required to realize autonomous driving, necessitating a great number of demonstration trials on autonomous driving at each level from various aspects, if not limited to the communication functions of driving. With regard to communication functionalities, level 4 autonomous driving with 5G systems was first demonstrated in Japan, by a collaboration of AISAN TECHNOLOGY KDDI, KDDI Research, Sompo Japan Nipponkoa Insurance, Tier IV, Okaya, and Nagoya Universities, on a public road in Ichinomiya City, Aichi Prefecture (AISAN TECHNOLOGY, KDDI, KDDI Research, Sompo Japan Nipponkoa Insurance, Tier IV, Okaya, and Nagoya University 2019, February). In the trial, five full HD cameras and one 4 K camera were installed in an automated vehicle compatible with 5G communication functions for remote monitoring and control, and highdefinition images were transmitted to a remote-control room via 5G communication (KDDI 2019, March). The operators in the remote-control room could monitor the driving of the automated vehicle and remotely control the vehicle when it detected an obstacle or other problems and stops. When such remote control is involved, it is

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very important to send the surrounding images that will be used to make decisions in as high definition as possible, before a person takes control of the car, and to communicate the decisions made to the car with low latency. Through this experiment, it was demonstrated that the high-speed and high-capacity characteristics of 5G can be used to transmit high-definition images, and that remote control can be performed with low latency. If automated driving becomes practical and complete safety is ensured by various experiments, various common travel practices could be complemented by utilizing 5G, like enabling 4/8 K video content while driving. The 5G network is also expected to drastically reduce traffic accidents by instantly detecting and controlling traffic congestion, accident information, and pedestrian issues, thereby contributing to the realization of a safe and secure automotive society.

4.4 Smart Construction The remote operation of construction machinery at construction sites is another typical use case of 5G. The construction industry in Japan is facing issues such as the need to pass skills on to the next generation of workers and the shortage of human resources due to the aging of the workforce; however, if an environment can be created where construction equipment can be easily operated remotely from any location, this could help resolve these issues. Additionally, in the aftermath of an earthquake, typhoon, or other disasters, it is difficult to restore operations at the site because of the risk of secondary disasters. If construction equipment can be operated remotely and in an unmanned manner in such situations, the recovery activities could be carried out safely and without risk. The following is an example of a demonstration experiment in which KDDI, in collaboration with a construction company, Obayashi corporation, and the network device vendor NEC corporation, used 5G to remotely operate construction machinery (NEC 2019, January). Figure 5 shows the concept of the demonstration trial. The purpose of this system is to demonstrate that unmanned construction equipment at a construction site can be controlled from a remote-control room. The construction equipment is equipped with a remotely controllable operation system connected to a 5G communication module, and a high-definition camera for real-time, high-definition representation of the situation at the site. First, the on-site situation captured by the high-definition camera is constantly transmitted to the control room in real time via a 5G uplink. The video image is projected to the control room with high realism, and the workers in the control room operate the construction equipment. This operation information is sent to the control system of the construction equipment using the 5G downlink, and the construction equipment is automatically operated. Throughout these operations, high speed and low latency communication with 5G is required to reproduce the situation at the work site with a high sense of realism in the remote operation by transmitting high-definition video images from several viewpoints in real time. In addition, low latency transmission

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Fig. 5 Concept of the demonstration remote control system with 5G for smart construction

of information for the control of construction machinery from remote locations is required for stress-free operation of the construction equipment while viewing video images. In the demonstration experiment, two different construction machines, a backhoe and a crawler dump, were linked by remote control to transport earth and sand. Several high-definition 4 K cameras and a 2 K camera for a bird’s-eye view of the work site were installed on each construction machine, and it was confirmed that real-time transmission of audio and other information made it possible to achieve operability equivalent to remote onboard operation from the remote-control room. In the past, there have been the cases of remote operation using Wi-Fi, but due to the low resolution of the images taken from the cameras installed on the construction equipment, it was difficult to get a sense of the distance, which reduced the work efficiency by about half.

4.5 Factory Automation Factory automation is also considered a typical use case of 5G. Even though manufacturing sites are becoming more automated with the introduction of manufacturing robots, there are still some areas that rely on human labor, and thus, human errors can continue to cause problems in production and quality assurance. Additionally, there is a lot of wiring required to control various manufacturing robots. At such sites, when the production line is rearranged, the wired lines connected to the various manufacturing robots need to be replaced, and it is often necessary to stop production to check the operation of the wired lines, resulting in a loss of productivity. Against this background, the use of 5G is considered a wireless communication method that can be expected to replace wired lines with high speed and reliability to improve productivity and ensure flexibility in the factory layout.

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A demonstration experiment was conducted in collaboration with Denso Corporation, Kyushu Institute of Technology, ATR (Advanced Telecommunication Research Institute) and KDDI (ATR, KDDI, Denso, and Kyusyu Institute of Technology 2019, January). The manufacturing robot used in this experiment was equipped with a sensor that measured its three-dimensional position and sent this information to grasp the positional information of the arm and the parts at the end of the arm. The robot uses the positional information obtained by the sensor to determine the control movement of the arm, which requires very low latency communication between the sensor and the robot; therefore, experiments required 5G as an alternative to wires.

4.6 Touchless Gate System The following is the case study of a touchless gate system that incorporates 5G communication into the gate system used to control entry to airports, train stations, and concert halls. This case study was jointly realized by Japan Airlines Co. Ltd., KDDI, and KDDI Research. At most airports, there are a limited number of gates, but many people need to gain entry simultaneously, sometimes resulting in the formation of long queues in front of the boarding gates. This leads to considerable stress for the passengers and may interfere with the operating schedule of the airline. Therefore, it is necessary to reduce the stress on passengers at the time of boarding, to operate airplanes more efficiently, and reduce the burden on ground staff. To this end, a system that allows passengers to pass through the gate with as little waiting time as possible is necessary. With this perspective, a touchless gate was conceptualized as a system that allows the passage of passengers through the gate without touching it, and this system was demonstrated in 2018 (JAL, KDDI, and KDDI Research 2018, November). In this demonstration system, a 28 GHz band for 5G was used to realize the touchless gate. The radio waves of 5G with a 28 GHz band have narrow-spread beams shaped by massive MIMO antennas, and their characteristics help create a mechanism to ascertain the location of the 5G terminal in front of the gate and the people moving through it. The low latency of 5G can be used to speed up authentication operations for opening and closing the gates. Additionally, services such as downloading large amounts of data when passing through the gate with the eMBB feature can be considered. Figure 6 shows an overview of the operation of the touchless gate demonstration trial system with 5G. The process flow for passing the gate is as follows: 1. 2. 3. 4.

A user carrying a 5G terminal walks toward the gate. When the user arrives at the gate, an infrared sensor installed in front of the gate reacts and notifies the control server. The control server detects the presence of someone near the gate. The server is notified that the 5G terminal held by the user is receiving the beam that is assigned to that gate’s entrance.

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Fig. 6 Process flow of the touchless gate system

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6. 7.

The gate control server checks whether the gate that the infrared sensor responds to, matches the gate linked to the beam ID received from the user equipment (UE) and identifies the gate user. Additionally, the gate control server requests the 5G UE held by the person to send authentication information to determine if the gate can be entered. The 5G terminal sends authentication information to the control server. If the database in the control server is checked and the authentication information sent by the 5G UE is confirmed to be valid, the gate control server sends a signal to the gate for opening.

With this trial, it was demonstrated that the 5G user can pass through the gate smoothly without any touching operation. From the perspective of preventing infectious diseases such as the recent COVID-19, the importance of such a gate system, that allows touchless/handsfree passage is established. The partnership also conducted a verification experiment to utilize 5G for remote operational support of airport maintenance. Specifically, they examined whether instructions for the disassembly and assembly of electronic components, which contain many small parts, can be smoothly carried out while the instructors check the images (JAL, KDDI, and KDDI Research 2019, March). To provide such precise work instructions remotely, it is necessary to transmit high-definition images taken from the operator’s perspective to the supporters/instructors in real time, which will lead to more efficient working. The demonstration trial revealed that 5G can also be used for such purposes.

5 Conclusion The trends and use cases of 5G were explained in this chapter. 5G has various features that cannot be realized with 4G, such as ultra-low latency and multiple connections, in addition to the enhanced mobile broadband, which enables a greater variety of use cases. The ultra-high-speed communication service of smartphones is just one example. Through exemplified case studies, the possibilities of creating new businesses through collaboration among companies and institutions in various industries

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by utilizing 5G were introduced. As explained with these examples, new businesses are being created not only through the evolution of communication technologies with 5G but also through conjunction with the development of newer technologies, such as high-definition video technology, robotics, and sensors. Additionally, 5G is currently in its initial phase, and it is assumed that communication technology will continue to evolve and expand its capabilities to cover new ground. Therefore, with evolution, it can be expected to drive the creation of new businesses in continuum and in conjunction with the advancement of these technologies and/or other emerging fields such as machine learning and quantum computing, and thus make our lives more convenient, affluent, and sustainable.

References Aisan Technology, KDDI, KDDI Research, Sompo Japan Nipponkoa Insurance, Tier IV, Okaya, and Nagoya University (2019) Japan’s First Domestic 5G-Enabled Multi-vehicle Autonomous Driving Experiment to Be Implemented on Public Roads [Press Release]. https://news.kddi.com/ kddi/corporate/english/newsrelease/2019/02/05/3650.html. Accessed 30 July 2021 ATR, KDDI, Denso, and Kyusyu Institute of Technology (2019) Launch of a demonstration test of industrial robot control using 5G [Press Release]. https://www.denso.com/jp/ja/news/newsroom/ 2019/20190129-01/. Accessed 30 July 2021 3GPP SA (2019) TR21.915: release 15 description; Summary of Rel-15 Work Items, Sept 2019 3GPP SA (2020) TR21.916: release 16 description; Summary of Rel-16 Work Items, Dec 2020 ITU. T FG-NET-2030 (2019) Network 2030: a blueprint of technology, applications, and market drivers toward the year 2030, Nov 2019 ITU-R (2015) Rec. M.2083–0. Framework and overall objectives of the future development of IMT for 2020 and beyond, Sept 2015 JAL, KDDI, and KDDI Research (2018) JAL, KDDI, and KDDI research to start a demonstration experiment for convenient and comfortable airport services using 5G [Press Release]. http://press. jal.co.jp/ja/release/201811/004947.html. Accessed 30 July 2021 JAL, KDDI, and KDDI Research (2019) Conducting demonstration tests on remote work support for aircraft maintenance using the next-generation mobile communication standard “5G” [Press Release]. https://www.kddi-research.jp/newsrelease/2019/031302.html. Accessed 30 July 2021 KDDI (2019) Autonomous driving to become practical by 2020? Japan’s first successful public road trip using 5G. https://time-space.kddi.com/au-kddi/20190322/2603. Accessed 30 July 2021 KDDI, KDDI Research, and SECOM (2019) KDDI group and Secom successfully conduct Japan’s first demonstration experiment on 5G-based stadium security [Press Release]. https://www.kddiresearch.jp/newsrelease/2019/081901.html. Accessed 30 July 2021 NEC (2019) KDDI, Obayashi, and NEC use 5G to successfully remotely control construction machinery in a cooperative operation [Press Release]. https://www.nec.com/en/press/201901/glo bal_20190128_01.html. Accessed 30 July 2021 NHTSA (2018) Automated vehicles for safety. https://www.nhtsa.gov/technology-innovation/aut omated-vehicles-safety. Accessed 30 July 2021 Samsung (2018) KDDI and Samsung successfully complete 5G multi-device trial at a professional baseball stadium in Okinawa, Japan [Press Release]. https://news.samsung.com/global/kddiand-samsung-successfully-complete-5g-multi-device-trial-at-a-professional-baseball-stadiumin-okinawa-japan. Accessed 30 July 2021

Measures to Develop Human Resources with AI Skills in Japan: Society 5.0 and Investment in the Next Generation Ema Tanaka and Shizu Aizawa

Abstract This chapter summarizes the progress of human resource development policies in the IT and AI fields in Japan from the 1980s to 2020 and examines the challenges and issues in the path of fostering the next generation under the vision of Society 5.0. In 2016, the Japanese government announced the concept of Society 5.0, which is a holistic approach to AI human resource development, including programming education in elementary schools, university curriculum reform, recurrent education, and the development of talent. In the past, IT human resource development in Japan began in earnest in the 1980s. The use of the Internet in schools has been sluggish since the mid-2000s, and the provision of online education was comparatively less than in other countries during the spread of COVID-19 and the declaration of a state of emergency. Despite these issues in Japan, it is expected that the medium- and long-term initiatives envisioned for 2030 and 2050, which are the goals of Society 5.0, will produce results in the future. However, there is a possibility that a mismatch will continue to exist between supply and demand or between the human resources that society needs and the human resources that are being developed. To cope with this, continuous monitoring of the situation and collaboration between industry, government, and academia will be beneficial. Keywords AI skill · Society 5.0 · Japan · Human resource development · Next generation · OECD PISA · ICT · Education

E. Tanaka (B) Faculty of Global Japanese Studies, Meiji University, Tokyo, Japan e-mail: [email protected] S. Aizawa ICT Research & Consulting Division, Foundation for MultiMedia Communications (FMMC), Tokyo, Japan e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 T. Jitsuzumi and H. Mitomo (eds.), Policies and Challenges of the Broadband Ecosystem in Japan, Advances in Information and Communication Research 4, https://doi.org/10.1007/978-981-16-8004-5_6

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1 Introduction: COVID-19 and the Characteristics of Japan’s AI Human Resource Development Policy The year 2020 was for information education in Japan. It marked the start of mandatory programming education in public elementary schools. However, because of an increase in the number of new coronavirus infections (COVID-19), schools were requested to close temporarily on March 2, 2020; approximately 99% of schools were closed (ReseMom 2020, March 4). A state of emergency was then declared on April 7 as a measure per the Law on Special Measures against COVID-19; approximately 90% of educational institutions from elementary schools to universities were temporarily closed (Japan Educational Press, April 27, 2020). From May 2020, as per the infection status of each prefecture, regular schooling resumed in elementary schools, junior high schools, and high schools through a combination of dispersed schooling and online education. Regular schooling resumed in Tokyo in late June, while universities offered online education from May to July (ReseEd 2020, July 17). Even though Japan has a low number of COVID-19 infections relative to major Western countries, the condition of education during the time revealed a scarcity in online education from elementary to high school as well as a lack of quality. For example, as per the results of a survey published by Kracie Foods, Inc. in November 2020, the school closure period for first to third-grade elementary school students in Japan was short, with about 90% of them having a closure period of four months or less, while the percentage of students in the US and China who had a closure period of four months or longer was at about 50% and 40%, respectively. Only approximately 16% of classes in Japan were conducted online during closures, compared to the 90% of classes in the US and China (EdTechZine 2020, November 13). Countries such as Finland saw progress in digitalization, with a high IT literacy. Moreover, the school closure period spanned two days after the government order, and the transition to distance education was relatively smooth (Ando 2020, March 26). In Japan, efforts have long been made to improve the informatization of education and the IT literacy of teachers and students. In 1999, the Ministry of Education, Culture, Sports, Science, and Technology (MEXT) delivered the first “Survey on the Actual Status of the Informatization of Education in Schools.” Since then, surveys have been conducted every year. Meanwhile, policies and measures have been developed to improve the informatization of education and IT literacy among citizens and working people, and there is a history of active efforts to reform education in the IT field. There is also a well-developed qualification system for IT, with qualifications covering basic to advanced skills in Japan. The Japanese government adopted “the Fifth Science and Technology Basic Plan” as the cabinet decision in January 2016 and proposed the “Society 5.0” concept as the vision of society Japan should aim for by 2030 to 2050. The plan aimed to realize the vision of Society 5.0 by utilizing advanced technologies such as artificial intelligence (AI), the Internet of Things (IoT), and robotics to solve Japan’s social problems and achieve economic development (Cabinet Office 2016 January 22).

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Moreover, discussions at the MEXT’s “Ministerial Roundtable on Human Resource Development for Society 5.0” provided a direction for the image of human resources and skill sets required to realize Society 5.0 (Ministerial Roundtable on Human Resource Development for Society 5.0 2018, June 5). The introduction of compulsory programming education in elementary schools from the 2020 academic year was an initiative to realize Society 5.0 (Elementary and Secondary Education Bureau 2019, May 21). Meanwhile, “Information I,” which teaches the basics of data analysis, will become compulsory in high schools from 2022. Further, MEXT aims to ensure all University students have fundamental knowledge in AI and Big Data analysis (The Mainichi Newspapers 2020, February 8). Despite these efforts, what emerged during the spread of COVID-19 and the declaration of a state of emergency was the reality of Japanese society—that the use of information and communications technologies (ICT) and digitalization were shown to be insufficient. In recent years, the government has been developing comprehensive policies to realize Society 5.0, and human resource development has been positioned as a policy pillar. The human resource development policy covers everything from elementary school curriculum reform to high-level human resource development and recurrent education for working adults, taking various specific measures. Japan has had policies and initiatives on IT human resource development for more than 20 years (the 1990s–2020). An overview of the policies and outcomes of such initiatives offers implications for human resource development in 2020 and beyond. Thus, this chapter organizes and analyzes the development of IT human resource development policies from the 1980s to 2020, and their achievements and challenges, in order to present human resource development policies for AI in Japan while describing the aims of such policies for Society 5.0. For convenience, this chapter distinguishes between human resource development prior to Society 5.0, referred to as “IT human resource development,” and human resource development for Society 5.0 policies, referred to as “AI human resource development.” The human resource development for Society 5.0 emphasizes human resources with advanced AI and data analysis skills and techniques. However, it also has aspects of user development, including lowering the target grade level and improving the literacy of general workers. However, both IT and AI human resource development have aspects of both education for IT and AI specialists or developers and user education. The former is oriented toward more advanced skills for the talented, while the latter is characterized by strengthening user literacy. Section 2 describes the development of IT human resource development in Japan and its issues during the period between the 1980s and the 2010s. Section 3 summarizes the measures for AI human resource development in Society 5.0. Section 4 discusses the status of efforts to develop human resources for the next generation, matching supply, and demand for human resources. Section 5 summarizes the study and addresses issues in realizing the Society 5.0 vision.

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2 Development, Characteristics, and Challenges of Japan’s IT Human Resource Development Policy: From the 1980s to the 2010s 2.1 Development of IT Human Resource Development Policies (1)

From the 1980s to the 1990s: Expansion of System Engineers

This section provides an overview of IT human resource development policies prior to the 2000s and summarizes the characteristics of relevant measures under “the IT strategy” by the Japanese government since 2000. Per Ito (2003), policies and efforts to develop human resources in the IT field have been implemented since the 1970s in Japan, but these efforts were enforced in earnest in 1987 when the Industrial Structure Council predicted that there would be a shortage of 970,000 information processing engineers in 2000. In 1989, the “Act on Temporary Measures for the Promotion of Regional Software Supply Capacity Development Project (Regional Software Act)” was enacted as time-limited legislation until the end of 1998. The “Regional Software Act” focused on the training of system engineers who could take charge of the upstream process of system development in regions where the software supply capacity was lower than the demand (Ito 2003, p. 33). Thus, regional software centers were established in 20 locations throughout Japan as thirdsector joint-stock companies with the Information-technology Promotion Agency, which invested two-thirds or less capital (Ito 2003, p. 36). Ito (2003) analyzed the revenue of information services and the number of workers in the regions where regional software centers’ training programs were implemented and other regions without those centers. He found that they had a certain effect on the training of system engineers. However, given factors such as the sluggish growth in the number of trainees, mismatch between corporate needs and the curriculum, and location of the training sites, his analysis showed that problems remained in realizing the policy goals. (2)

IT Human Resource Development in the 2000s: Parallel Expansion of User Development and Developer Development

As a successor law that encompassed the contents of the Regional Software Law, “the New Business Creation Promotion Law (New Business Law)” was enacted in February 1999 (Ito 2003, p. 32). Subsequently, the New Business Law was consolidated into “the Law Related to the Support of Small and Medium Enterprise Activities.” The element of IT human resource development was diluted in the law (Small and Medium Enterprise Agency 2021). In the 2000s, IT human resource development was expanded to include all citizens under the “IT Basic Strategy” of 2000, including developing advanced engineers, content creators, and user literacy (IT Strategy Council 2000). What is noteworthy

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about this strategy is that, with an eye to reach the projected Internet penetration rate of 60% by 2005, it explicitly stated that the government will (1) strengthen the IT education system in elementary and secondary schools and universities; (2) secure advanced IT engineers and researchers in the government, universities, and private sector by increasing the number of IT-related master’s and doctoral degree holders; and (3) use foreign human resources (IT Strategy Council 2000, pp. 11–12). Under the strategy, IT literacy education was introduced in elementary and junior high schools in Japan in 2002, and the newly established “Information” subject became compulsory at the high school level in 2003. The 1995 Basic Law on Science and Technology also emphasized the strengthening of human resource development in science and technology. However, the emphasis was more on basic research than generalized IT human resource development (Kobayashi et al. 2019). “The IT New Reform Strategy,” a renewal of the “IT Basic Strategy,” was published in 2006 (IT Strategy Council 2006). The IT human resource development in this strategy was based on the previous strategy. The measures were more specific, including developing the IT environment in schools, developing an evaluation system for teachers’ IT leadership skills, and providing IT-based learning opportunities. Developing advanced IT human resources would be promoted to eliminate the mismatch between supply by schools and demand by industry, and distance education at universities and graduate schools would be expanded (IT Strategy Council 2006, pp. 34–36). Later, the “i-Japan Strategy 2015” was published in 2009 (IT Strategy Council 2006). The IT human resource development in this strategy was basically the successor of “the IT New Reform Strategy.” As described above, IT human resource development in the 2000s comprised expanding the IT user base and developing highly skilled advanced human resources.

2.2 Progress in School Informatization and Issues in Information Education (1)

School Informatization—Improvement Between 2006 and 2019

In 2000, under the “IT Basic Strategy,” in addition to the expansion of information education, improving IT facilities in classrooms and ICT skills of teachers were promoted for the informatization of schools. MEXT conducted a series of surveys on the status of informatization of education in schools and published the results from FY2006 to FY2019 (Ministry of Education, Culture, Sports, Science, and Technology 2006, 2019b). Tables 1 and 2 summarize the progress of informatization from FY2006 to FY2019. In the “Survey on the Condition of Informatization of Education in Schools,” the results of questionnaire surveys on the penetration rate of IT facilities in classrooms and the ability of teachers to use ICT were aggregated by prefecture. The maximum and minimum values of each item in the tables indicate the value in the prefecture where the item is highest or lowest.

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Table 1 Changes in the index to use ICT in education, 2006–2019 (%) Year

Number of students per educational computer

LAN installation rate in regular classrooms

Internet connection rate (lines of 30 Mbps or more)

2006

2019

Dif.*

2006

2020

Dif

2006

2019

7.28

4.90

2.38

56.2

91.4

35.2

35.0

96.6

Maximum value

10.39

6.60

89.9

98.6

80.5

100.0

Minimum value

4.56

1.80

28.3

63.9

12.6

78.7

Average (47 prefectures)

Dif 61.6

* Difference

of points Source Aggregated from data of Ministry of Education, Culture, Sports, Science, and Technology (2006, 2019a, b)

Table 2 Changes in the self-evaluation of abilities to use ICT in education, 2006–2019 (%) Year

A: Ability to use ICT B: Ability to use ICT C: Ability to guide for research of for teaching in the children in the use of teaching materials, classroom ICT preparation of instruction, and evaluation 2006

2019

Dif.*

2006

2019

Dif.*

2006

2019

Dif.*

Average (47 prefectures)

69.4

86.7

17.3

52.6

69.8

17.2

56.3

71.3

15.0

Maximum value

82.5

93.7

72.6

85.2

75.0

85.1

Minimum value

62.4

80.5

43.2

60.4

47.8

61.3

The four-point scale for 2019 is “can do,” “somewhat can do,” “not much can do,” and “hardly can do.” Source Aggregated from data of Ministry of Education, Culture, Sports, Science, and Technology (2006, 2019a, b)

From Table 1, the informatization of classrooms made significant progress between 2006 and 2019. The number of students per educational computer decreased from 7.28 in 2006 to 4.9 in 2019 on average across 47 prefectures, indicating an increase in the number of computers. Local Area Network (LAN) penetration rate in regular classrooms increased from 56.2% to 91.4%, while the Internet connection rate reached 96.6% in 2019. However, the prefecture with the lowest LAN penetration rate in regular classrooms was 63.9% even in 2019, showing differences in penetration among prefectures. In addition, the ability of teachers to use ICT had improved between 2006 and 2019. From Table 2, the self-assessment of the three abilities (A, B, and C) showed improvement from 2006 to 2019, but the average score for B and C remained approximately 70% in 2019. That is, in the 2019 survey, 30% of the respondents answered that they could not do much at using ICT. Graph 1 is the scatter plot of the above results, with teacher skills on the vertical axis and IT infrastructure development on the horizontal axis. Graph 1 indicates

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Graph 1 IT skills of teachers and IT infrastructure Source Aggregated from data of Ministry of Education, Culture, Sports, Science, and Technology (2006, 2019a, b)

2019

100.0%

IT Skills of teachers

80.0%

60.0%

40.0%

20.0%

0.0% 0.0%

20.0%

40.0%

60.0%

80.0% 100.0%

IT infrastrucutre

Table 3 Time spent using digital devices in the classroom over the course per a week (2018 survey) More than 1 h per week Language

Japan OED Average

Mathematics

Science

Between 30 min to 1 h per week

Less than 30 min per week

Do not use the Internet

Do not take the subject

No answer and others

3.0

2.4

8.6

83.0

0.7

2.3

12.3

10.3

21.9

48.2

0.8

6.4

Japan

2.6

1.9

3.3

89.0

0.7

2.5

OED Average

9.6

9.0

19.2

54.4

0.8

6.9

Japan OED Average

6.2

5.3

7.6

75.9

2.3

2.8

11.7

12.8

22.1

43.9

2.6

6.9

Source National Institute for Educational Policy Research (2019)

teacher skill improvement, IT infrastructure development progress, and a decrease in the gap among prefectures from 2006 to 2019. (1)

Issues of Educational Views in the PISA Survey on Internet Use by 15-year olds in Japan

However, the well-developed ICT environment described in (1) is not always used in Japan. In the 2018 OECD Programme for International Student Assessment (PISA), Japan ranked sixth and fifth in mathematical and scientific literacy, respectively, and 15th in reading comprehension among the countries surveyed. Even so, it fell below the OECD average in Internet usage in the classroom, especially in Japanese and mathematics (Table 3).

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Table 4 Percentage of students who use digital devices in the classroom almost every day of the week (%), 2018 Item

Japan

OECD average

Using a computer to do homework

3.0

22.2

Looking at Internet sites for school studies (e.g., as preparation for essays or presentations)

6.0

23.0

Browsing the Internet after class to search for related documents

3.7

20.1

Downloading, uploading, and browsing documents on the school website (e.g., timetables and materials used in class)

3.0

17.7

Looking at the school website to check school notices (e.g., instructor absences)

3.4

21.3

Chatting on the Internet

67.4

67.3

Playing single-player games

47.7

26.7

Playing multiplayer online games

29.8

28.9

Using e-mail Reading news on the Internet (e.g., current events)

9.1

25.5

43.4

38.8

* Total

number of answers of “every day” or “almost every day” Source National Institute for Educational Policy Research (2019)

As per the 2018 PISA survey results, Japanese 15-year olds spend less time than the OECD average using digital devices for study on weekdays outside of school. For example, the percentage of respondents who answered “every day” or “almost every day” to “using the computer to do homework” was 3.0% in Japan relative to the OECD average of 22.2%. Nonetheless, the percentages of “chatting on the Internet,” “playing games,” and “reading news on the Internet” were higher than the OECD average (Table 4). Notably, 3.0% of the respondents answered that they accessed materials from the school website, and 3.4% answered that they checked notices on the school website in the 2018 survey. From Sect. 2.2 (1), the IT environment in classrooms progressed by 2019, and teachers’ skills improved. However, ICT is not actively used for learning by students inside and outside schools in Japan, with few resources and learning materials on the Internet. Matsuda (2020), who worked on advanced programming education at Maehara Elementary School in Koganei City, Tokyo, noted that using ICT in the classroom requires a change in educational perspectives. However, teachers and parents persistently believe that “students are taught at school and do homework at home” (p. 142), and “teachers are supposed to teach” (p. 202). He also stated that teachers were busy and did not have the time to adopt new and unproven initiatives; thus, they tended to prioritize proven analog methods to improve academic performance and put off the use of ICT in the classroom. Matsuda also explains the lack of change in the attitudes of teachers and parents by citing the “forty-year gap theory” of Michael Barber of the Pearson Institute in the UK (Matsuda 2020, p. 62). It is the phenomenon that educational reforms

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are implemented with an eye toward the next 20 years, while parents refer to their education 20 years ago, thus creating a 40-year gap in awareness. While recognizing this gap, Matsuda stated that the following efforts were effective by his experience. • Use of the learning portal site (“Manabi Pocket” by NTT Communications) (p. 124) • Use of the idea-sharing tool (schoolTakt) (pp. 146–147) • Prepare tablet terminals for each teacher and provide a Wi-Fi environment (pp. 192–193). “Manabi Pocket” also provides a questionnaire (WEBQU) and a tool that can check English pronunciation with AI, beneficial for understanding the atmosphere of the class and learning English. Thus, it is possible to optimize individualized learning per each student’s level of understanding and proficiency. Such services can also reduce the time teachers need to prepare for classes (p. 149). Matsuda notes that the practice of programming education makes shifting to competency-based learning possible, which is required by “the New Academic Teaching Guidelines,” by leaving much of the work to children and, thus, letting them experience the fun and excitement of programming. However, parents were baffled by the classroom scene, where the teacher does not teach, and each student learns facing a PC or tablet. It was unlike the traditional teaching style where teachers stood on podiums (p. 131).

2.3 Challenges for IT Human Resource Development in the 2010s (1)

Saturation of Demand for IT Development Personnel and Uneven Distribution of IT Personnel

As mentioned above, Japan has been working on IT human resource development since the 1980s and has also been working on the informatization of schools and improving teachers’ ICT skills. However, in the 2010s, the demand for IT developers became saturated, and it became apparent that there were issues in developing IT service planners and IT users who operate the IT services. For example, Murakami (2010) notes that the added value by IT developers declined, and it became important to increase the added value by planners and operators of IT (p. 5). Hence, Japan’s IT strategy was updated as “the New Information and Communication Technology Strategy” in 2010 and “ the Declaration on the Creation of the World’s Most Advanced IT Nation” in 2013. Accordingly, IT human resource development was no longer a priority, and the focus shifted to creating new services and industries (Cabinet decision 2013; Strategic Headquarters for the Promotion of an Advanced Information and Telecommunications Network Society 2010). Although the number of IT-use cases increased, Japanese IT skill level was low, and learning opportunities were few by international standards as of the mid-2010s. For example, a survey conducted by the Ministry of Economy, Trade, and Industry

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Table 5 IT skill level of workers in IT-related jobs in each country (%) N = 500 for each Level 1 Level 2 Level 3 Level 4 Level 5 Level 6 Level 7 Average country US

5.0

8.0

15.8

38.8

16.2

13.2

3.0

India

4.0

9.2

24.4

39.0

8.0

9.8

5.6

4.05 3.90

China

2.2

11.2

39.0

27.4

15.2

4.0

1.0

3.58

Indonesia

4.8

12.0

36.6

33.4

10.0

2.0

1.2

3.43

Vietnam

3.7

16.0

38.3

31.3

9.0

1.3

0.3

3.31

Thailand

6.2

15.0

39.6

31.2

6.8

1.0

0.2

3.21

Japan

7.4

18.6

38.0

24.6

9.4

1.0

1.0

3.17

South Korea

4.6

20.2

44.4

21.4

6.8

1.9

0.8

3.14

Level 1: Human resources with the minimum required basic knowledge Level 2: Human resources with basic knowledge and skills Level 3: Human resources with applied knowledge and skills Level 4: Human resources with advanced knowledge and skills Level 5: Major players in business Level 6: Major players domestically Level 7: Major players domestically and internationally Source Commerce and Information Policy Bureau (2016)

(METI) in 2016 workers who engaged in IT-related work in eight countries (500 people per country, except 300 in Vietnam) revealed that Japanese IT worker’s skill level was low relative to other countries (Table 5) (Commerce and Information Policy Bureau 2016). As per the survey, workers in IT-related jobs in Japan were younger and had lower annual incomes and less education (lower percentage of postgraduate degrees) than in other countries. Approximately half the respondents had university majors in science, mathematics, and engineering; the rest had humanities and social sciences. The percentage was higher than in other countries. The survey also showed that the level of satisfaction with the company’s education and training system and self-improvement support system was lower than in other countries, with about 60% of respondents saying they are “somewhat unsatisfied” or “not satisfied.” Another notable characteristic is the unbalanced allocation of IT personnel among industries. Table 6 shows the percentage of IT personnel in Japan, the US, Canada, the UK, Germany, and France who belong to IT companies or non-IT companies (Information-technology Promotion Agency, Japan 2020). Japan has more IT personnel in IT companies and fewer in other companies (IT user companies). Particularly, relative to the US, the proportion of Japanese IT personnel belonging to the public service and service sectors is low at 0.5% and 6.5% (relative to 6.0% and 30.2% in the US), respectively. (2)

Declining International Digital Competitiveness and Low Evaluation of Talent

In this context, Japan’s reputation for international competitiveness has declined since the beginning of the 2010s. In the IMD’s Global Competitiveness Rankings, Japan’s ranking declined from 17th in 1997 to 30th in 2019 and 34th in 2020 (Digital

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Table 6 Ratio of personnel involved in information processing and communication in IT companies and other companies Working at IT companies

Working at Companies other than the IT area

Total number of IT professional staff

Japan

72.0

28.0

1,045,200

US

34.6

65.4

4,195,110

Canada

44.0

56.0

806,100

UK

46.1

53.9

1,637,532

Germany

38.6

61.4

1,197,099

France

46.6

53.4

882,099

Japan, the US, the UK, Germany, France: 2015, Canada: 2014 Source Information-technology Promotion Agency (2020)

Business Innovation Center 2020). Moreover, in the IMD World Digital Competitiveness Ranking, Japan’s ranking was 23rd in 2017, 22nd in 2018, and 23rd in 2019. It dropped to 27th in 2020 (IMD World Competitiveness Center 2017, 2018, 2019, 2020). The IMD Global Digital Competitiveness Ranking is calculated based on the three IMD evaluation items of “Knowledge,” “Technology,” and “Future readiness,” as well as their subitems. From Table 7, the ranking of human resources, especially digital and technological skills, is low in Japan. Although details of the basis for calculating the digital and technological skills items are unclear within the scope of this study, such skills of Japanese human resources are relatively low from the perspective of international comparison. Table 7 Japan’s ranking in the IMD World Digital Competitiveness Ranking by category 2017

2018

2019

2020

Overall ranking

23

22

23

27

Knowledge

23

18

25

22

Talent

41

36

46

46

International Experience

63

62

63

63

Highly foreign material

51

50

51

54

Digital and technical skills

59

48

60

62

Training and education

31

14

19

18

Scientific aggregation

16

12

11

11

Technology

19

23

24

26

Future-readiness

23

25

24

26

Source IMD World Competitiveness Center (2017, p. 101, 2018, p. 99, 2019, p. 99, 2020)

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3 Society 5.0 Vision and Measures to Develop AI Human Resources 3.1 Vision of Society 5.0 and Its Characteristics (1)

Vision of “Society 5.0” and Related Policies

As clarity on the above situation improved, the Japanese government presented a vision of the future society, “Society 5.0,” in “the Fifth Science and Technology Basic Plan in 2016” (Cabinet Office 2016, January 22). The plan defines “Society 5.0” as “a future society in which cyberspace (virtual space) and physical space (real world) are highly integrated.” It merges the hunting (Society 1.0), farming (Society 2.0), industrial (Society 3.0), and information societies (Society 4.0). Society 5.0 will be realized beyond the evolution of the digital economy, ushering in a prosperous society where various issues are resolved per achieving the United Nations’ Sustainable Development Goals (SDGs). The Society 5.0 vision is expected to be realized by 2050; specific mid-term goals have been set for 2030. To realize the vision of “Society 5.0,” the Cabinet Office released the policy, “Basic Policy for Economic and Fiscal Management and Reform 2019: A New Era of ‘Reowa’: Challenges for ‘Society 5.0’” (Framework Policy 2019) in June 2019 (Cabinet Office 2019b, c, June). This policy aims to realize Society 5.0 via three perspectives: strengthening growth potential by raising the potential growth rate, expanding the virtuous cycle of growth and distribution, and creating a society where everyone can play an active role with peace of mind. Further, the “Growth Strategy Action Plan” announced in July 2019 aims to realize Society 5.0 by developing rules for digital markets and other measures (Cabinet Office 2019a, July). (2)

Approaches to Human Resource Development for Society 5.0

Notably, the Fifth Science and Technology Basic Plan emphasizes human resource development. The plan comprises seven chapters, and “strengthening human resources” is included in “Chap. 4: Strengthening Fundamental Capabilities for Science and Technology Innovation.” However, this human resource capacity refers to the human resources responsible for scientific innovation; it does not mention IT and AI human resources development (pp. 24–29). However, the direction of making programming education mandatory at the elementary school level from 2020 was presented at the 26th Industrial Competitiveness Council, held by the Prime Minister’s Office, in April 2016 to nurture young people to lead the fourth industrial revolution amid the declining birthrate and aging population (Prime Minister’s Office 2016, April 19). In 2017, before the full implementation of “the New Academic Teaching Guidelines” in 2020, it was announced that the introduction of programming education in schools would be promoted in earnest via cooperation between industry and the educational field through the “Future Learning Consortium”(Prime Minister’s Office 2017, June 9). To expand learning opportunities beyond school, the Ministry of Internal Affairs and

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Communications (MIC) has worked since 2016 on a project to demonstrate low-cost and effective methods of implementing programming education and training instructors using the cloud; the Maehara Elementary School is one such case (MIC 2016; Takaichi 2016, September 25). The human resource development measures for all age groups are included in “Chap. 2: Creating a framework suitable for the Society 5.0 era” of “the Basic Policies for Economic and Fiscal Management and Reform 2019—A New Era of Harmony: Challenges for Society 5.0.” In particular, the following reforms for ICT human resource development are included, showing that the Japanese government is eager to promote the reforms (pp. 20–21): • Primary and secondary education reform: promote the informatization of education such that distance education can be used in all elementary, middle, and high schools; and promote digitization and standardization of educational data • University reform: develop human resources for science, technology, and innovation, enhance mathematics, data science, and AI education based on “the AI Strategy 2019” • Recurrent education: promote the development of ICT human resources and other human resources required by society; promote recurrent education using e-learning and other methods. As per the “AI strategy” described in the next section, there has been a shift from the traditional focus on IT developers to AI human resource development to expand the base of IT and AI service users since the latter half of the 2010s.

3.2 AI Strategy and AI Human Resource Development Measures (1)

Society 5.0 Vision to the AI Strategy Implementation

“The Fifth Science and Technology Basic Plan” aims to provide in-depth customized services that meet the diverse needs of users; provide services that anticipate potential needs and support human activities; eliminate disparities in services by factors such as region and age; and create an environment wherein anyone can become a service provider. It also aims to create a symbiotic relationship among people, robots, and AI to improve the quality of life. A “super-smart society” is defined as a society that provides the necessary goods and services to everyone in a just-in-time manner and at the necessary amount; can respond to various societal needs in-depth; enables people to receive high-quality services; enables people to overcome differences in age, gender, region, and language; and enable people to live vibrantly and comfortably. AI technology is positioned as the “fundamental technology required to build a service platform for an ultra-smart society,” along with cybersecurity, IoT system construction, Big Data analysis, and devices.

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Thus, AI technology is positioned as one of the fundamental technologies for realizing Society 5.0; it is an inseparable element of the policies for realizing “Society 5.0.” In Japan, AI policy comprises two frameworks of implementation bodies: (1) MIC, MEXT, and METI, in charge of AI development; and (2) the Ministry of Health, Labour and Welfare (MHLW), the Ministry of Land, Infrastructure, Transport and Tourism, and the Ministry of Agriculture, Forestry and Fisheries (MAFF), in charge of AI use (Cabinet Office 2018). AI policies have been strongly oriented toward collaboration among ministries and agencies, as well as ministries and conference bodies, and they have gradually strengthened the command-and-control functions (Information-technology Promotion Agency 2020, March, p. 408). Thus, the AI strategy implementation bodies were transferred from the “Artificial Intelligence Technology Strategy Council” of the Council for Science, Technology, and Innovation in the Cabinet Office, which had been in charge of Japan’s AI strategy until then, to the “Integrated Innovation Strategy Promotion Council,” which is responsible for cross-sectional and substantive coordination. “AI for all People, Industries, Regions, and Governments” (“AI Strategy 2019”) was then announced (Cabinet Office 2019a, b, June 11) (Table 8). (2)

Human Resource Development Measures in AI Strategy—Numerical Targets and Multifaceted Development Measures

In the area of “(1) Building a Foundation for the Future: Educational Reform and Rebuilding the R&D System,” which is one of the main areas of the AI Strategy 2019, the following goals have been set for future education to realize “educational reform” in 2025 as the target year. • All high school graduates will acquire basic literacy in science, mathematics, data science, and AI. Moreover, their creativity will be cultivated through experiences of problem discovery and solution learning toward the design of a new society, products, and services. • Develop human resources who understand data science and AI and can apply them in various specialized fields (approximately 250,000 people per year). • Identify and develop human resources who can create innovations using data science and AI and play an active role globally (approximately 2,000 people per year, of which approximately 100 people per year as the top class of the field). • Provide recurrent education in mathematics, data science, and AI to many working adults (approximately 1 million people per year) (including recurrent education to promote female participation in society). • Promote opportunities for international students to study data science and AI. Notably, the target also states the specific number of human resources to be trained. While the number of top-level human resources is small, the base of users is broad. Further, the AI human resource development proposed in the AI Strategy 2019 is promoted from two aspects: the development of AI human resources in school education and the improvement of literacy through recurrent education for working people, which was the direction set out in “the Basic Policies for Economic and Fiscal Management and Reform 2019.”

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Table 8 Major AI-related policies leading up to the AI Strategy 2019 Date

Content

January 22, 2016 “Fifth Science and Technology Basic Plan” approved by the Cabinet Office April 12, 2016

“Fifth Public–Private Dialogue for Future Investment” • Prime Minister Abe announces that AI research and development goals and roadmap for industrialization would be formulated by the end of FY2016

April 18, 2016

An “Artificial Intelligence Technology Strategy Council” was established (to take the lead on AI R&D and innovation policy) • A cooperative effort by MEXT and METI, the “Research Liaison Committee,” was established to comprehensively coordinate research at AI research centers under the jurisdiction of the three ministries • The “Industrial Liaison Committee” was established to coordinate R&D and industry cooperation on matters such as human resource development, standardization and roadmap creation, technology and intellectual property trend analysis, and regulatory reform

March 31, 2017

An “Artificial Intelligence Technology Strategy” was announced • “Artificial Intelligence research and development goals and roadmap for industrialization” are formulated • Priority areas are the three fields of “productivity,” “healthcare,” and “mobility,” as well as “information security” as a multidisciplinary field • Promote private investment in R&D of AI technology in collaboration with projects in related ministries and agencies in charge of existing industries, such as the MHLW and MAFF

June 15, 2018

“Future Investment Strategy 2018: Transforming into ‘Society 5.0’ and a ‘Data-Driven Society’”

March 29, 2019

“Integrated Innovation Strategy Promotion Council” determines “Social Principles of Human-Centric AI” • Seven principles for a sustainable society wherein people with diverse backgrounds can pursue their well-being using AI, but without being overly dependent on it: “The Human-Centric Principle,” “The Principle of Education/Literacy,” “The Principle of Privacy Protection,” “The Principle of Ensuring Security,” “The Principle of Fair Competition,” “The Principle of Fairness, Accountability, and Transparency,” and “The Principle of Innovation”

June 11, 2019

“AI Strategy 2019: AI for all People, Industries, Regions, and Governments” was adopted

Source Cabinet Office (2019a, b, June 11)

3.3 Estimating the Shortage of IT and AI Human Resources in Japan (1)

Estimated IT Human Resources Shortage

The “AI Strategy” includes numerical targets for multifaceted human resource development because of the estimated future shortage of IT and AI human resources. For example, Mizuho Information & Research Institute (2019) estimated the gap between IT and AI human resource supply and demand in short supply by 2030.

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In this estimation, the IT human resources are the sum of the human resources of IT vendors and those in information system departments of IT user companies, excluding general users. The IT personnel shortage was estimated based on three scenarios: low, medium, and high demand for IT personnel as per the two indicators of productivity growth and IT demand growth. The largest shortage of IT personnel in 2030 will be 787,000 when the growth of IT demand is high and productivity improvement is 0.7%. However, if the growth of IT demand is low and productivity increases by 2.4%, there will be an estimated oversupply of 72,000 people (Mizuho Information & Research Institute 2019, p. 18). (2)

Estimated Shortage of AI Human Resources

Mizuho Information & Research Institute (2019) also estimated the gap between supply and demand for AI human resources, predicting a shortage of 143,000 people at most in 2030 and of 12,000 people in the best-case scenario (Mizuho Information & Research Institute 2019, p. 63). Thus, to solve the supply–demand gap in the AI human resource supply, the report proposes strengthening the supply capacity of universities and other educational institutions and in-house training and recruitment.

4 AI Human Resource Development: Industry–academia–government Collaboration and All-Round Educational Reform 4.1 Moves Toward Matching Supply and Demand for IT and AI Human Resources (1)

Shortage of IT Personnel Due to the Mismatch Between Supply and Demand and How Companies Respond

As summarized in Sect. 3, a key element in realizing Japan’s vision of Society 5.0 is human resource development. Efforts are directed toward matching the developed human resources with the demands of the industrial world. One such example is the discussions and results of the Human Resource Supply and Demand Working Group established within the MEXT in 2016 under the Industry–Academia–Government Roundtable on Human Resource Development in Science and Technology. It conducted demand surveys as well as discussed and considered measures to improve the quality of the number of human resources in science and technology, thereby securing it. In the surveys conducted by the Working Group, the gap between labor supply and corporate needs was analyzed, along with the gap between the academic field in the university and corporate needs. The analysis revealed that while corporate needs were high for IT hardware and software, IT network and database, and mechanical undergraduates, there was a shortage of supply from the university of those research

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fields (Human Resources Supply and Demand Working Group 2017). In this context, companies are making efforts to collaborate with industry and academia, as described in Sect. 4.2. They also accept interns from non-science undergraduate students for IT-related job experience (Ministry of Economy Trade and Industry, 2018). (2)

Launch of the Japanese Version of O-NET and Introduction of Job-based Employment

In addition to developing human resources in the private sector, there are some other efforts to match the IT and AI human resource supply and demand. One such example is Japan’s Occupational Information Network (O*NET), which began operating in March 2020.1 The site, provided by the MHLW, is a comprehensive database of information on each occupation, how to get a job, the knowledge and skills required, and those suited for each occupation. Japan’s O*NET is expected to make the labor market more visible and optimize the matching of companies and industries with the labor market. In the US, the O*NET was developed by the Department of Labor and has been available to the public since 1998. The US O*NET provides detailed information on elements such as work styles, work values, required skills, and annual income, in addition to an overview of each occupation. Such information is also provided in Japan’s O*NET, but the inclusion of more specific skills characterizes the US version. For example, searching for an occupation in the field of AI and selecting “Intelligence Analysis” from the hits displays the names of specific tools such as SAS (statistical software) and Microsoft SQL Server (database), as well as the skills of which tools are in high demand. It shows that the relationship between occupation and skills is closer in the US than in Japan. In Japan, major companies such as Hitachi, Fujitsu, and KDDI have announced that they will introduce “job-based hiring,” which is uncommon in Japan. Whether these trends spread and change the Japanese labor market at this point remains to be seen.

4.2 Fostering AI Human Resources Through Industry–academia–government Collaboration (1)

Keidanren’s “Strategy for AI Utilization”

Following the government’s announcement of the AI strategy and related plans, the Japanese industry is becoming more involved in AI human resource development. In February 2019, the Nippon Keidanren (Japan Business Federation) announced the “Strategy for AI Utilization: Toward the Realization of an AI-Ready Society.” This strategy was compiled as per the awareness of the issue of how to promote the appropriate use of AI and use the power of AI in the industrial world, referencing strategies and policies of various countries, with AI as the core technology 1

Accessible from https://shigoto.mhlw.go.jp/User/.

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for realizing “Society 5.0.” Among the most distinctive features of the strategy is the concept of “AI-Ready,” which refers to a state of readiness to utilize AI. The strategy describes the current situation in Japan as follows: Companies, individuals, and policymakers are searching for various ways to generate benefits from AI. In contrast, it is difficult to say that the preparations for using AI or “AI-Ready” have been sufficiently achieved. Therefore, the first step in promoting the use of AI is to make it AI-Ready (Keidanren 2019). Keidanren’s “Strategy for AI Utilization” stated that “it is necessary for top personnel, core corporate personnel, and individuals who use AI to become AIReady for all individuals to use and benefit from AI.” In addition to establishing systems for human resource development and education, individual awareness must be changed. Based on this recognition, “Strategy for AI Utilization” contrasted the current situation and the vision for the future per top personnel and researchers, core personnel and technicians in companies, and AI product users (Table 9). Table 9 Keidanren “AI Utilization Strategy” AI Human Resource development vision Current situation

Vision for the future

Top-level human resources (researchers)

Japan lags behind the US, China, and the rest of the world in the competition for AI researchers. There is an overall shortage of AI researchers worldwide

Global researchers are active in domestic research institutes, and there are also world-class AI research centers In collaboration with domestic and overseas companies and research institutes, R&D is conducted using their respective strengths

Core human resources (engineers)

A considerable number of AI engineers are unevenly distributed in the IT industry. There is a shortage of engineers promoting AI who have both specialized knowledge and knowledge of AI technology The use of AI for individual work by employees is at the trial-and-error stage

Many engineers have specialized knowledge and knowledge of AI technology, who can apply AI and use data in each domain All employees use AI to perform various tasks

Literacy (for users)

There is a vague sense of resistance to AI, including the development of theories of threat based on the premise of realizing general-purpose AI Only some early adopters or those with a strong interest are using AI software

Everyone uses AI and data in their work and life situations By using AI, it is possible to realize diverse lifestyles for diverse people and do the previously impossible Home AI software is improved with a do-it-yourself approach; data and AI are effectively used to enrich the lives of individuals

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Thus, Keidanren’s “Strategy for AI Utilization” recognizes that it is necessary to expand the top human resources and the user base to become an “AI-Ready” society. (2)

Examples of Advanced Curricula Based on Industry–academia–government Collaboration

A notable development in recent years is the increasing number of cases wherein courses and programs for AI human resource development are established through industry–academia–government collaboration. For example, in June 2016, eight companies (Toyota Motor Corporation, Dwango, and Panasonic) established the “Endowed Chair in Advanced Artificial Intelligence Education” at the University of Tokyo.2 Moreover, courses and programs for fostering AI human resources through such a triple helix collaboration develop in a variety of ways, including the personnel who attend and participate (e.g., undergraduate and graduate students, working adults, and employees of specific companies) and the content of research (e.g., basic and practical research) (Table 10).

4.3 The GIGA School Initiative and the Education System Reform for the Future (1)

GIGA School Initiative

A recent effort to expand the user base toward an AI-ready society is the “GIGA school initiative.” Under the AI Strategy, MEXT requested 37.5 billion yen in its August 2019 budget request to realize the Global and Innovation Gateway for All (GIGA) School Network Initiative (Ministry of Education, Culture, Sports, Science, and Technology 2019a, b, August). Such a concept means that each elementary, and junior high, and senior high school will have a computer per student, connected to a high-speed, high-capacity, and highly confidential network, using advanced technology and educational Big Data by 2022. It aims to take care of all children such that they can learn with a sense of security and acquire basic academic skills. The cabinet decided to “allocate computers for learners for about one in every three classes” as a governmental policy in “the Basic Plan for the Promotion of Education” of June 2018. However, about a year later, the target has been raised significantly with the “GIGA school initiative.” Further, the Headquarters for the Promotion of the Realization of GIGA Schools was established in December 2019. The 2019 supplementary budget for the realization of GIGA schools was 231.8 billion yen, and the 2020 supplementary budget was 229.2 billion yen (Ministry of Education, Culture, Sports, Science, and Technology 2020b). Under the GIGA School Initiative, the maximum subsidy for one computer per student is limited to 45,000 yen. Some say this amount is too small, but per a video by 2

University of Tokyo. Lecture on “Advanced Manual Know-how Education” (http://park.itc.utokyo.ac.jp/FAIRE/).

Suwa University of Science

Kyoto University

IoT and AI Human Resources Development Course3

“Knowing People” AI Course4

January 2019

March 2019

Kyoto University Original Co., Ltd

NPO Suwa Region Monozukuri Promotion Organization (Suwa City)

Toyota, Dwango, Panasonic

Company

3 Suwa University of Science. IoT and AI Human Resources Development Course (https://www.sus.ac.jp/topics/20200512/). 4 Kyoto University. “Knowing People” Artificial Intelligence Course (https://www.kyodai-original.co.jp/jinkouchinou/).

Chair for Frontier AI Education University of Tokyo

June 2016

University/independent administrative agency

Course title

Period

Target

Learning cutting-edge theories by “knowing people” through a wide range of AI technologies, including image, sound, and language

Educate people to improve their productivity and advance into the AI business, which helps revitalize the industry. There are also plans to introduce a supercomputer dedicated to AI

(continued)

Students, graduate students, working adults

Engineers at small and medium-sized companies

(1) AI education and research Students, graduate students, (especially the development of working adults human resources who can work with deep learning) (2) Spreading proper awareness of AI (3) Raising the level of AI research in Japan

Content

Table 10 Cases of AI Human Resource Development through Collaboration between Industry, Academia, and Government

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AI Course: Learning with Real Data (NEDO Special Course)5

AI and Security Human Resource Development Program6

October 2019

December 2019

The University of Electro-Communications

Osaka University, University of Tokyo, New Energy and Industrial Technology Development Organization (NEDO)

University/independent administrative agency

Company

Target

(continued)

Training AI and security Students, graduate students, engineers over a short period for working adults companies lacking such specialists; Through specialized lectures and practical exercises, students can acquire competencies from the foundations of deep learning and security to the latest technology in natural language processing and applications such as AI in video games and control security exclusively through e-learning and receive a course certificate upon completion

Systematically acquiring AI Researchers and engineers knowledge through lectures; active in the real world acquiring AI skills such as data construction and analysis methods through exercises using various data from manufacturing sites and customer behavior

Content

5 Osaka University. Artificial Intelligence Course: Learning with Real Data (NEDO Special Course). (https://www.osaka-u.ac.jp/ja/news/seminar/2019/06/8329). 6 The University of Electro-Communications. AI and Security Human Resource Development Program. (https://www.websys.edu.uec.ac.jp/aisec/).

Course title

Period

Table 10 (continued)

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DENSO IT LAB Recognition and Learning Algorithm Joint Research Laboratory7

May 2020

Tokyo Institute of Technology

University/independent administrative agency DENSO IT Laboratory

Company Creating a technical basis in AI to realize a “future mobility” that people worldwide look forward to by fusing cutting-edge mathematical and computer science technologies of Tokyo Institute of Technology with the future-oriented technologies of DENSO IT Lab, such as autonomous driving, vehicle electrification, and MaaS

Content

Students, graduate students, working adults

Target

7 Tokyo Institute of Technology. DENSO IT LAB Recognition and Learning Algorithm Joint Research Laboratory (https://www.titech.ac.jp/news/2020/046854.html).

Source Compiled from various sources

Course title

Period

Table 10 (continued)

144 E. Tanaka and S. Aizawa

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MEXT, the cost of the device itself can be reduced via the cloud (Ministry of Education, Culture, Sports, Science, and Technology 2020c, June). Further, to support the rapid adoption of ICT in schools, the Ministry has allocated a supplementary budget of 10.5 billion yen in FY2020 for the GIGA School Supporter Deployment Support Project (Ministry of Education, Culture, Sports, Science, and Technology 2020a). (2)

Declining Birthrates and Aging Society and the Future of All-round Educational Reform

In Japan, the development of human resources to lead the next generation has become an urgent issue, given the declining birthrate and aging population, unparalleled worldwide. Thus, Japan is undertaking comprehensive educational reforms to develop human resources in IT and AI, where demand is expected to grow further in the future. These educational reforms accord with the Society 5.0 vision and comprise a wide range of measures from elementary school through the university and working adults (Graph 2). Furthermore, there have been a series of newly established or reorganized data science departments at universities in recent years. Table 11 summarizes some of the examples. Further, many universities strengthen their education in IT and AI. An example is the newly introduced data science certification system by Waseda University, launched in the 2021 academic year for all current students (Waseda University 2020 December 17). The system is designed to foster human resources to practice a combination of “expertise” of existing departments and “data science” through industry–academia collaboration. There are four levels (literacy to advanced) for which the university issues a certificate of completion.

Graph 2 Overview of human resource development in IT and AI fields under Society 5.0. Source Authors

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Table 11 Recently established or reformed data science departments at universities Launch

Name of department, University

From 2017 April School of Data Science, Shiga University (newly established) From 2018 April Faculty of Data Science, Yokohama City University (newly established) From 2019 April Musashino University, School of Data Science (newly established) From 2021 April • Aoyama Gakuin University, Department of Mathematical Sciences, Faculty of Science and Engineering (reorganized) • Osaka Institute of Technology, School of Information Science, Department of Data Science (reorganized) • Okayama University, Faculty of Engineering, Department of Computer Science, Electrical Engineering and Mathematical Data Science (reorganized) • Nanzan University, Department of Data Science, Faculty of Science and Technology (reorganized) • Rissho University, School of Data Science (newly established) Source Created from website information of each university

Although the outcomes of the educational reforms in Japan described in this chapter are not realized in the short term, it is designed to develop the literacy of the people seamlessly and comprehensively and highly specialized human resources from elementary school to adults. Even so, the Japanese government will invest a large budget in the development of the next generation of human resources, as in the GIGA school initiative, and the educational system reform is expected to be effective in the medium term to realize “Society 5.0.”

5 Conclusion—Vision of Society 5.0 and Investment in the Next Generation of Human Resources Japan’s IT human resource development measures can be traced back to the IT system developer training in the 1980s and 1990s. Later, with the rapid spread of the Internet in the 2000s, the development of IT users emerged as an issue. Since the mid2000s, the Japanese government has continuously worked on the informatization of schools, and the skills of teachers and IT infrastructure of schools have improved. However, the OECD’s PISA survey revealed that the use of the Internet in schools by Japan’s 15-year-old population is weak by international standards. The success of the educational methods of the analog era has become an obstacle to Internet use. The lack of spare capacity of teachers is an issue.

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Given such issues, though not exhaustive, Japan’s international digital competitiveness declined in the 2010s despite an oversupply of system developers. A reason for this development is that human resources with IT skills are concentrated in IT companies, and IT user companies in diverse industries have few IT human resources, which is thought to have led to a delay in the digitization of companies. Moreover, university education did not provide an adequate supply of human resources with the IT skills demanded by companies. In Japan, students in the humanities and social sciences have also been employed in IT-related positions and jobs, such as system engineers, and companies have borne the cost of training them. However, the mismatch between supply and demand of IT human resources has been a factor behind the decline in Japan’s international competitiveness, as the IMD’s global competitiveness ranking is calculated with the evaluation of human resources. The evaluation score for Japan is especially low in digital skills. Hence, the Japanese government presented a vision for Japan’s future society, “Society 5.0,” in the Fifth Science and Technology Basic Plan in 2016. The vision aims to realize the future of society beyond the evolution of the digital economy. Society 5.0 is also expected to contribute to realizing a prosperous society wherein Japan’s various issues are resolved and address the SDGs set by the United Nations. A policy related to Society 5.0 is “the AI strategy 2019,” which promotes a comprehensive development of AI human resources and provides learning opportunities for all citizens and generations. The strategy sets out the vision of human resources to be developed as well as numerical targets. In Japan, it is assumed there will be a shortage of AI human resources in all examined scenarios, but an oversupply of IT human resources will happen depending on IT demand in some examined scenarios. Recent years have seen some measures to resolve the mismatch between human resources and the corporate sector of IT and AI human resource needs in Japan. For example, under Keidanren’s “AI Utilization Strategy,” various companies and universities are working together to develop human resources. Further, the GIGA School Initiative promotes the informatization of schools and encourages the use of software such as cloud computing and educational portals. Departments that specialize in data science in universities have been established and reorganized since 2017. Hopefully, these efforts bear fruit in the medium term. In the short term, the declaration of a state of emergency amid COVID-19 infections in 2020 highlighted Japan’s digital challenges, including online education, telework, and digital government. Even though the 2016 Society 5.0 vision aims to be realized by 2050 in the long term and by 2030 in the medium term, Japan is notably lagging behind the rest of the world in digitalization as of 2020. However, it will take more than 12–16 years, counting from 2020, for the generation that has received programming education since elementary school to become working adults. Thus, the target year of 2030 has a certain validity. Moreover, the human resource development measures in the AI strategy target a wide range of working adults, including recurrent education for working adults. Further, the effects of these measures are expected to become apparent at an earlier stage.

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However, some issues must be addressed: (1) Japan and other countries worldwide focus on AI human resource development. In general terms, the speed of technological change is rapid, and the mobility of highly skilled human resources is high. Thus, it remains to be seen whether human resource development in Japan can keep up with this trend. (2) Another issue is the possibility that the gap between supply and demand for human resources, which has occurred in the past, will not be filled, although this may also be caused by (1). Hence, it is assumed that efforts to collaborate with industry, government, and academia suppress the occurrence of a gap. However, we must continue to monitor the situation through questionnaire surveys and other means. The findings and discussions in this chapter need further research and analysis, as policies and efforts are ongoing in Japan. Any substantial results will be visible only after some time has passed. Further, this chapter did not refer to a theoretical framework on human resource development, but only presents the case of Japan on AI human resource development. There are efforts in other countries and areas on this matter. Therefore, comparative studies will be beneficial to further analyze the effective approaches to develop AI-ready human resources.

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New Competition in Regulated Service Markets After the Smartphone Diffusion: Regulations on Ride-Hailing Services in Japan Akihiro Nakamura

Abstract This chapter aims to examine the possibility of services that have emerged in the face-to-face service market, where time and place need to be matched. In the service market, safety regulations often hinder the spread of new services. To discuss this, using the example of ride-hailing services, which are banned in Japan, this chapter empirically examines whether competition based on information about consumer evaluation on applications can alleviate the information asymmetry that exists in the original service market, and whether there is a possibility of deregulation. According to the empirical results, it was confirmed that competition among consumer rating information in ride-hailing works to a certain extent. Keywords Consumer rating information · Mobile apps · Ride-hailing service · Sharing economy · Deregulation · Information asymmetry · Conjoint analysis · Random utility model

1 Introduction It is almost 20 years since the twenty-first century. Many lives are changing dramatically, particularly because of the spread of smartphones. It has become possible to obtain a wide range of information and new services that take advantage of smart features. According to Japan’s Ministry of Economy, Trade, and Industry, over the past decade, e-commerce has also become popular in the service sector: In 2019, 6.76% of goods sales and 7.82% of service sectors, such as travel, restaurant and beauty salon reservations, and various ticket sales, have been e-consumed. The digitization of these service fields was limited to reservations at stores but did not immediately lead to the consumption of face-to-face services. However, with the spread of smartphones, it has progressed in the service sector for immediate face-to-face service consumption. A. Nakamura (B) Faculty of Economics, Chuo University, Tokyo, Japan e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 T. Jitsuzumi and H. Mitomo (eds.), Policies and Challenges of the Broadband Ecosystem in Japan, Advances in Information and Communication Research 4, https://doi.org/10.1007/978-981-16-8004-5_7

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The sharing economy is a new service form that has emerged in this environment. In this economy, a person who owns (occupies) a certain resource allows another person to use it on an hourly basis or cuts off a part of it and offers it as a service, where people and goods are mutually exchanged and used. Such services have traditionally included elements such as hotels, rental housing, car rentals, and part-time jobs. Public transportation services, such as railroads and buses, are typical examples of sharing services. Thus, sharing-type consumption has been in use for a long time. Moreover, many resources have been shared among family members and friends, indicating that the spread of smartphones and other Information and Communication Technology (ICT) advancements have expanded the scope and target of traditional sharing. However, many new and expanded sharing service areas are regulated in their original service supply markets. Typical cases include ride-hailing and dispatch services such as Uber and Lyft. In many cases, such regulations are obstacles to introducing new ICT-based services. Given the regulation of the paid passenger transportation service market in Japan, drivers without a commercial license cannot supply the service. However, unless using ICT reduces the need for traditional regulations originally imposed on the service field, deregulations cannot be justified even if they effectively spread the new service. Nonetheless, ICT diffusion can be expected to improve the efficiency of information distribution significantly. That is, regulations previously imposed based on the market failure of information asymmetry could be relaxed as a benefit of ICT diffusion. For example, in the paid passenger transportation market, users are unlikely to use the same driver’s service again. Information asymmetry exists in always using a new supplier’s service; the quality of the service is unknown until it is used. Thus, regulations in the paid passenger transportation market in Japan ensure a certain level of safety. This information asymmetry is mitigated by the distribution of consumer evaluation information via smartphone applications. Many studies have analyzed the economic effects of ICT diffusion and the competition policy issues at the heart of the emergence of new services. However, not many studies analyze the possibility of changes in conventional regulations imposed in markets other than the ICT market using ICT. This study discusses the concept of new institutional design in ICT-based service markets, mainly regarding information asymmetry mitigation. Particularly, it analyzes the sharing-type ride-hailing service market, prohibited by regulations in Japan. The study is organized as follows. Section 2 describes the characteristics of sharing services made possible by the spread of ICT, the regulations in Japan’s paid passenger transportation services, and the possibility of deregulation because of the spread of smartphones. Section 3 employs conjoint analysis, a Stated Preference (SP) method, to empirically examine whether consumer evaluation information on ride-hailing apps reduces information asymmetry in the Japanese paid passenger transportation market. Section 4 describes the changes in the service market caused by the diffusion of ICT other than the mitigation of information asymmetry and summarizes the study, highlighting the scope for further research.

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2 Impacts of ICT Development on Service Industries 2.1 Service Production Structure Changed by ICT and Need for Regulatory Reform In transactions of services, unlike market transactions of goods, the time and place of supply and demand must match. Otherwise, even surplus resources would go to waste, which is why services cannot be stocked. With the spread of smartphones, it is possible to instantly know consumer and surplus location (on the supply side), realizing efficient service matching. Such a development makes it easy to borrow and lend for short periods, enabling the supply side to reduce inventory. Hence, service consumption requires that the timing (location) of supply and demand coincide. Therefore, when sharing services, it is efficient to have a “place” where a certain number of service suppliers (lenders) and consumers (borrowers) gather and connect in real time. Although there have been platforms (“places”) that connect suppliers and consumers for long periods, the increased efficiency of information distribution via ICT and the guarantee of timing and location consistency via the spread of smartphones has made it possible to share services in new fields. Further, in such a market, prices are expected to fall because of inventory reduction. Paid passenger transportation service provides transportation services to unspecified passengers for a fee using automobiles. As in any industry, the production of goods and services hinges on the accumulation of multiple processes (layers). Regarding passenger transportation services, the final product, the passenger transportation service, is provided after securing drivers and vehicles, ensuring safety, managing operations, and marketing and matching to obtain customers. In some cases, the same company oversees all production process layers. Different companies take over through external transactions in others. In Japan, small and medium-sized cab companies have supplied most cab services. The vehicles and drivers belonged to the cab companies, and each operator integrated and supplied all production processes. Many prior studies examine how vertical (upstream to downstream) and horizontal (collaboration with other services) relationships are formed, analyzing the conditions under which firms integrate and separate (e.g., Perry 1996; Milgrom and Roberts 1992). In economics, a rational company integrates a division if it can increase its profits by consistently producing it internally; otherwise, it separates and outsources it. In making such a decision, companies are expected to consider various costs and benefits of the transaction and the various risks involved. If we consider that the costs and risk management levels for transactions change with changes in the external environment, the organizational, industrial structure changes with environmental changes. In the market for paid passenger transportation, it is not surprising that the spread of smartphones changes the external environment, which changes the production structure and the competition mechanism. The separation and integration of production process structures can be seen in many industries. In such cases, the consistency of the newly emerged services with the existing regulations is debated.

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The regulatory system imposed before the change in production structure is basically based on the assumption of a conventional production structure. Therefore, even if new forms of services become possible with the spread of ICT, such services may not be consistent with conventional regulations.

2.2 Regulations in Japan’s Paid Passenger Transport Market and the Changes that Occur with the Spread of ICT The recent development of ride-hailing services via smartphone apps has prompted a relook at traditional passenger transport market regulations. In addition to studies on traditional deregulations by studies such as Teal and Berglund (1987), there has been increasing interest in regulatory reform following the introduction of smartphone passenger transport apps. Çetin and Deakin (2017) outlined the traditional taxi market regulation given expanding ride-hailing services. Farren et al. (2016) showed that taxi apps reduce asymmetric information in these markets.1 These apps provide information such as location and user reviews on drivers. Search and matching costs were among the key issues in the taxi market, drastically reduced by apps. Lagos (2000) considered the search cost in the taxi market,2 and Arnott (1996) studied the shadow cost for taxi waiting time. In their study on regulatory impacts on quality and safety of services, Nasulea et al. (2018) noted the need to regulate the sharing economy and changing the existing taxi regulations.3 Studies examine user-review information in various other markets, such as accommodations, but ignore passenger transport services. Most empirical research reveals that user-review information reduces asymmetric information. Proserpio and Zervas (2017) and Georgios et al. (2017) studied user-review information in the accommodation market by empirically estimating the relationship between Airbnb review scores and prices. Despite ongoing discussions from various dimensions on regulating 1

Instead of a discussion on asymmetric information, several studies examine labor market issues from law aspects. Leaphart (2016), Thomas (2018), and others investigated drivers’ labor status from law aspects on whether ride-hailing drivers are treated as independent contractors to transportation network companies (TNCs), such as Uber and Lyft, or their employees. Davis (2015) also discussed insurance coverage or liabilities of ride-hailing drivers. Some other safety issues are also investigated from law and engineering or sociology aspects. Rayle et al. (2016) explored how ride-sharing services are used in San Francisco. Hall and Krueger (2018) analyzed the features of taxi and Uber drivers via the survey data and noted that both have much in common, especially in working hours, age distribution, and educational background. Ride-hailing services, where customers share their ride with another unfamiliar customer, are also analyzed. Dong et al. (2018) analyzed the trip pattern of ride sharing via individual data by DiDi (China), showing that few ride-sharing drivers provide services only in peak hours. 2 The search cost was first formalized in Diamond (1971). 3 Dills and Mulholland (2018) analyzed the changes in accidents and crime rates after introducing ride-sharing services, such as Uber. They employed DID base methods and showed that fatal accidents and the number of arrested people declined after Uber was introduced. Greenwood and Wattal (2017) used the DID framework to analyze drunk-driving accidents in California.

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ride-hailing services, there are no empirical studies on how much the user-review information in ride-hailing apps reduces the inherent asymmetric information. As noted, in Japan, the ride-hailing service provided by, for instance, Uber X drivers does not meet the taxi service regulation standards. Taxi companies provide most taxi services in Japan. They must manage drivers’ labor hours, violations, and criminal or accident records while maintaining their cars. Taxi drivers must hold a commercial driving license to provide paid passenger transportation services in Japan. These regulations reduce the asymmetric information of safety issues between taxi providers and passengers with no prior experience of riding. However, apps mitigate these effects. In contrast, the regulations make Uber-X-type ride-hailing services illegal, thus serving as entry barriers.4 Hence, Shinkeiren (2016, 2018)5 stated that the regulations could be replaced by other tools, such as competitive pressure through user reviews. Shinkeiren insists that user-review competition might help maintain a safety level. Despite such a view, many issues must be addressed to legitimize Shinkeiren’s argument. As noted, in Japan’s paid passenger transport services, traditional cab operators, vertically integrated under certain regulations, have ensured safety and security consumers cannot immediately judge. However, when the production process of paid passenger transportation services is separated, who (which layer) should guarantee safety and security is an issue to be discussed. Safety and security in road passenger transport services comprise a wide range of factors. Typical components include driving skills, various safety issues regarding drivers and passengers in an enclosed space, vehicle breakdowns, compensation in case of accidents, and consumer protection aspects, including fare levels. As noted, regarding cab drivers in Japan, there are currently regulations on the possession of commercial licenses, which mitigate the information asymmetry to a certain extent by guaranteeing that only drivers who meet a certain standard can provide services. Regarding driving services where the car owner drives to drink alcohol and leaves the car to be driven home, since 2002, they have been required to obtain approval from prefectural public safety commissions to operate. Moreover, since 2004, they have been required to hold a commercial license like cabs under the law concerning the proper operation of automobile driving agency services. Arguably, the design of such a system in Japan made it challenging to resolve the information asymmetry since consumers cannot judge the skills of the drivers who supply the professional driving service.

4

The trend of getting driving licenses in Japan is notable. Per the National Police Agency (2018), approximately 99.3% of new drivers get regular (uncommercial) driving licenses through private driving schools with varying fees that are basically over JPY200,000 (=USD 1,900). Drivers who finished the behind-the-wheel test in schools are exempted from its examination in government driver test, except for a written examination. It takes at least two weeks to finish the school course. Approximately 91.8% of drivers got a drivers license via driving schools in 2018 based on the same statistics. 5 Shinkeiren is the newly organized federation of economic organizations comprising new companies relative to those in the (traditional) federation of economic organizations in Japan.

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Instead of the traditional form of Japanese cab companies, if companies like Uber and Lyft (TNCs), which have entered the matching service market, were to take over driver management, it would have to be done online. It is different from the traditional face-to-face management of drivers by cab companies. How service users perceive this difference is also an issue to be examined. If ICT tools do not reduce information asymmetry, it must be addressed from the perspective of guaranteeing safety and security for similar paid passenger transportation services even if structurally separated. Therefore, it will be necessary to ensure fair competition with existing cab companies by requiring ride-hailing services to have a commercial license and a certain level of regulation on vehicles. The question is whether the information asymmetry that would cause market failure remains even when information distribution becomes more sophisticated with the advancement of ICT.

3 Empirical Analysis on New Competition in Japanese Paid Passenger Services Market This section discusses the possibility of deregulation in the market for new services using ICT by empirically examining whether information asymmetry, which is a market failure, exists even when information distribution has become more sophisticated with the advancement of ICT regarding the Japanese paid passenger transportation service market.

3.1 Questions to Examine the Mitigation of Information Asymmetry The standard of achievement regarding the safety and security of services traded in the market varies per country. For paid passenger transportation services, many countries have taken new measures to ensure safety and security for the entry of ridehailing services. Despite detailed differences, many countries impose obligations on matching service providers (generally TNCs), such as ensuring fare transparency, insurance obligations for accidents, vehicle registration, and driver identification. A system for new services beyond the existing institutional framework is being considered from the perspective of improving the competitive environment with existing cab services, protecting consumers, and ensuring the safety and security of services. Shinkeiren (2016, 2018) argued that it is necessary to regulate the TNCs, the matching service layer, and drivers and vehicles responsible for operation layer services to ensure the safety and security of ride-hailing services where the operation and matching service layer are separated. Moreover, as the operator responsible

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for operation management, TNCs are obliged to keep operation records, prepare driver lists, record and store accidents, and set maximum hours of operation per day. Further, drivers should be responsible for the same alcohol checks as cab drivers and be required to report accidents to the TNC. Other responsibilities to TNCs include additional insurance coverage in case of accidents, transparency of fares, screening of driver qualifications (eliminating those with criminal records and a history of serious accidents), and introducing a rating system. However, regarding effective utilization of idle resources, drivers should not be required to have a commercial license but should instead be required to take a certification course by the TNC. This section empirically analyzes whether the differences in consumer evaluation information provided on smartphone applications affect consumers’ choice of suppliers. When consumer rating information competition works, service suppliers have incentives to maintain a certain level of service quality to prevent their consumer ratings from falling. The primary purpose of safety regulation is to maintain service quality. That is, if consumer evaluation information competition works effectively, safety regulations can be relaxed since service quality would be maintained. This analysis examines whether the regulations per information asymmetry in the service market can be relaxed by increasing the efficiency of information distribution as a benefit of ICT diffusion.

3.2 Stated Preference Experiments This section briefly explains the data used in this study. In March 2017, the study conducted a survey on users’ service choice behavior of paid passenger transport services per user-rating information from hypothetical taxi apps. The study employed SP data instead of revealed preference (RP) data to capture consumer preferences because Uber-X-type ride-hailing services, provided without a commercial driver’s license, are prohibited in Japan’s current passenger transportation market, and consumer evaluation information for passenger services are uncommon. The study explores whether user-rating score competition substitutes each regulation in Japan’s paid passenger transportation market. A choice experiment using SP data assured the variability of attribute levels and avoided collinearity among attributes. The SP survey used a conjoint questionnaire. Conjoint analysis as an SP experimental technique has been applied in various disciplines,6 where researchers construct hypothetical bundles of attributes that describe a product or service and ask respondents to state their preferences from hypothetical alternatives. As repeatedly noted, taxi companies provide most taxi services in Japan, and firms must check drivers’ criminal and accident records and manage their working hours. 6 Layton (2000) applied conjoint analysis to environmental research. Hensher (2004) studied automobile travel using conjoint analysis. Nakamura (2010) analyzed mobile phone demands by a conjoint survey. Lebeaus et al. (2012) analyzed consumers’ preference for hybrid and battery electric vehicles via conjoint analysis. Rofè et al. (2017) used a conjoint technique to analyze Israel urban home market.

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Drivers must possess a commercial driving license to provide passenger-ride services. These factors reduce asymmetric information between providers and passengers in driving safety and drivers’ individual characteristics. However, these regulations, especially the need for a commercial driving license, prevent general drivers from offering ride-sharing services like Uber X. Shinkeiren (2016, 2018) proposed that these regulations can be deregulated since user-review competition and additional regulations on TNCs can help in maintaining the safety standard. The conjoint questionnaire comprised attributes regarding the Japanese passenger transport market regulations. Table 1 presents the range of attributes and levels in each alternative in the experiment. Figure 1 illustrates an example of the conjoint questionnaire. Each alternative in this analysis is grouped per five attributes: (1) users’ review scores, (2) companies or portal sites managing drivers’ working hours, (3) companies or portal sites checking and managing criminal and accident background, (4) a driver having a commercial driving license, and (5) the fare for each service. The consumer evaluation score attribute was set to 4.0 as the average, with 0.2 points added or subtracted before or after the average to give a good or bad evaluation. Moreover, a level of no consumer evaluation information was added to make four levels. This attribute was set to examine the possibility of competition per consumer evaluation information. The attribute related to the management of drivers’ working hours and prior assessment of criminal and accident history is used to evaluate the Table 1 Design of the conjoint analysis User rating

Levels in the Current Card

Levels of Two Alternatives

No rating

No rating, 3.8 points, 4.0 points, or 4.2 points

Drivers’ working hours

Managed

Managed or Unmanaged

Criminal/Accident records

Checked

Checked or Unchecked

Commercial driving license

Hold

Hold or Not hold

Fare (JPY)

2,500

1,500; 2,000; 2,500; 3,000; or 3,500

Fig. 1 Example of a conjoint analysis questionnaire

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driver management implemented by Japanese cab companies under the current regulations. The attribute related to the need for a commercial license can be used to evaluate the regulations in place to ensure driving skills under current regulations. The fare attribute listed at the end evaluates other attributes in monetary terms. Each experiment listed three alternative cards: one that reflects current Japanese taxi market regulations (no user review and all regulations in place) as a status quo card and two alternative cards where some regulations “do not exist” with various user reviews (Fig. 1). One status quo alternative and two hypothetical alternative cards were grouped for respondents to order them by preference. Survey participants were selected from a survey panel organized by an internet survey company (Macromill Research, Inc., Japan). A sample of 1,450 responses was obtained. The participants responded to the rank-ordered choice questions five times. Each experiment lasted the three alternative cards. The number of profiles would have become unwieldy if all possible combinations of attribute levels had been considered. Thus, the conjoint profiles were restricted to 40 patterns using orthogonal design methods, considering each main and possible interactive effect (see Hensher et al. 2005). Respondents were divided into four blocks, each answering five questions, which comprised two types of conjoint cards with a status quo card; thus, 40 patterns were covered. Table 2 presents the basic statistics of the dataset. The questionnaire was distributed to ensure a certain number of respondents of each age and gender. Further, the survey requires respondents to consider consumer evaluation information not yet available for passenger transportation services in Japan. Thus, beyond the survey for conjoint analysis, we also investigated consumers’ selection behavior of service Table 2 Basic statistics Age

Gender

Household income/year

Individual income/year

20–24

83

Male

724

Under JPY 2 Million

113

Under JPY 2 Million

521

25–29

142

Female

726

2–4 Million

291

2–4 Million

324

30–34

136

4–6 Million

337

4–6 Million

185

35–39

144

6–8 Million

180

6–8 Million

88

40–44

171

8–10 Million 113

8–10 Million 59

45–49

176

10–12 Million

56

10–12 Million

16

50–54

136

12–15 Million

34

12–15 Million

7

55–59

132

15–20 Million

23

15–20 Million

8

Over 60

330

over 20 Million

9

over 20 Million

3

No answer

294

No answer

239

Total

1450

total

1450

Total

1450

total

1450

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Fig. 2 Differences in consumer rating information and WTP in restaurants, hotels, and taxis

suppliers with different ratings. Currently, restaurant and accommodation reservation sites use consumer rating information in Japan. To help survey respondents understand the hypothetical situation where consumer rating information would be used in the passenger transportation market, we incorporated a question on the impact of differences in consumer rating information on their own choice of restaurant, accommodation, and hypothetical ride-hailing service suppliers before answering the conjoint-type question. In this question, as in the consumer evaluation score attribute in the conjoint-type question, we gauged respondents’ willingness to use a service with no evaluation, poor evaluation (3.8 points), average evaluation (4.0 points), and good evaluation (4.2 points), even if there is a certain percentage difference between each (when the service with average evaluation is set to 0). Figure 2 shows the survey results for this question. Accordingly, in restaurant markets, the difference-in-difference between “bad” and “good” is almost symmetrical. The other two services show asymmetrical effects on Willingness to Pay (WTP) for “bad” and “good” services. Nonrated providers of the three services attract the lowest WTP among all providers.

3.3 Estimation Models and Results The consumer behavior model in this study is drawn based on the random utility framework by McFadden (1974). If customer i faces a choice among J alternatives in each of the T choice sets, the utility functional form when individual i chooses alternative j in choice set t, where x jt is expressed as a vector of independent variables, is. Ui jt = β  x jt + εi jt

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This study assumed three alternatives. The distribution of random disturbance εijt is assumed to follow an independent and identical type I extreme value distribution: the unknown coefficient vector β. More concretely, the assumed utility function is Ui jt =βT X,i T AX I jt + β N RT D,i N O N R AT E D jt + β L O W,i L O W jt + β H I G H,i H I G H jt βW H,i W O R K H jt + β I N F,i I N F O jt + β L I C,i L I C jt + β F A R E,i F A R E jt + εi jt The independent variables correspond to the attributes in the experiment (Table 1 and Fig. 1). TAXI is a dummy variable that takes 1 if the choice is a currently existing taxi in Japan and 0 otherwise. This dummy variable captures the other taxi benefits, such as safety based on other regulations instead of included attributes. NONRATED is a dummy variable that takes 1 if a taxi or ride-hailing service does not have its rating score and 0 otherwise. LOW is a low consumer review score dummy variable, which takes 1 if the review has a low score (3.8) and 0 otherwise. HIGH is a high consumer review score dummy variable, which takes 1 if the review has a high score (4.2) and 0 otherwise. Therefore, the baseline user rating is the average score service (4.0). NONRATED, LOW, and HIGH can be compared with the average score services. WORKH takes 1 if a taxi or ride-hailing driver is managed during working hours and 0 otherwise. INFO takes 1 if a taxi or ride-hailing driver’s criminal or serious accident background is checked and 0 otherwise. LIC takes 1 if a driver has a commercial driving license and 0 otherwise. FARE is the taxi or ride-hailing fare in JPY1,000. Each attribute evaluation might vary among respondents. Random parameters logit (RPL) model can capture these variations among respondents. In the RPL models, the unknown coefficients vector β i , each element of which is given by β x,i , is assumed to be a random variable with a certain distribution on the population. We assumed the coefficients are distributed as a normal distribution correlated with each other and a one-sided triangular distribution.7 We estimated each of the RPL models by maximum simulated likelihood method with 100 Halton draws.8 Further, because a respondent repeatedly completes five multiple-choice questions, we applied a standard random effect method where random draws were repeatedly reused for the same respondent. We employ contingent ranking conjoint data. The model fully uses the ranking information by applying the conditional logit model repeatedly. Each choice set comprises a first-ranked choice and lower ranked alternatives.9 In the normal distribution model, each parameter is assumed as bk + σ k *zk,i , where zk,i is distributed as a standard normal distribution, and k and i stand for the kth and ith attribute and individual, respectively. In the one-sided triangular distribution model, the kth parameter is assumed to be bk + bk *zk,i , where zk,i is distributed as triangular [−1,1]. Therefore, the parameter values are restricted in a positive value, which starts from 0 and ends at 2bk , with its peak value as bk . The parameter of each attribute in the model has only its mean value bk . 8 Bhat (2001) mentioned that 100 Halton sequence draws are more efficient than 1,000 random draws for simulating a maximum simulated likelihood (MSL) model (for further information on Halton sequence draws, see Halton (1960), and Train (2000)). 9 Hausman and Rudd (1987) noted the possibility that a respondent in a survey pays greater attention to her top choice or top few choices rather than carefully ranking all alternatives. Hence, there is 7

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The probability of individual i’s observed sequence of rankings is expressed as. T  J −1 eβ  x(rmt ),i L(ri = {ri1 , · · · , ri T }|β) = t=1 ,  m=1  J β x (r ) k=m e

kt

,i

where, r it is the vector of individual i’s ranking responses of choice set t, and x(r mt ) is the vector of independent variables of the alternative ranked m in descending preference; that is, we employ the rank-ordered conditional logit model. Table 3 shows the estimation results of the models. The far-left column presents the estimation result of the standard rank-ordered logit (SL) model, which shows statistically significant estimates with appropriate signs. Each coefficient of the current regulations’ dummy variables, such as WORKH, INFO, and LIC, takes a statistically significant positive value. The effects of the reduction in asymmetric information benefit the users. The coefficient of consumers’ review scores and the absence of rating exhibit a significantly negative value. The coefficient of High, which represents a high user-review score, shows a statistically significant positive value. However, that LOW shows a negative value that is statistically not different from zero. Regarding FARE, assumed to be negatively evaluated, a negative value in the parameter of FARE is consistent with the prior expectation. Regarding the results of the RPL model estimation of the normal distribution model (Table 3), only two of the standard deviations of coefficients are statistically different from zero, with a minimal improvement of log-likelihood values. The mean value of each parameter distribution in this model is almost identical to that in the SL model. However, the parameter of LOW becomes significantly different from zero in this model. The triangular distribution model result shows different mean values of the parameter distributions from the mean of the SL model. However, the log-likelihood value in the triangular distribution model declines relative to that of the SL model. Therefore, the estimation result of the RPL model with normal distributions is hereafter discussed in this study.

3.4 Discussion This study considers the relative importance of each attribute change to draw policy implications. The relative importance is calculated as the ratio of the coefficients of two attributes. The ratio of the coefficient for each attribute to the coefficient of the monetary attribute is interpreted as WTP in compensating variation. FARE is used as a basis of the monetary attribute to calculate WTPs in this estimation model. Table 4 reports the WTP for each attribute change. The results show that the difference between the highly rated and nonrated services is JPY701 (=JPY287 + JPY414), which is nearly the same value as each existing regulation, such as the management of working hours (JPY668), criminal or serious accident background check (JPY883), and holding a commercial driver’s license (JPY823). The value of a trade-off that using more ranks gives more efficient parameter estimates; however, it can also introduce a bias in the results. Chapman and Staelin (1982) suggest using only the first few ranks in the estimation.

−37,263.53686

−37,263.57317

***1% significant, **5% significant

0.0253238

(0.0000)

−0.30189

***

(0.0000)

−0.30191

0.24833

(0.0000)

0.26664

(0.0000)

***

***

(0.0000)

0.20179

(0.0000)

(0.0000)

0.24831

(0.0000)

0.26666

(0.0000)

0.20179

(0.0007)

***

(0.0000) 0.08665

(0.2939)

***

−0.02366

−0.02365

0.08665

(0.0000)

−0.12502

***

(0.0000)

−0.12501

0.05354 (0.0000)

**

(0.0184)

0.05354

***

***

***

***

***

***

***

***

Means of RPL Dist

Estimated Coefficients

McFadden Pseudo R2 0.0253228

Log-Likelihood

FARE

LIC

INFO

WORKH

HIGH

LOW

NONRATED

TAXI

Normal Distribution RPL

Standard Rank-Ordered Logits

Table 3 Estimation results

(0.0160)

0.00428

(0.0970)

0.00353

(0.4541)

0.00174

(0.1205)

0.00340

(0.5874)

0.00182

(0.8803)

0.00051

(0.7994)

0.00092

(0.8747)

0.00056

**

*

S.D. of RPL Dist

0.0238510

−37,319.84278

(0.0000)

−0.28516

(0.0000)

0.22373

(0.0000)

0.23977

(0.0000)

0.18444

(0.0000)

0.08137

(0.0000)

−0.01555

(0.0000)

−0.09283

(0.0000)

0.05976

***

***

***

***

***

***

***

***

Means of RPL Dist

(0.0000)

0.28516

(0.0000)

0.22373

(0.0000)

0.23977

(0.0000)

0.18444

(0.0000)

0.08137

(0.0000)

0.01555

(0.0000)

0.09283

(0.0000)

0.05976

***

***

***

***

***

***

***

***

Limits of Triangular

One-sided Triangular Distribution RPL

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Table 4 Willingness to Pay for each attribute change Japanese Yen

Traditional NONRATED LOW HIGH WORKH INFO LIC Total WTP TAXI

WTP of Each Attribute Change

177

-414

Unrated Taxi

177

-414

Low Rated Ride-hailing

-78

287

-78

Average Rated Ride-hailing High Rated Ride-hailing

287

668

883

823

668

883

823 2,137

668

883

1,473

668

883

1,552

668

883

1,839

nonrated services JPY701 can be interpreted as the market power of TNCs. A driver loses the user rating upon exiting the TNC. Considering the high value of JPY701, each TNC might have negotiating power with drivers.10 This study addresses three sources of asymmetric information in the passenger transport service market: drivers’ working hours (their fatigue levels) management, criminal or serious accident background (drivers’ individual characteristics) check, and a commercial driving license requirement (driving skills). Considering the WTP calculated earlier, if TNCs do not take adequate steps to control the asymmetric information, ride-hailing services are unlikely to survive the passenger-ride market because the total WTP for which all three are controlled is too large (JPY2,374 = JPY668 + JPY883 + JPY823) relative to the taxi price, JPY2,500, assumed in the present conjoint design’s status quo card. Thus, the TNCs might try to control some asymmetric information to compete with current taxi companies even without government regulation. Relative to the need for a commercial driving license, the other two factors (managing drivers’ working hours and their criminal or accident information check) can be easily managed by TNCs. The mandatory regulation for commercial driving licenses raises the entry barrier; therefore, Shinkeiren (2016, 2018) emphasized the need for deregulating commercial driving license requirements for existing ridehailing services. Except for regulating commercial driving licenses, taxi regulations in Japan are imposed on taxi companies rather than drivers. Thus, the likely scenario of introducing ride-hailing services to the Japanese passenger-ride market is deregulating the commercial driving license requirement and imposing other regulations on TNCs. This study calculated the total utility of the current taxi service and assumed ridehailing service. Accordingly, the following assumptions were made. Taxi services 10

Harding et al. (2016) noted that Apps likely created the new monopoly structure.

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were assumed to be regulated in the information asymmetry items indicated by the above two attributes and holding commercial drivers’ licenses. However, the ridehailing services were also regulated regarding drivers’ working hours and private information of criminal and accident records, but they do not hold commercial driving licenses. The value of the current taxi service in Japan under all regulations without user ratings is JPY2,137. However, the ride-hailing service, assumed to be regulated regarding driver’s working hours and background check via TNCs, but without commercial driver license, is as follows: low-rated service = JPY1,473, the averagerated service = JPY1,552, and the high-rated service = JPY1,839. Relative to the utility value of the assumed taxi service, they are 68.9%, 72.6%, and 86.0%, respectively. Regarding highly rated ride-hailing, the difference in WTP between the ridehailing and taxi services is only 14%. If drivers provide ride-hailing services with their car, the depreciation cost of the car is relatively lower than that of the taxicab. Moreover, if they were part-time ride-hailing drivers and have alternative earnings, they could discount the price of services. Therefore, the new entry ride-hailing service can compete with the incumbent taxi services given the above conditions (i.e., TNCs manage driver’s working hours and background), but the driver does not possess a commercial driving license. Regarding user-review competition, the difference in the price between high and low is approximately 17%. It appears to serve as an incentive for service quality competition. Further, the respondents were asked to comment on the necessity of each current regulation imposed on Japanese taxi companies and whether it should be regulated by the government or managed by the TNCs or taxi companies without government regulation (Table 5). On the survey on the regulation that the criminal or accident records are managed and disclosed, half of the respondents believe government regulations are necessary. On the management of drivers’ working hours, most believe it is the government’s Table 5 Respondents’ intentions on the current taxi regulations # of obs

It is enough for TNCs/Taxi companies to manage them

Government should regulate them

No management is needed in the first place

Driver’s skills

1450

35%

47%

18%

Managing and disclosing driver’s accidental records

1450

33%

50%

17%

Managing and disclosing driver’s criminal records

1450

27%

55%

18%

Managing and disclosing driver’s working hours

1450

41%

43%

16%

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job; the figure is, however, slightly lower than that for the criminal or accident record. The guarantee on drivers’ skills showed similar results. Although about half the respondents think it is the government’s job to regulate, the rest are divided among those who believe that the regulations are unnecessary and those who believe TNCs providing user-review information or taxi companies can manage them without government regulation.

4 Conclusions The ride-hailing service is a new service entry into a market premised on a system designed for a conventional service supply system. Such cases are expected to increase in the future; however, there will likely be many cases where the conventional system hinders the introduction of new entry services. The widespread use of ICT tools, including smartphones, has made it possible for consumers to efficiently obtain information anytime, anywhere. The supply side has also developed services to meet this need. The resulting new service supply models likely alleviate the information asymmetry significantly from conventional service supply models. This study can be applied to many other fields other than ride-hailing services, where the safety and security of services are important, such as medical services and accommodation services. The analysis revealed that in the Japanese paid passenger transportation market, differences in consumer evaluation information provided by smartphone applications impacts consumers’ choice of service providers. This result suggests that the functioning of consumer evaluation competition may maintain the quality of service. Consumer evaluation competition is a new form of competition created by the spread of ICT. Thus, the new competition results may replace the quality assurance in each service field, guaranteed by government regulations. This study showed that increased information distribution efficiency because of the spread of ICT could ease the traditional safety regulations based on information asymmetry. However, players in the matching layer of passenger transport services, such as TNCs, are also platformers. Regarding platformers in the ICT market represented by GAFA, their market dominance has been discussed because of their economies of scale through network externalities11 in the sense that the more people use them, the more convenient they are. Similar concerns about market dominance may arise for TNCs in the passenger transport market. Users have multiple applications installed on their smartphones and use them as appropriate. However, consumer rating information is a relationship-specific asset for drivers. For example, consumer evaluations acquired when registering with Uber are not used when driving for Lyft. In another survey conducted in 2019, the author investigated how many consumer ratings would be enough to trust ratings about a driver. Thus, approximately 85% of the respondents said they could trust the rating information if there were approximately 100 11

As for network externalities, see Katz and Shapiro (1985, 1992).

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consumer ratings acquired over a certain period. Hence, the possibility of drivers being locked into each TNC is low. Many studies have analyzed the economic effects of ICT diffusion and the competition policy issues at the heart of the emergence of new services. However, not many studies analyze the possibility of changes in conventional regulations imposed in markets other than the ICT market using ICT. This study employs SP methods because the target of the analysis is a new service that has not yet been realized in Japan. Relative to the RP methods that use actual transaction data, the SP methods are less reliable. Thus, to discuss the possibility of easing traditional regulations through ICT diffusion, more robust analytical results are needed. This issue remains to be addressed in this study. Acknowledgements An earlier version of this paper was presented at seminars held by the 28th European Regional Conference of the International Telecommunications Society (ITS) 2017. I would like to express my gratitude to the participants of the conferences who provided valuable comments on this analysis. This research was partly supported by a Grant-in-Aid (No. 2430089) from the Japan Society for the Promotion of Science and the Telecommunications Advancement Foundation research grant and KDDI Research, Ltd.

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Hensher DA (2004) Identifying the influence of stated choice design dimensionality on willingness to pay for travel time savings. JTEP 38:425–446 Hensher DA, Rose JM, Greene WH (2005) Applied choice analysis: A primer. Cambridge University Press, New York Katz ML, Shapiro C (1985) Network externalities, competition, and compatibility. American Economic Review 75(3):424–440 Katz ML, Shapiro C (1992) Product introduction with network externalities. The Journal of Industrial Economics XL(1): 55–83. Lagos R (2000) An alternative approach to search frictions. J Polit Econ 108(5):851–873 Layton DF (2000) Random coefficient models for stated preference surveys. J Environ Econ Manag 40:21–36 Leaphart JM (2016) Sharing solutions?: An analysis of taxing the sharing economy in the United States and Europe. Tulane Law Review 91:189–215 Lebeaua K, Mierlob JV, Lebeaua P, Mairessea O, Macharis C (2012) The market potential for plugin hybrid and battery electric vehicles in Flanders: A choice-based conjoint analysis. Transp Res D 17:592–597 McFadden D (1974) Conditional logit analysis of qualitative choice behavior. In: Zarembka P (ed) Frontiers in econometrics. Academic Press, New York, pp p105-142 Milgrom, P., J. Roberts (1992): Economics, Organization and Management. Prentice Hall, Englewood Cliffs Nakamura A (2010) Estimating switching costs involved in changing mobile phone carriers in Japan: Evaluation of lock-in factors related to Japan’s SIM card locks. Telecommunications Policy 34:736–746 Nasulea C, Nasulea DF, Mic SM (2018) Innovation needs deregulation: the case of taxi and private hire companies. Proceedings of the International Conference on Business Excellence 12(1):651– 660 National Police Agency (2018) Statistics of driving licenses 2018. Tokyo. Perry MK (1987) Vertical integration: Determinants and effects. In: Schmalensee R, Willig R (eds) Handbook of industrial organization, vol 1. North Holland, Amsterdam, pp 183–258 Proserpio D, Zervas G (2017) Online reputation management: Estimating the impact of management responses on consumer reviews. Mark Sci 36(5):645–665 Rayle L, Dai D, Chan N, Cervero R, Shaheen S (2016) Just a better taxi? A survey-based comparison of taxis, transit, and ridesourcing services in San Francisco. Transp Policy 42:168–178 Rofè Y, Pashtan T, Hornik J (2017) Is there a market for sustainable urbanism? A conjoint analysis of potential home buyers in Israel. Sustain Cities Soc 30:162–170 Shinkeiren (2016) Ride-share ni mukete (For the ride sharing). Tokyo Shinkeiren (2018) Ride-share shinpou no teian (For legislating the ride sharing services). Tokyo Teal RF, Berglund M (1987) The Impact of taxicab deregulation in the USA. JTEP 21(1):37–56 Thomas KD (2018) Taxing the GIG Economy. 166 University of Pennsylvania Law Review 1415, UNC Legal Studies Research Paper. Train K (2000) Halton sequences for mixed logit. Working Paper Series 1035, Department of Economics, Institute for Business and Economic Research, UC Berkeley. https://eml.berkeley. edu/wp/train0899.pdf. Accessed 15 Jul 2021

The Preference of Payment of Game Players in the Cross-Platform Era: A Survey of Smartphone Users in Japan, the UK, China Ema Tanaka, Yuhsuke Koyama, and Nobushige Kobayashi

Abstract This chapter provides an overview of changes in the digital game market and then analyzes users’ payment preferences for digital gaming in the cross-platform era based on the results of a survey of smartphone users in Japan, the UK, and China. Since the 2010s, with the spread of smartphones and the expansion of subscription services, the gaming market has witnessed a diversification of platforms. In addition to multi-platform compatible games that can be played on multiple platforms (playable at any of Xbox, PlayStation, and Nintendo devices but not playable across different platforms), cross-platform compatible games (players using different platforms can participate in the same game play) that can be played across multiple platforms exist. The results of our online survey conducted in March 2020 among smartphone users in Japan, the UK, and China presented the characteristics of each country in terms of the devices on which games are played and the reasons for paying for their game play. The results of the survey showed that the differences between countries regarding the preference for payment methods were small. For Japan, further extensive cross-tabulation results showed that there were some differences in game players’ preferences by age, gender, amount of money charged, and game players/non-game players. As the background of the results, it could be assumed that increase in the types of payment methods for games under the diversification of platforms and the segmentation of players by game genre occurs with the co-evolution process of the gaming industry.

E. Tanaka (B) Faculty of Global Japanese Studies, Meiji University, Tokyo, Japan e-mail: [email protected] Y. Koyama Faculty of Department of Planning, Architecture and Environmental Systems, Shibaura Institute of Technology, Saitama, Japan e-mail: [email protected] N. Kobayashi Faculty of Liberal Arts, Tohoku Gakuin University, Miyagi, Japan e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 T. Jitsuzumi and H. Mitomo (eds.), Policies and Challenges of the Broadband Ecosystem in Japan, Advances in Information and Communication Research 4, https://doi.org/10.1007/978-981-16-8004-5_8

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Keywords Game player · Mobile game · Smartphone · Payment preference · Cross-platform · Japan · UK · China

1 Introduction Since the 2010s, given the spread of smartphones and the expansion of subscription services, platforms in the gaming market have become more diverse. While many games can be played for free on smartphones, some game titles can only be played by purchasing a specific game console. The money paid for gameplay also varies, with some players paying large sums of money to acquire virtual game items. This chapter primarily clarifies the preference of game users toward payment in the cross-platform era. The study conducted a questionnaire survey of smartphone users in Japan, the UK, and China in March 2020 using an allocation method based on gender and age. The survey was headed by Nobushige Kobayashi (Tohoku Gakuin University), with Yusuke Koyama (Shibaura Institute of Technology) and Ema Tanaka (Meiji University) as co-researchers. The survey sample size was 2,060 for Japan, 515 for the UK, and 515 for China (3,090 samples in total). The survey was commissioned to Macromill, and the Japanese sample was randomly selected from Macromill’s panel. Since the survey targeted smartphone users, it also included those who do not usually use games. The survey assigned 10% of the respondents to each of five age groups from teens to 50 s for men and women. The main questions were: ICT literacy, ownership and use of ICT, usual gamerelated activities (e.g., live game playing and fan art creation), attitudes toward games and life, frequency of watching gameplay, video streaming services, amount of money spent on games and hobbies, and face questions (size of city of residence, education, occupation, and annual income). For the UK and Chinese panels, detailed information was not available, and biases in education and annual income were observed. Therefore, this chapter mainly presents the Japan survey results; however, some of the results from the UK and China are presented for reference. There are several ways to ascertain game players’ preference toward paying for games. One method is to directly ask how much they pay for playing games. This method has also been used to analyze game players’ demographic attributes, the genres they play, and how much they pay for it. However, this method does not reveal consumer opinions or preferences of various payment methods for game playing. Therefore, this survey listed the payment methods for gameplay and asked respondents to select the method they think is “undesirable.” Within the scope of the survey, no study has considered such questions. The importance of the survey results on game players’ attitudes toward paying for games is that high payments under the randomized item acquisition system are becoming a social problem in Japan and overseas. In Japan, Gacha, a randomized item acquisition system, became a major source of revenue for mobile social games among those that adopt the free-to-play (F2P) business model. Moreover, the market has rapidly expanded since 2007. In this context, high expenditure by mobile game

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players because of Gacha became a social problem in Japan. Regulations on certain types of Gacha were tightened in 2012; self-regulation by industry groups was likewise tightened (Koyama 2016, pp. 321–330). In Japan, market expansion in the Gacha business model peaked in 2015 and has since deteriorated in profitability (Ono, March 9, 2019). However, as the number of game titles offering “loot boxes,” a randomized item acquisition system similar to Gatha, increased in Western countries, it sparked a controversy over whether the system could be considered gambling. For example, the Belgian government regarded it as gambling and tightened regulations (Koeder et al. 2018, p. 21). In China, the Ministry of Culture of the People’s Republic of China issued a statement in December 2016, notifying the application of a new law requiring the disclosure of the probability of obtaining items in randomized item acquisition systems, which became subject to regulation (Kawai, December 13, 2016). In the UK, the randomized system has not been regulated as gambling. However, in September 2020, the Department for Digital, Culture, Media and Sport (2020) began a public consultation on the impact of loot boxes. As of March 2020, when our survey was conducted, China was considered to have the strictest regulations on the randomized item acquisition system, followed by Japan; the UK had the loosest. Despite the difference in the number of samples, comparing the three countries can yield results on the strength of game regulations and how they affect consumer preference for payment methods. Thus, we present an overview of the gaming market in each country and confirm that access to various game platforms is available in the three countries. The global gaming industry is also evolving into areas such as cloud computing, multi-platform support, cross-platform support, and the expansion of subscription services. This has also led to an increase in payment methods for gameplay. The results of the Japan survey were cross-tabulated by gender, age, and game player or non-player to deepen our understanding of users in the changing game industry. Subscription services are particularly garnering attention regarding the future of competition among platforms as major platformers such as Google and Apple have become recent market entrants. Koyama (2020) states that when considering the development of the game industry from the perspective of business history, the “co-evolution among multiple markets,” “establishment of intellectual property rights,” “struggle for de facto standards,” and “changes in the external environment” are important. Of these, “co-evolution among multiple markets” refers to multiple markets, such as the arcade and the home video game markets, which have evolved via mutual influences. Inter-platform competition in this chapter is also positioned as an example of this co-evolution among multiple markets. Accordingly, the rest of the study is structured as follows. Section 2 overviews the structural changes in the current gaming industry, revenue sources of platformers and game developers, and payment methods of game players. Section 3 provides quick sketches of the game markets in Japan, the UK, and China from 2019 to 2020 and presents the comparative results on payment awareness of those countries. Section 4 reviews the changes in the game market and the attributes of game players with a

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focus on Japan. Section 5 reports the results of a survey on the payment preference for gameplay in Japan. Section 6 summarizes the survey findings on payment preference for gaming in the cross-platform era and presents the relevance and remnant issues of the survey.

2 Market Changes in the Global Gaming Industry 2.1 Expansion of Subscription Services Given the increase in music and video subscription service users, game subscription services have been announced in recent years. Table 8.1 shows that beyond game developers, such as Electronic Arts, and companies that additionally provide game consoles, such as Sony Computer Entertainment, Nintendo, and Microsoft, the top mobile app store providers (Google and Apple) are also offering subscription services. Moreover, several subscription services that launched in the early to mid-2010s acquired many members. For example, Sony Computer Entertainment’s PlayStation Plus, a monthly subscription service for PlayStation users, acquired over 45 million Table 8.1 Recent game subscription services Name

Release

Platform

Provider

PlayStation Plus

June 2010

PS Series*2

Sony computer entertainment

Origin access EA Access*1

2011 June July 2014

PC Xbox One/PS4

Electronic arts

PlayStation Now

January 2015

PS series

Sony computer entertainment

Viewport Subscription

April 2017

HTC’s virtual reality devices

HTC

Xbox Game Pass

June 2017

Xbox series

Microsoft

Nintendo Switch Online

September 2018

Nintendo Switch, iOS/Android*3

Nintendo

Apple Arcade

2019 March

iOS, macOS, tvOS

Apple

Play Pass

September 2019

Android

Google

Stadia

November 2019

PC and supported devices

Google

*1 Rebranded as “EA Play” from August 2020 (Good, August 14, 2020). *2 PS: PlayStation. *3 An additional service of Nintendo Switch game titles for Switch owners. Source Apple (March 25, 2019); Electoronic Arts (June 3, 2011); Frank (September 18, 2018); Hollister and Statt (November 8, 2019); Humphries (May 24, 2017); Jamshidi (March 2015); Perez (September 24, 2019); Sony Computer Entertainment (June 16, 2010)

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members as of the end of June 2020 (Sony 2020). Based on a calculation with an annual subscription fee of 5,143 yen (approximately 50 dollars), the annual sales of PlayStation Plus exceeded 230 billion yen (approximately 2.3 billion dollars). Further, the number of subscribers to Nintendo Switch Online jumped from 15 million in January 2020 (Nishida, February 4, 2020) to 26 million in September 2020 (NIKKEI, September 16, 2020). Microsoft’s Xbox Game Pass had 18 million members by January 2021 (Warren, January 26, 2021). Apple Arcade and Google’s Stadia have undisclosed figures as of March 2021 that are posited to be in the millions (James, March 25, 2021; Seufert, December 10, 2020). Individual game titles have also introduced a monthly payment system. An example of this is Final Fantasy XIV. The subscription service for this game title is expected to have more than 1 million subscribers as of September 2019 (Famitsu, September 6, 2019). The game allows users to play its content for a monthly fee. However, the company has also introduced an in-game item payment system that does not affect the game’s progress or character strength.

2.2 The Two-sided Market and Platformers’ Strategies (1)

Platformer side strategy—Securing Exclusive game titles

The increase in game subscription service members induces competition among game platforms to acquire game titles. Companies that provide game consoles have tried to differentiate themselves from the consoles of other companies and attract users by offering exclusive game titles since consoles serve as platforms. Similarly, in subscription services, IT platformers have been aggressive in securing exclusive game titles; for instance, Apple Arcade secured over 100 exclusive games at launch (Neely, September 19, 2019). (2)

Game developer strategy: multi-platform and cross-platform support

However, game developers are inclined to offer game titles (e.g., some popular games) on multiple platforms (e.g., PlayStation and Xbox). Such titles are characterized as “multi-platform” support (Koyama 2016, pp. 369–370). Additionally, online services, such as online user battles and communication, via multiple platforms are characterized as “cross-platform” support. However, not all multi-platform games have cross-platform support. Even if a game title supports multiple platforms, users using different platforms cannot interact and compete without cross-platform support. (3)

Competition among platformers in the two-sided market

Theoretically, the game market, comprising game developers and users, is two-sided, mediated by platform providers (Eisenmann et al. 2006, p. 4). However, the market dominance of platformers that provide game consoles, subscription services, and game sales services (Steam and EPIC) is not strong because popular game titles

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may have multi-platform or cross-platform support. Platforms may also merge. For example, EA Play will be available through Xbox Game Pass from March 2021 (Xbox Game Pass Team, March 17, 2021). Further, a platformer can increase the value of its platform if the number and quality of its game titles are high and sufficient. Game titles may be developed inhouse or by third parties as well. As of the end of March 2020, 27 Nintendo Switch games sold more than 1 million units, of which 18 (nine) were developed in-house (by other companies) (Krabbe, May 13, 2020). More so, unlike game titles developed by other companies, nine in-house-developed game titles have sold over 10 million units. Relatedly, Google has attempted to secure in-house-developed game titles as well. It set up a studio to develop games for Stadia but announced its closure in February 2021, withdrawing from the in-house development of game titles (Gartenberg, February 1, 2021). Hichibe (Kobayashi) (2016) proposes three types of game industry “business model innovations”: (1) the “traditional model” that was established in the fields of console and PC games from the 1970s to the 1990s; (2) the “new model” that has been established since the end of the 1990s in the fields of PC online, social, and mobile games with the spread of information communication and technology; and (3) the “hybrid model” that combines the traditional and new models in terms of distribution and price. The subscription services of console and game companies may be classified as an example of the hybrid model.

2.3 Diversifying Revenue Sources for Gameplay—Price Discrimination and Subscriptions (1) Methods and issues of price discrimination—F2P or Freemium, advertising, and in-game purchases. Console and smartphone games differ in several aspects. For instance, there is no need to pay for a dedicated console or software to play games on smartphones because many mobile games use the “freemium” business model. Seufert (2013) explains that, in such a model, the operator maximizes revenue by price discrimination, offering different prices for different user segments (p.15). This business model assumes that users who perceive a higher value for the service will purchase the premium content. Hamari et al. (2020) showed that, as price discrimination in mobile games becomes prevalent, the game user’s willingness to pay for premium content (priced) varies as per the perceived value of the service. They also noted that game developers intentionally reduce their content offerings to create demand for premium content. For example, restricting access to certain content, such as storage services, features, special items, and extra levels, increases user frustration and stimulates a willingness to pay for paid premium content (p.11). Thus, more revenue is generated from users

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more willing to pay for the gameplay. Moreover, game players are often offered an alternative way to hard currency payments by viewing ads. However, issues on price discrimination exist where some mechanisms stimulate game players’ “gambling spirit” to pay large amounts of money. Therefore, some countries introduced regulations on certain mobile discrimination mechanisms, such as the randomized item acquisition system. By such regulations and competition with other platformers, the profitability of mobile games (F2P) has witnessed a decline in recent times. (2) Diversifying revenue sources and payment methods As described, the gaming market has seen inter-platform competition for subscription users for several years. Further, as the processing power of smartphones increased in the 2010s, the demand for game quality increased. Moreover, the profitability of the freemium business model for smartphone games has declined in Japan since 2015 (Ono, March 9, 2019). Tanaka and Yamaguchi (2015) argued that the freemium business model for smartphones combined price discrimination and network effects to increase revenue. However, regulations and inter-platform competition have reduced the profitability of smartphone game developers. Koyama (2016) described the wholistic history of the Japanese game industry and noted that competition in the game market is intensifying (p. 371). As the types of platformers increase, their revenue sources and that of game software developers also diversified as follows. A.

Revenue sources of platformers 1. 2. 3. 4.

B.

Revenue from revenue sharing (e.g., game apps on Apple Store and Google Play), Revenue from advertising, Revenue from subscription, and Revenue from device sales (smartphones and game consoles).

Revenue sources of developers of game software and mobile game apps 1. 2. 3. 4. 5.

Revenue from sales of game software and applications, Revenue from in-game purchases (including item charges and probabilityvariable elements of Gacha and loot-box), Revenue from in-game advertising, Revenue from subscription, and Revenue from intellectual property such as license fees, etc.

From a user’s perspective, A3 is a more attractive service to heavy users because it allows for playing many games with a fixed fee. However, B2 employs price discrimination per users’ intention to pay how much for premium services. More so, a monthly fee with no advertising or in-game charges (e.g., Apple Arcade) has the advantage of playing without worrying about high charges. Superficially, the expansion of subscription services is beneficial to the platformer, the game software operator, and the user.

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However, several methods of paying for gameplay are currently being used, as in C (see below). Although PCs and smartphones could be purchased for games, they are excluded because they are general-purpose devices. Viewing ads is included in the payment methods because it is a time-based cost from the perspective of game players. III.

Payment methods for gameplay 1. 2. 3. 4. 5. 6.

Purchase a game console, Purchase of game software (package), Subscription contract with game platforms, Subscription contract with a specific game title, In-game payment, and Watching in-game advertisements.

Generally, the amount paid by users tends to be higher in the upper part and lower in the lower part of the payment methods in C. Moreover, C5 is commonly used in smartphone games with F2P business models and other game platforms. (3) Advantages of vertically integrated subscription services While subscribers of gaming devices (Nintendo, Sony, and Microsoft) have increased, the number the later non-gaming platformers (Apple and Google) has stagnated, likely because game titles available on subscription services of latecomer platformers do not match user needs. As per a March 2019 survey by Gameage, a research firm specializing in the Japanese game industry, respondents showed little awareness of Google’s Stadia and its services. They showed interest in the “distribution of game titles and series that I know” (15.1%) and “cross-platform support on various hardware” (12.5%) (Gameage, April 25, 2019). That is, although game subscription services are assumed to attract heavy game users, from such a user perspective, having a specific game title or series seems more important in their choice of platform. Further, the availability to play many game titles is not necessarily for them. Therefore, platformers that vertically integrate game consoles, game software, and subscription services are currently gaining popularity.

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3 Overview of the Game Market in Japan, the UK, and China and the Survey Results 3.1 Overview of the Game Markets in Japan, the UK, and China (1) Japan Japan’s game market made sales of 1.73 trillion yen in 2019. The online platform market (game apps) accounted for 1.2962 trillion yen (up by 4.9% from the previous year), more than 70% of the market. Its home video game market in 2007 made 436.8 billion yen for game consoles and software (including online) (KADOKAWA Game Linkage, January 29, 2020). As in Table 8.2, the sales of mobile games are in the tens of billions of yen per title, and most F2P mobile game players play without paying, while the percentage of paying users varies as per the game title. Table 8.2 shows the estimated percentage of users that pay per game title for reference. The percentage of paying users for mobile games is small, but games with high sales tend to have a higher percentage of players that pay for games. (2) The United Kingdom The UK gaming market was e3.77 billion in 2019 and over e4 billion in 2020, given the influence of COVID-19 (Entertainment Retail Association 2021). The mobile gaming market size was e1.2 billion in 2019 (UKIE, April 20, 2020). In the UK, the mobile gaming market size is smaller than the home console and software market. Table 8.2 Top 10 Mobile game revenue titles for 2019 (%) Rank

Game title

Sales (billion yen)

Estimated percentage of paying users

1

Fate/Grand Order

71.1

13.9–22.2

2

Monster Strike

70.9

4.9–8.0

3

Pazzle and Dragons

52.2

4.9–8.0

4

Kouya Koudou

42.4

4.9–8.0

5

Doragon ball Z dokkan Battle

30.1

8.0–10.0

6

Pokémon GO

27.7

8.0–10.0

7

ProYakyu Spirit A

26.2

4.9–8.0

8

Grandblue Fantasy

24.2

8.0–10.0

9

Dragon Quest Walk

23.9

4.9–8.0

10

LINE: Disney Tumtum

18.7

4.9–8.0

Source KADOKAWA Game Linkage (January 29, 2020)

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Table 8.3 UK unit sales rankings by game title for 2020 Rank

Game title

multi*1

Cross*2

1

FIFA 21

Sales unit 2,182,694

Yes

No

2

Call of duty: black ops cold war

1,420,353

Yes

Yes

3

Grand theft auto V

1,127,222

Yes

N0

4

FIFA 20

903,810

Yes

No

5

Call of duty: modern warfare

897,350

Yes

Yes

6

Animal crossing: new horizons (Nintendo)

810,462

No

No

7

Assassin’s creed valhalla

665,815

Yes

Yes

8

The last of us part II (Sony)

539,247

No

No

9

NBA 2K20 (Sony)

481,507

No

No

10

Tom clancy’s rainbow six siege (Ubisoft)

436,957

Yes

No

*1 Multi-platform. *2 Cross-platform. Source Entertainment Retail Association (2021) and added *1 and *2 by author

The most sold game in 2020 was FIFA 21, with approximately 2.18 million units. It is a multi-platform game that can be played on various devices. However, it is not cross-platform. Table 8.3 shows other game titles that sold the most units (Entertainment Retail Association 2021). (3) China China’s gaming market continued to grow in 2019, raking in 233.02 billion yuan (up by 8.7% over the previous year) in revenue. Mobile game sales were more than 151.47 billion yuan (up by 13.0% over the previous year) (People’s Daily Japan, December 10, 2019). The game market size increased by 25.22% at 73.21 billion yuan in the first quarter of 2020, relative to the year earlier, of which more than 75% was from smartphone games. In China, PC games account for a high percentage of sales at approximately 20% of the total. The market for home video game consoles is rather small, accounting for only 0.2% (Table 8.4). Table 8.4 2020 Q1 China game market segment––Revenue ratios to total revenue

Game market segment

Ratio of the total (%)

1

Smartphone game

75.64

2

PC client server game

19.6

3

Browser game

2.82

4

AR/VR game

1.07

5

Cloud game

0.48

6

Standalone

0.2

7

Family game console

0.2

*AR: Artificial Reality/VR: Virtual Reality. Source GPC (2020, p. 6)

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In China, the Nintendo Switch was officially released in December 2019, and both the Xbox One and PlayStation 4 are on sale. However, the official version of game titles is only allowed for sale after a review and license by the government (Kou, February 18, 2020).

3.2 Devices for Gaming Play and Reasons for Payment in Japan, the UK, and China (1) Appliances for digital gaming play We sought to know the devices game players use to play digital games. As in Fig. 8.1, Chinese players play games mainly with smartphones and PCs. The Japanese play games on handheld consoles more than in China or the UK. In the UK, more than 60% of respondents play console games. The survey results are consistent with the general situation of the game market in each country, as described in 3.1. However, the percentage of respondents in China (29%), who play consoles is high because the sample is biased toward high-income earners. (2) Reason for payment Figure 8.2 highlights the reasons players pay for gameplay. UK players were more likely to choose a sale as a reason and less likely than the other two countries to pay for character acquisition and comfort of play. This may be because there are more console players in the UK. However, China is characterized by reasons related to gameplay, such as making gameplay comfortable, speeding up the progress of the game, and playing with others. In Japan, the prevalent reasons for payment were character acquisition and comfort of play. These results also reflect the general situation of the game market in each country. The reasons for payment likely differ

Home video game console (e.g., PlayStation 4) Handheld game console (e.g., Nintendo 3DS, Nintendo Switch) Smartphone Tablet Personal computer Other (arcade games in a facility such as arcades or shopping centres) 0.0 Japan

Fig. 8.1 Device for gaming play

U.K.

20.0 China

40.0

60.0

80.0

100.0

120.0

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E. Tanaka et al. 48.0 It was on sale, so I saved money

62.8 47.4 15.9

I wanted to win against other players

22.0 44.1 16.2 14.7

It was necessary to enjoy playing with other players

42.1 27.2 27.8

I wanted to increase the speed of my progress

43.8 44.8 I wanted to play the game confortably

26.2 52.6 21.1

I wanted to clear a limited time only event

16.2 28.0 44.8

I wanted a particular character

24.6 37.8 3.5

I wanted to keep that game going

20.4 5.6 0.0

10.0 Japan

20.0 U.K.

30.0

40.0

50.0

60.0

70.0

China

Fig. 8.2 Reasons for payment at playing games

per the device used and the game title; however, the survey does not analyze the reasons via these categories. *Payments to games mean acts such as purchasing items in games and paying money to advance quickly during gameplay, apart from purchasing the game itself.

3.3 The Survey Results of Payment Methods Preference in Japan, the UK, and China (1) Questionnaire items Since the survey conducted in March 2020 targeted smartphone users, respondents included those who rarely play games. Table 8.5 shows the results of the responses to the question on the frequency of playing games. The total percentage of non-gamers (almost never/never) is lower in the UK and China than in Japan. As per the Newzoo survey, the estimated smartphone population penetration rate in 2020 is 80.8% in China, 78.4% in the UK, and 52.9% in Japan. In the survey, respondents (including non-game players) addressed the following question with 12 multiple-choice options: Question (Multiple choice)

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Table 8.5 Frequency of game lay Almost every day/Approximately five to six times a week

Approximately two to four times a week/Approximately once a week/Approximately once every two to three weeks

Approximately once a Almost month/Approximately never/Never once every two or three months

Japan

23.0

17.2

14.6

56.7

UK

39.4

25.0

9.3

31.5

China

37.1

34.4

3.1%

27.4

Select all the following payment methods that you do not want to see as methods for game payments or advertising. Multiple choices 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.

Fixed monthly fees (subscription system) Payments for additional contents and scenarios (e.g., playable characters) Payments for (non-randomized selection of) items not related to gameplay in the game (e.g., avatars) Payments for (non-randomized selection of) items advantageous to gameplay in the game Loot boxes or Gacha of items not related to gameplay in the game Loot boxes or Gacha of characters or items advantageous to gameplay in the game Advertising in the game (free games) Advertising in the game (physical or paid games) Obtain items or extend game playing time by watching advertising videos (free games) Obtain items or extend game playing time by watching advertising videos (physical games or paid games) None of the above apply I do not think payments or advertising are bad

(2) The Survey results on payment methods preference When the responses were tabulated and verified by multiple comparisons of the three groups, some options differed, while other options were not significantly different among countries in the percentage of responses. First, the options that did not show a difference were 2, 4, 5, and 6. Approximately 20% to 25% of the respondents answered that item and content charges (2 and 4) were undesirable, and less than 20% to 25% answered that such charges for Gacha or loot boxes (5 and 6) were undesirable (Fig. 8.3). The options with the least difference in the percentage of responses by country were 8, 9, and 10 regarding advertising (Fig. 8.4).

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2 Payments for additional contents and scenarios (e.g. playable characters) p-value=0.3803

U.K.

73.6

26.4

China

74.4

25.6

Japan

76.2

23.8

0.0

20.0

40.0

Not selected

60.0 Selected

U.K.

78.8

21.2

China

79.4

20.6

Japan

80.0

100.0

24.1

U.K.

China

74.6

25.4

China

78.3 40.0 Not selected

80.0

100.0

Selected

80.0

17.9

82.1

16.6

83.4 0.0

100.0

20.2

79.8

Japan

21.7 60.0

19.7 60.0

6 Loot boxes of characters or items advantageous to gameplay in the game p-value=0.1507

75.9

20.0

40.0 Not selected

U.K.

0.0

20.0

q1402

5 Loot boxes/Gacha of items not related to gameplay in the game p-value=0.1488

Japan

80.3 0.0

20.0

40.0

Selected

Not selected

60.0

80.0

100.0

Selected

Fig. 8.3 Options where the ratios are not different among Japan, China, and the UK 8 Advertising in the game (physical games/paid games) p-value=0.02218

U.K.

78.3

China

21.7

71.8

Japan

28.2

22.8

77.2 0.0

20.0

40.0 Not selected

60.0

14.4

85.6

China

82.7

Japan

17.3

86.6 0.0

20.0

40.0 Not selected

13.4 60.0 Selected

80.0

100.0

10 Obtain items or extend game playing time by watching advertising videos (physical games/paid games) p-value=0.04434

9 Obtain items or extend game playing time by watching advertising videos (free games) p-value=0.08332

U.K.

80.0

Selected

100.0

U.K.

86.6

13.4

China

81.9

18.1

Japan

82.1

17.9

0.0

20.0

40.0 Not selected

60.0

80.0

100.0

Selected

Fig. 8.4 Options where the ratios are not significantly different among Japan, China, and the UK

The options with different response ratios by country were 1, 3, and 7. The percentage of respondents who answered that monthly charges were undesirable (1) was high in the UK and low in Japan. In China, there was a tendency to be less tolerant of item charges that do not affect the game progress. Chinese respondents were also less tolerant of in-game advertisements in free-to-play games (Fig. 8.5).

The Preference of Payment of Game Players in the Cross-Platform Era …

185

1 Fixed monthly fees (subscription system) p-value = 0.0000009758

U.K.

69.5

China

30.5

24.5

75.5

Japan

20.0

80.0

0.0

20.0

40.0 Not selected

60.0

3 Payments for (non-randomized selection of) items not related to gameplay in the game e.g. avatars p-value=0.00006886

U.K.

78.8

China

Japan 0.0

20.0

40.0 Not selected

U.K.

80.0

100.0

18.1

73.0

Japan

23.8 60.0

81.9

China

32.0

76.2

100.0

7 Advertising in the game (free games) p-value=0.0001163

21.2

68.0

80.0

Selected

27.0

81.0 0.0

20.0

Selected

40.0 Not selected

19.0 60.0

80.0

100.0

Selected

Fig. 8.5 Options where the ratios are different among Japan, China, and the UK

4 Changes in the Japanese Game Market and Attributes of Game Players 4.1 Changes in the Japanese Game Market (1) Increase in smartphone games With the launch of the iPhone in 2007 (2008 in Japan), the global market for smartphone games expanded rapidly. It is estimated that the number of active smartphone game users reach more than 2.2 billion users worldwide by 2020, representing 28% of the world’s population. The smartphone gaming market is expected to generate $68.5 billion in revenue in 2019. Moreover, the sales of smartphone games in 2020 are estimated to have increased by 12% relative to the previous year, given the increase in the time spent at home from the COVID-19-induced lockdowns (Dobrilova, March 18, 2021). The smartphone game market differs from the traditional console and arcade game market in that the mobile device must be connected to the Internet. Many smartphone games can be downloaded and played for free. Thus, the number of users grew along with the increasing popularity of smartphones. The number of global smartphone shipments was 172 million in 2009 (Ministry of Internal Affairs and Communications 2013, p. 55), reaching 1.45 billion in 2017 (Ministry of Internal Affairs and Communications 2020a, p.74). Shipment volume in 2020 is expected to decline to 1.29 billion units, but 5G-enabled smartphones are expected to become more popular (JIJI, January 28, 2021).

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(2) Cumulative sales units of household videogame consoles Even in the 1990s and early 2000s, consoles had Internet connectivity (e.g., Nintendo’s 1996 Pippin Atmark, Sega’s Dreamcast in 1998, and Sony’s PlayStation 2 in 2000). Even so, consumers had to purchase a device and software at that time. Each console costs several hundred dollars, and the game software usually costs a few dozen dollars. The total number of global unit shipments for each console is as follows. Nintendo (Release year) as of the end of 2020 (Nintendo 2021, n.a.) • • • • •

Nintendo DS (2004): 154 million, Wii (2006): 101.6 million, Wee U (2012): 13.5 million, Nintendo 3DS (2011):75.9 million, and Nintendo Switch (2017): 79.9 million.

Sony (Release year) (Sony 2021; The Editors of Encyclopaedia Britannica, January 28, 2021) • • • • •

PlayStation (1994): more than 102.4 million (as of the end of March 2012), PlayStation 2 (2000): more than 155 million (as of the end of March 2012), PlayStation 3 (2006): more than 87.4 million (as of the end of March 2017), PlayStation 4 (2013): more than 114.9 million (as of the end of 2020), and PlayStation 5 (2020): more than 4.5 million (as of the end of 2020).

Table 8.6 presents the release date, estimated annual sales volume, and estimated cumulative sales volume of each game console in Japan as of the end of 2020. (3) Penetration rate of smartphones and console game machines Table 8.6 Game consoles release year and month and estimated sales units

Game console Release

Estimated sales (year) 5,956,943

Estimated cumulative Sales unit

Nintendo Switch

March 2017

PlayStation 5

November 2020

255,150

255,150

Xbox series

November 2020

31,424

31,424

PlayStation 4

February 2014

542,647

Xbox one

September 2014

Nintendo 3DS

February 2011

3,585 62,761

17,340,374

9,290,890 114,831 24,558,908

Source KADOKAWA Game Linkage (January 12, 2021)

The Preference of Payment of Game Players in the Cross-Platform Era … 99.0

100.0

97.9

97.2 94.5

90.0 80.0

187

83.8

83.4

70.0 60.4

60.0 50.0

41.5

40.9

44.9 44.6

40.0 30.0 20.0

27.6

25.2

12.3

10.0

7.0 6.9

Total

20's

307s

Smartphone

40's

50's

60's

70's

80's and over

Game console with Internet connectivity

Fig. 8.6 Household penetration rate of smartphone and game consoles as of 2019 in Japan (%). Source Ministry of Internal Affairs and Communication (2020a)

In Japan, the smartphone penetration rate is higher than that of home consoles; the smartphone penetration rate among adults aged 20 and above is 67.6% in 2019, and the household penetration rate is 83.4%. However, the household penetration rate of consoles with Internet access is 25.2% in 2019. For those in their 20 s to 40 s, the household penetration rate of smartphones is over 90%, and the console penetration rate is over 40% (Ministry of Internal Affairs and Communication 2020a). As per the Communications and Information Network Association of Japan survey, the percentage of mobile device users, including smartphones, who play games in Japan is on a downward trend: 69.8% in 2018, 59.9% in 2019, and 55.3% in 2020. This trend can be attributed to the increasing number of elderly smartphone users who do not play mobile games (Fig. 8.6).

4.2 Attributes of Japanese Game Players (1) Attributes of game players by game devices As summarized in the previous section, digital game players have increased with the spread of smartphones. However, which game titles are played on which game console differ per age and gender. As per a survey conducted in May 2018, Gameage estimated that there were approximately 34.23 million game users aged 10 to 59 years in Japan. Further, the number of active game users for dedicated gaming (console and handheld) and general-purpose (smartphone, tablet, and PC) devices were approximately 10.28 and

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Table 8.7 Characteristics of active users by device (May 2018 survey) Brand of the gaming device

Estimated number of active users

Sex ratio (male to female)

Features of demographics

Nintendo Switch

2.47 million

74.7:25.3

Most males and females were in the 10 to 14 age group, but older age groups were also observed

PlayStation 4

3.94 million

88.2:11.8

Most users are male, and the volume zone is the late teens or later

Nintendo 3DS

3.49 million

69.3:30.7

It has a similar structure to the Nintendo Switch, with many younger users

iPhone

15.27 million

52.9:47.1

Owing to the characteristics of smartphones, there are few users in their early teens and 50 s

Android smartphones

10.54 million

57.0:43.0

The volume zone for men and women is approximately in their 40 s

PC

4.31 million

74.2:25.8

Mostly males, with a peak in their 20 s

Source Yamoto (July 2, 2018)

29.58 million, respectively. Players who owned all gaming devices were estimated to be 3.05 million (Yamamoto, July 2, 2018). The same study also analyzed the user demographics by devices on which users play games (Table 8.7). (2) Attribute of game players by game title Further, each age group and gender prefer different game titles or genres. According to a survey by Gameage on the top 10 smartphone game titles ranked by active users from April to September 2020, only 3 game titles (Monster Strike, Pokémon GO, and LINE: Disney Tsum Tsum) were ranked by both male and female users. Seven of the titles were different. By age group, the game titles ranked in the top 10 also differed in the number of active users (Gameage, October 29, 2020).

The Preference of Payment of Game Players in the Cross-Platform Era …

189

Table 8.8 Results of the cross-tabulation of payment preference by age and gender (%) 1

2

3

4

5

6

7

8

9

10

11

12

N=2060

20.0

23.8

23.8

19.7

21.7

16.6

19.0

22.8

13.4

17.9

15.0

28.8

M 10’s

30.1

24.3

22.3

23.3

22.8

15.5

19.9

26.7

15.5

19.9

7.8

21.8

M 20’s

21.4

21.4

18.4

13.6

13.1

13.1

19.4

23.3

15.5

18.9

5.8

32.5

M 30’s

20.4

18.0

19.9

15.5

22.8

18.9

18.9

22.3

14.1

17.0

11.7

34.0

M 40’s

21.4

23.8

21.8

18.0

19.4

20.4

12.6

19.4

10.2

15.0

14.6

32.0

M 50’s

15.5

22.8

23.8

22.3

20.9

17.0

16.0

14.6

11.2

12.6

23.3

29.6

F 10’s

24.8

24.8

23.3

17.5

22.8

12.6

25.7

30.1

13.1

20.4

11.2

25.7

F 20’s

21.4

25.2

22.8

21.4

27.2

16.0

24.8

26.7

17.5

24.3

7.8

33.0

F 30’s

13.1

29.6

28.2

22.3

20.9

19.4

18.0

23.3

11.2

16.5

15.0

27.7

F 40’s

18.4

28.2

30.1

27.2

24.3

18.4

21.4

22.3

15.5

18.4

20.4

25.2

F 50’s

13.1

19.9

27.7

16.0

23.3

14.6

13.1

19.4

10.7

15.5

32.5

26.7

1 M = Male, F = Female. 2 Half-toned cells mean the numbers are significantly higher than other sections. 3 Half-toned cells with italicized numbers mean the numbers are significantly lower than other sections

5 Preference of Payment Methods for Gaming Play in Japan 5.1 Cross-Tabulation Results for Age and Gender This section reports the survey results on the payment method preference for playing games in Japan. Differences between game and non-game players and payers and non-payers, as well as gender and age, were cross-tabulated. Thus, those who answered that they rarely or never played games were designated as “non-game players,” while those who played games at least once in several months were “game players.” From Table 8.8, approximately 30% of male teenagers answered that subscription services (1) were undesirable for gaming. This age group tends to avoid fixed costs for games, although they are positive about gameplay. However, the percentage of male users in their 30 s who accepted paying for games (12) was higher (34%), suggesting that they have the financial means to pay for games.

5.2 Cross-Tabulation Results Between Game Players and Non-game Players Table 8.9 shows the cross-tabulation results between game and non-game players.

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Table 8.9 The cross-tabulation results between game and non-game-players for preference of payment (%) 1

2

3

4

5

6

7

8

9

10

11

(2060)

20.0

23.8

23.8

19.7

21.7

16.6

19.0

22.8

13.4

17.9

15.0

12 28.8

GP

(936)

23.5

23.4

23.0

17.9

21.2

16.1

21.7

24.5

14.2

18.3

9.6

23.8

NGP

(1124)

17.0

24.1

24.6

21.2

22.2

17.0

16.7

21.4

12.8

17.5

19.5

33.0

*GP=Game player, NGP=Non-game player

Despite no difference in the ratio of undesirable methods between them, the game players are less likely to tolerate charges (12). Table 8.10 shows the in-depth cross-tabulation results by age and gender to examine the preference of payment methods of game and non-game players. Among both male and female users in their 20 s, the desirability of payment itself (12) tends to be more tolerable for non-game players. Further, female game players in their 20 s showed a higher percentage of unwilling responses to payment for viewing advertisements (7, 8, 9, and 10), suggesting that games played by them adopt an advertising model. Female game players in their 40 s showed a lower percentage of undesirable responses to item charges (2, 3, 4, 5, and 6). However, female non-gamer players in their 40 s tended to have a higher percentage of undesirable responses to item charges of the randomized item acquisition system (5 and 6).

5.3 Cross-Tabulation Results of Free and Paying Players (%) Table 8.11 shows the cross-tabulation result of free players (play games without paying) and paying players. Paying players include smartphone and game terminal players. They are more likely to choose undesirable payment methods. Payers of less than 1,000 yen tended to be more tolerant of item charges (3) and Gacha (5) that do not affect gameplay. Payers between 3,000 yen and 6,000 yen also have a higher tolerance for Gacha. However, payers of 10,000 yen to less than 30,000 yen had a higher percentage of undesirable responses to Gacha (5, 6), regardless of whether it affected their gameplay. Moreover, they disliked advertisements (8, 10) on consoles or in pay-toplay game titles.

The Preference of Payment of Game Players in the Cross-Platform Era …

191

Table 8.10 Cross-tabulation results for age, gender, and playing status (%) 1

2

3

4

5

6

7

8

9

10

11

12

(2060)

20.0

23.8

23.8

19.7

21.7

16.6

19.0

22.8

13.4

17.9

15.0

28.8

(146)

30.8

24.7

24.0

24.7

25.3

17.8

21.9

30.1

19.9

22.6

6.2

18.5

(60)

28.3

23.3

18.3

20.0

16.7

10.0

15.0

18.3

5.0

13.3

11.7

30.0

(138)

26.1

22.5

21.7

14.5

12.3

13.0

17.4

22.5

14.5

18.8

5.8

26.8

(68)

11.8

19.1

11.8

11.8

14.7

13.2

23.5

25.0

17.6

19.1

5.9

44.1

(108)

24.1

20.4

18.5

16.7

24.1

21.3

24.1

26.9

13.9

19.4

8.3

27.8

(98)

16.3

15.3

21.4

14.3

21.4

16.3

13.3

17.3

14.3

14.3

15.3

40.8

(101)

19.8

26.7

22.8

18.8

22.8

23.8

16.8

21.8

11.9

18.8

10.9

25.7

(105)

22.9

21.0

21.0

17.1

16.2

17.1

8.6

17.1

8.6

11.4

18.1

38.1

(53)

18.9

18.9

22.6

15.1

28.3

15.1

24.5

17.0

11.3

7.5

15.1

22.6

(153)

14.4

24.2

24.2

24.8

18.3

17.6

13.1

13.7

11.1

14.4

26.1

32.0

F 10’s GP

(95)

29.5

21.1

27.4

14.7

15.8

9.5

26.3

25.3

12.6

16.8

7.4

25.3

F 10’s NGP

(111)

20.7

27.9

19.8

19.8

28.8

15.3

25.2

34.2

13.5

23.4

14.4

26.1

F 20’s GP

(80)

28.8

25.0

20.0

21.3

31.3

20.0

30.0

35.0

23.8

32.5

2.5

21.3

F 20’s NGP

(126)

16.7

25.4

24.6

21.4

24.6

13.5

21.4

21.4

13.5

19.0

11.1

40.5

F 30’s GP

(86)

14.0

37.2

24.4

20.9

19.8

19.8

16.3

22.1

9.3

12.8

11.6

20.9

F 30’s NGP

(120)

12.5

24.2

30.8

23.3

21.7

19.2

19.2

24.2

12.5

19.2

17.5

32.5

F 40’s GP

(68)

19.1

22.1

23.5

20.6

13.2

5.9

26.5

17.6

7.4

11.8

16.2

23.5

F 40’s NGP

(138)

18.1

31.2

33.3

30.4

29.7

24.6

18.8

24.6

19.6

21.7

22.5

26.1

F 50’s GP

(61)

11.5

9.8

26.2

6.6

23.0

9.8

16.4

18.0

11.5

11.5

24.6

26.2

F 50’s NGP

(145)

13.8

24.1

28.3

20.0

23.4

16.6

11.7

20.0

10.3

17.2

35.9

26.9

M 10’s GP M 10’s NGP M 20’s GP M 20’s NGP M 30’s GP M 30’s NGP M 40’s GP M 40’s NGP M 50’s GP M 50’s NGP

6 Conclusion This chapter reports the results of a questionnaire survey conducted in March 2020 in Japan, the UK, and China on the preference for payment methods for games in the cross-platform era. Game players would want to play high-quality games at low (or free) prices and pay per their marginal willingness to pay if forced to pay for gaming play. As Hamari et al. (2020) note, game developers deliberately adjust services to increasing use frustration and promote pay for games and game-related services. As the number of game subscription services increases, the influence of competition among game platforms on future market changes will be closely watched by relevant parties. In Japan, more than a quarter of paying players answered that they

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Table 8.11 Cross-tabulation results of free and paying players for payment preference (%) Total

1

2

3

4

5

6

7

8

9

10

11

12

20.0

23.8

23.8

19.7

21.7

16.6

19.0

22.8

13.4

17.9

15.0

28.8

No payment

(908)

18.5

20.5

20.5

17.2

17.3

14.3

18.5

19.3

11.0

14.2

14.8

29.7

1–999 yen

(43)

27.9

27.9

11.6

16.3

14.0

16.3

23.3

25.6

16.3

18.6

11.6

7.0

1000–2999 yen

(94)

26.6

28.7

26.6

18.1

24.5

26.6

24.5

27.7

14.9

16.0

4.3

11.7

3000–5999 yen

(93)

26.9

26.9

21.5

16.1

19.4

10.8

28.0

33.3

17.2

20.4

7.5

17.2

6000–9999 yen

(19)

31.6

15.8

31.6

15.8

36.8

15.8

26.3

26.3

26.3

36.8

15.8

15.8

10000–29999 yen

(89)

25.8

24.7

22.5

22.5

30.3

23.6

19.1

37.1

13.5

30.3

5.6

16.9

30000–49999 yen

(28)

21.4

17.9

35.7

10.7

25.0

10.7

21.4

21.4

14.3

14.3

7.1

21.4

50000–99999 yen

(13)

23.1

30.8

46.2

46.2

38.5

7.7

23.1

30.8

30.8

38.5

0.0

7.7

More than 100000 yen

(8)

25.0

37.5

25.0

37.5

25.0

12.5

25.0

37.5

37.5

37.5

12.5

12.5

disliked fixed monthly payments, as per the survey results. Considering the actual usage of subscription services, PlayStation Now, Xbox Game Pass, and Nintendo Switch Online, which are vertically integrated and user retention services, have many subscribers. These services include many popular game titles considered to be highly attractive to game players. The survey on preference payment methods in Japan, the UK, and China showed no differences among the countries in the percentage of respondents, who answered that payment for items and payment for Gacha and loot boxes were undesirable. However, some differences among the countries regarding monthly charges and ingame advertising existed. Thus, further examination is necessary to consider whether the differences are because of sampling issues or the game market characteristics in each country. For Japan, we conducted a cross-tabulation of the preference of payment methods for games by gender, age, game and non-game player, and the amount of money spent using 2,060 samples. In Japan, game players increased with the spread and expansion of smartphones; the number is larger than that of console game players. While the percentage of male game players on game console devices is high, the percentage of female players of smartphone games exceeds 40%. Further, popular game titles also differ by gender and age. Owing to the different payment methods for each game title and price discrimination, the payment preference is presumed to be different for each attribute of game players. Considering paying players further, game players who pay a higher amount of money are more likely to regard Gacha as an undesirable payment method, indicating that issues remain to be addressed even after introducing self-regulation and governmental regulation. Moreover, more than 30% of payers of 10,000 yen to less than 30,000 yen regard advertising in console games as undesirable. The survey confirmed some differences in the preference for payment methods by gender, age, game and non-game player, and free and paying player. Further investigation is needed to understand why the differences by attributions occur.

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This chapter shows that the diversification of game platforms has induced the number of payment methods to increase. Further, online connected games are more prone to price discrimination by item charges and advertising methods. While many age groups play some game titles, some are targeted at specific segments. Thus, as the gaming industry grows and develops, the number of platforms and game titles increases accordingly, and payment methods become fragmented. The fragmentation makes it challenging to analyze the attitudes toward payment for gameplay; thus, the survey showed differences in preference toward payment methods per game player attributes. An in-depth understanding of the differences in preference toward payment methods will contribute to considering the appropriate form of regulation from the perspective of consumer protection and the requirements for the healthy development of the game industry. However, the analysis in this chapter is basic; further international comparative research and analysis are required to understand the game market, culture, and systems in each country. Acknowledgements The questionnaire survey of smartphone users in Japan, the UK, and China reported in this chapter was supported by the Japan Science and Technology Foundation and the Hayao Nakayama Foundation for Science, Technology, and Culture. The authors would like to thank them sincerely for their support.

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Acceptability of the “Right to be Forgotten” in Japan Teppei Koguchi and Kenji Kanda

Abstract The purpose of this chapter is to analyze the future necessity of the “right to be forgotten” in Japan. This chapter specifically clarifies two points: (i) how necessary is the “right to be forgotten” in Japan? and (ii) in case it is necessary, what form should it take and how desirable is it? Additionally, this chapter will also attempt to evaluate the value of the “right to be forgotten” economically. In this chapter, it is clear that users want “to be able to delete personal information such as photos, comments, names, and addresses uploaded by data subjects on the internet, shopping history data on online shopping sites, etc., and to be able to delete them completely from the database of internet service providers.” It is also clear that users want “to be able to delete posts by third parties that mention the data subject through SNS, etc., made irrespective of the data subject.” Contrarily, users do not attach importance to “whether the consent for the use of the service is opt-in or opt-out” and “the ability to stop or delete the spread of the data when a third party disperses the data posted by the subject via SNS, etc.” In addition, willingness to pay was higher for respondents who were aware of the right to be forgotten in advance, indicating that the degree of prior awareness of the system and service has an impact on the user’s intention to use this service. Keywords Right to be forgotten · Economic value · Privacy · Personal data protection · Opt in · Opt out · Willingness to pay · Conjoint analysis

1 Introduction The “right to be forgotten” is yet to be legally established in Japan. Thus, this chapter analyzes its future necessity, referring to relevant discussions in the EU and other T. Koguchi (B) College of Informatics, Shizuoka University, Shizuoka, Japan e-mail: [email protected] K. Kanda Faculty of Informatics, Shizuoka University, Shizuoka, Japan e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 T. Jitsuzumi and H. Mitomo (eds.), Policies and Challenges of the Broadband Ecosystem in Japan, Advances in Information and Communication Research 4, https://doi.org/10.1007/978-981-16-8004-5_9

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countries. Specifically, it clarifies two points: (i) how necessary is the “right to be forgotten” in Japan, and (ii) if it is necessary, what form should it take, and how desirable is it? Moreover, the chapter evaluates the economic value of the “right to be forgotten.”

1.1 Advances in Personalization Services and the “Right to be Forgotten” This section furnishes the background to the chapter, referring to Ishii (2015) and Jitsuzumi et al. (2018). With the development of the Internet, not only countries, companies, and mass media, but also individuals can easily utilize various forms of information and leverage them in various ways. Thus, the amount of Internet information is enormous. Hence, personalization services have emerged, where companies provide content optimized for each user by utilizing user-provided information. For example, shopping sites and video viewing sites can display “recommendations” users might like based on their history, and fashion sites can measure body data to help users buy clothes that fit their body type. The World Economic Forum (2011) noted that “personal data is the new oil of the Internet and the new currency of the digital world.” Thus, personal data will be increasingly utilized in the future. In December 2016, the Basic Act on the Advancement of Public and Private Sector Data Utilization was officially announced and enforced. In May 2017, the Cabinet approved the Declaration of the Creation of the World’s Most Advanced IT Nation and the Basic Plan for the Promotion of Public–Private Data Utilization. Further, in May 2017, the Act on the Protection of Personal Information, revised for the first time in 12 years, came into full effect. Discussions surrounding personal data protection are also taking place worldwide. In the EU, the General Data Protection Regulation (GDPR) was proposed in January 2012 and became effective in May 2018. The California Consumer Privacy Act (CCPA) was passed in June 2018, becoming effective in January 2020. Thus, to respond to the ever-changing situation from utilizing personal data, legislation and new systems are being considered. This study focuses on the “right to be forgotten,” which has received much attention and has been developed as part of the EU GDPR and the CCPA. Given the massive amounts of information on the Internet, search engines have become indispensable in using it efficiently. However, with the development of the Internet and search engines, personal information and privacy data, which would have been forgotten over time, remain searchable and displayable on the Internet semi-permanently. Thus, the “right to be forgotten” has garnered much attention. It concerns the right of people to obtain the erasure of personal data and the obligation of the controller to erase personal data provided that the defined rationale applies.

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1.2 Awareness of the Issues: Acceptability in Japan With the implementation of the EU GDPR and the CCPA, systems have been enacted in the EU and US that give consumers more control over how companies handle their personal information. However, the EU GDPR and CCPA differ in how they represent the acquisition of consent from the subject. Moreover, the “right to be forgotten” is not yet recognized in Japan, and debate on the subject has only just begun. Thus, it is important first to clarify whether the right to be forgotten is necessary in Japan, and if so, what form it should take and how desirable it would be.

2 Previous Studies This section reviews existing research on the “right to be forgotten” and personal information in Japan. However, it first examines Rosen (2012), which will subsequently be utilized for the analysis in this chapter.

2.1 The Classifications of Rosen Rosen (2012) notes that the right to be forgotten may take away the freedom of expression online; its enforcement may make the Internet less free and open. Rosen (2012) explains that three categorizations can be generated regarding how an individual can delete information by exercising the right to be forgotten. The first is that data subjects can delete information they post on the Internet. At first glance, it seems the right to erase own information is already guaranteed in current Internet services such as social networking services. However, with the enforcement of the right to be forgotten, this guarantee will be established in law. Furthermore, Rosen (2012) explains that the service provider will face legal pressure to delete the information from their archives. The second categorization is that when an individual posts personal information on the Internet and others spread it, the individual can delete it. Rosen (2012) explains that, per the interpretation of the right to be forgotten, posts can be deleted without the consent of the person who spread the information, even if such a person cannot be contacted or the deletion request is refused. The third categorization is the ability to remove posts on the Internet featuring personal information posted by others. In the US, media report considered to be defamatory or disparaging to the person reported is not regulated if the content is true. Regarding this third categorization, Rosen (2012) critiques it from the perspective of its conflict with the US’ esteemed freedom of expression.

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2.2 Research on the “Right to be Forgotten” in Japan 2.2.1

Kamitsukue (2014)

Kamitsukue (2014) treats the right to be forgotten as a new type of emergent privacy and examines the future of the treatment of personal information and privacy in Japan from the perspective of the genesis and current status of the right to be forgotten. The legal systems of many countries, including Japan, are established assuming that the information owner is the government or a company. However, with the rapid spread of blogs and social networking services such as Twitter and Facebook, individuals can disclose information on private matters or personal lives. Kamitsukue (2014) notes how this has expanded the scope of who is recognized as a holder of information and, with this, how the limits of conventional legal responses have emerged. Further, the Act on the Limitation of Liability for Damages of Specified Telecommunications Service Providers and the Right to Demand Disclosure of Identification Information of the Senders (hereinafter the Provider Liability Limitation Act) enacted in 2001 can be considered as potentially providing a basis for requesting the deletion of information on the Internet in Japan. Per Kamitsukue (2014), “The Provider Liability Limitation Act only grants the right or benefit to the person whose information has been disclosed to request deletion. That is, deletion is a form of aid to the requester. If the information sharer does not respond to the request for deletion, the requester will not receive this aid. (Kamitsukue 2014, p. 63),” thereby highlighting the insufficiency and ambiguity of the Provider Liability Limitation Act. She adds that “choosing to form one’s own law without the guidance of either [the EU or US] would be extremely difficult at a time when information sharing is global. Furthermore, the choice of guiding principles is useful in discussing the protection of the right to be forgotten (Kamitsukue 2014, p. 77).” She concludes that it is impractical to establish a uniquely Japanese definition of privacy protection; it would be useful to follow the example of the EU or US in discussing the protection of the right to be forgotten in Japan.

2.2.2

Someya (2014)

Someya (2014) discusses the impact of the EU ruling on privacy rights in Japan and the US regarding the right to be forgotten that acknowledges the possibility of asserting this right against search engines such as Google. Noting that Japan lags in the discussion of the right to be forgotten relative to the EU and US, Someya (2014, p. 2) highlighted that “in Japan, full-scale discussion on the ‘right to be forgotten’ has just begun. As will be discussed later, it is at the stage where private companies that have a direct interest in the ‘right to be forgotten’ have only started to discuss it.” Moreover, having reviewed past precedents and the legal system in Japan, Someya considered whether current laws address privacy on the

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Internet or the right to be forgotten because it was viewed as difficult to derive from existing precedents. Noting the insufficiency of the response of existing laws, Someya (2014, p. 13) considered that “in response to changes surrounding the issues of privacy protection and defamation due to the development of the Internet, the limitations of the response of existing laws have been pointed out.” Although Japanese law addresses the issue of privacy rights on the Internet to a certain extent, the fact that the Provider Liability Limitation Act differs from the EU’s right to be forgotten raises the issue that “providers cannot exclude the possibility of being held liable under the EU’s right to be forgotten even when they take legitimate actions in accordance with existing law” (Someya 2014, p. 15).

2.2.3

Miyashita (2014)

Miyashita (2014) discussed the challenges surrounding the right to be forgotten, touching on the situation in the EU and US, where it was established and how it occurred in the context within which it developed. In their discussion of the right to be forgotten, which is gradually progressing in Japan, they suggest that Japan should not have a unique form of rights but should model that of other countries. Miyashita (2014, p. 32) stated that “it is also natural that, with similar services being provided across national borders, developing a unique theory of the right to privacy in Japan would result in its isolation among the international community.” He stated that in the modern age in which the Internet has developed, the right to privacy should be universal. Further, referring to the necessity of a right to be forgotten, Miyashita states that “in the EU, 75% of citizens demand the right to delete their personal information on the Internet at any time, and the necessity of the ‘right to be forgotten’ has been recognized” (Miyashita 2014, p. 35). In the same survey, only 4% of the respondents did not want their personal information to be deleted. In the EU Data Protection Regulation, emphasis is placed on the consent of the data subject in the circumstances the right to be forgotten may be exercised. Miyashita (2014) also argues that the data subject’s consent is emphasized regarding the right to be forgotten. Regarding the challenges surrounding the right to be forgotten, while discussing statements of opposition from the US to the proposed EU data protection regulation, the first such challenge is how it works in tandem with freedom of expression. “The extent to which the ‘right to be forgotten,’ as it is called, should be recognized, ‘the legal right to edit one’s past on the Internet,’ has been elevated to the old, but yet still new, question of balancing freedom of expression and privacy rights. (Miyashita 2014, p. 49).” The second issue is the paradox of the data subject’s consent, exemplified by the difference between Western attitudes toward opting into and out of something. Miyashita (2014, p. 50) argues that “there will be a significant difference in the outcome of specific measures depending on whether opt-in or opt-out clauses are

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adopted, which shows that consent is an important concept both theoretically and practically.” However, he acknowledges that in reality, it is nearly impossible for users to grasp how their data is processed, stored, and transferred on the Internet, and “no matter how much we emphasize consent in the online world, where such privacy management is not properly possible, it is merely a ritual” (Miyashita 2014, p. 52). Miyashita argues that the third issue is the public–private division. The controversy over whether the Internet should be regarded as a private or public space has not yet been settled. Thus, there is a concern that a government ordering search engines to erase the data of specific individuals may become a form of regulation of online content (i.e., censorship).

2.2.4

Summary

Existing studies on the right to be forgotten have argued for the necessity of the right by noting the ambiguous and insufficient nature of existing laws in Japan. However, when Japan introduces fresh measures or laws equivalent to the right to be forgotten, it is not realistic to expect that it would adopt an original mechanism unique to Japan without using the EU or US as a reference. However, it is also noted that the interpretation of the right to be forgotten is ambiguous even in the EU and US, and privacy concerns of individuals are not balanced with the wider understanding of privacy.

2.3 A Study on the Intention to Use Personal Information in Japan 2.3.1

Takasaki (2016, 2018)

Takasaki (2016) clarified the diversity of privacy concerns surrounding consumer intention to use personalization services. In response to three privacy concerns of users, Takasaki (2016, p. 36) concluded that “even if we use the phrase privacy concerns, the factors that influence the strength of the concerns differ for each type (potential anxiety, resistance to the disclosure of information, and concern about infringement arising from secondary usages), and therefore, in order to assuage users’ concerns about their privacy, different policy and business responses are needed for each type of concern.” The analysis also revealed that the concern about infringement from secondary usages had less impact than concerns about information disclosure, even though the provision of personal data inherently involves secondary usages beyond information disclosure. Thus, business operators should prioritize responding to concerns about information disclosure rather than responding to concerns about secondary usages.

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In Takasaki (2018), subjects used an app that links their life logs and content they view online in an investigation of changes in subjects’ acceptability of the service and privacy concerns before and after a month of use. Regarding the measures companies use to reduce anxiety for users, Takasaki (2018, p. 101) noted the following: “(1) It is more important to eliminate anxiety before using the system than after having started using it. (2) To alleviate anxiety, it is more important that trust is gained among service providers themselves rather than enhancing protective measures in the provision of individual services. (3) Privacy protection measures such as stating ‘we do not use personal data in X way’ are not expected to be effective.” In addition, while personalization service providers understand the economic value of users’ personal data, users can neither recognize the economic value of their personal data nor understand companies’ intentions regarding how the data is or will be used, thereby creating an information asymmetry. Takasaki (2018) argued that the mitigation or elimination of this information asymmetry is an important issue for the spread of personalization services. Furthermore, they pointed out that the current legal framework does not provide specific remedies for users whose personal information has been violated. Moreover, ensuring remedies for users are furnished by business operators is also an important issue in promoting personalization services.

2.3.2

Takasaki et al. (2014)

Takasaki et al. (2014) organized prior research on privacy concerns into three categories. 1. 2. 3.

Research on the impact of privacy concerns on service use and data disclosure. Research to promote service use and data disclosure. Research on protective measures by businesses.

2.3.3

Koguchi (2015)

Koguchi (2015) estimated which factors influence the resistance of users of Internetbased services to the use of their personal data and the extent to which users understand service providers’ privacy policies. The study revealed that users’ resistance to having their personal data used by businesses were related to privacy policies; however, most users understood but did not trust the privacy policy. Koguchi (2015, p. 96) concluded that “in this situation, as shown by a cynical interpretation, resistance to having personal data used is only lowered by a sense of giving up or not caring.” Further, “fostering trust in privacy policies will be essential for the future usage of personal data.”

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Summary

Existing research on personal information has revealed that users are reluctant to disclose personal information and have their information used by others. However, information asymmetry has been noted, and individuals’ perception of privacy clearly affects the utilization of personal data.

2.4 Remaining Issues in Prior Studies Thus far, studies directly addressing the right to be forgotten are not necessarily substantial. Further, such studies do not conduct empirical analysis but only give an overview of the social background in which the subject was established while discussing its prospects. Today, when anyone can easily post information about themselves or others on the Internet, it is important to estimate the economic value of the right to be forgotten by setting up a system or service similar to a realistic right to be forgotten.

3 Analytical Framework and Research Overview 3.1 Survey Purpose and Method This section conducts a prior evaluation analysis of the “right to be forgotten.” Thus, we adopt conjoint analysis, which is a representative stated preference method where the research designer presents multiple hypothetical services by combining the attributes that constitute services and products without being bound by constraints of reality. By repeatedly asking respondents about their preferences for the multiple hypothetical services presented, the elements that make up the right to be forgotten are evaluated regarding value by attribute. Moreover, analyzing the right to be forgotten from an economic perspective, we attempt a monetary evaluation. However, since the right has already been recognized in the EU and some states in the US, respondents may be reluctant to conduct a comparative survey that includes money as an evaluation standard for the right, and many responses may reflect such reluctance. Therefore, we required respondents to assume the “right to be forgotten” service would be launched as a fee-based administrative service and compare the services by combining each attribute, including the usage fee.

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3.2 Study of Analysis Method The privacy paradox is a concept said to exist in the context of privacy, where data subjects are very privacy-conscious when they talk about their perceptions of privacy protection but fail to consider the value of privacy in their actual behavior. Okada and Takahashi (2011) state that conjoint analysis can confirm the existence of paradoxes about privacy and recognize the value of privacy as a commodity. If privacy, combined with other factors, influences users’ technology acceptance behavior, measuring the factors that influence it may clarify the ambiguous outer edges of privacy. It is also possible to measure how the perception of privacy changes per whether the provider of a similar service is a public or private organization and whether the perception of privacy is affected by the service market competition when a private company provides the service. Okada and Takahashi (2011) show the effectiveness of employing conjoint analysis in this regard.

3.3 Setting of Attributes and Levels This study measures the economic value of the right to be forgotten, which, as mentioned, is not enforced in reality. During the EU GDPR proposal, many discussions about the “scope of data that can be deleted by the enforcement of the right to be forgotten” were ambiguous. Therefore, in this analysis, referring to Rosen (2012), we set multiple “scopes of data that can be deleted” as an attribute. Table 1 presents these scopes. Further, “how to obtain consent” and “usage fee” were adopted as other attributes to be addressed in the conjoint analysis. Table 1 “Scope of data that can be deleted (1), (2), (3)” attributes Attribute

Contents

Scope of data that can be deleted (1)

You can delete your search and browsing history on search engine sites, shopping history on online shopping sites, and location-based services. Moreover, the information will be completely deleted from the databases of Internet service providers

Scope of data that can be deleted (2)

When a third party spreads your personal information that you have uploaded (input) onto the Internet through social networking sites…, you can delete information spread by the third party

Scope of data that can be deleted (3)

When a third party uploads (inputs) contents related to you on the Internet through social networking sites…, you can delete the postings uploaded by that third party

(Source Prepared by the author with reference to Rosen (2012))

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Regarding how to obtain consent, the EU GDPR prohibits companies from storing or using certain personally identifiable information without the individual’s express consent. The CCPA requires companies to disclose, upon request by a data subject, the information they collect, its purpose, and third parties with whom they share it. As mentioned, Miyashita (2014) states that Japan should not adopt its own form of privacy rights but emulate those already in force. Therefore, it is necessary to include how to obtain consent in the attributes, given that the EU GDPR and CCPA adopt different methods. Miyashita (2014) also states that the consequences of specific measures differ greatly per whether the opt-in or opt-out method is adopted. Hence, how to obtain consent was adopted as an attribute. Regarding the usage fee, as mentioned, the respondents assume the “right to be forgotten” service is a paid administrative service. Therefore, the usage fee was assumed to be indispensable.

3.3.1

Setting the Usage Fee

To determine the usage fee level, we conducted a preliminary survey. In the preliminary survey, we estimated the willingness to pay (WTP) for the “right to be forgotten” service using the contingent variable method (CVM). Therefore, it was necessary to set up a specific scenario for the survey. Two types of scenarios were set up to compare and examine the differences in evaluations of different degrees of the right to be forgotten. Specifically, based on the three-pattern classification of the right to be forgotten presented in Rosen (2012), we developed two types of scenarios: the “weak right to be forgotten” (Pattern 1), which guarantees only the first pattern in Rosen (2012), and the “strong right to be forgotten” (Pattern 2), which guarantees everything up to the third pattern in Rosen (2012). For the two patterns, we estimated the WTP by CVM. We used the open-ended response CVM, and the resulting mean and median values were used as a reference for the fee level in the conjoint analysis. The open-ended response method has the merit of ease or response; however, the estimated values may be extremely large or small. Therefore, we attempted to make the estimates as accurate as possible by eliminating outliers. The outline of the preliminary survey is shown below. • Survey method Web-based questionnaire survey by NTT Research • Survey targets Closed survey (consumer) • Survey period December 20, 2019 • Total number of respondents 610 (M: 303, F: 307).

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Table 2 Basic attributes and allocation of the sample in the preliminary survey −19

20s

30s

40s

50s

60s

70s

Total

%

Male

0

59

60

60

62

62

0

303

49.6

Female

0

60

60

64

59

64

0

307

50.4

Total

0

119

120

124

121

126

0

610

100

%

0.0

19.5

19.6

20.3

19.8

20.6

0.0

100

Table 3 Attributes and levels used in conjoint analysis

Attributes

Levels

Scope of data that can be deleted (1)

Yes, no

Scope of data that can be deleted (2)

Yes, no

Scope of data that can be deleted (3)

Yes, no

How to obtain consent

Opt-in, opt-out

Usage fees

500 yen, 1,000 yen, 5,000 yen, 10,000 yen

Table 2 summarizes the basic attributes of the sample. Per the preliminary survey, the median WTP was 500 yen for Patterns 1 and 2. However, if we exclude respondents who indicated a WTP of zero yen and assume the remaining respondents, that is, those who indicated a WTP of one yen or more, are potential users, the median is 1,000 yen. Excluding the responses of “0 yen,” the average WTP for Pattern 1 (2) was 5,655 (10,124) yen. Accordingly, the range of usage fee levels to be used in the conjoint analysis would be four levels: 500 yen, 1,000 yen, 5,000 yen, and 10,000 yen.

3.3.2

Summary of Attributes and Levels

Table 3 shows the organization of the attributes and levels used in the conjoint analysis. Thus, we proceed with the conjoint analysis.

3.4 Summary of This Survey This survey was conducted as part of the conjoint analysis. The outline of the survey is as follows. • Survey method Web-based questionnaire survey by NTT Research

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Table 4 Basic attributes and allocation of the sample in this study 20s

30s

40s

50s

60s

Total

%

Male

96

98

103

106

103

506

49.4

Female

101

102

107

103

106

519

50.6

Total

519

200

210

209

209

1025

100

%

19.2

19.5

20.5

20.4

20.4

100

• Survey targets Closed survey (consumer) • Survey period January 31, 2020–February 1, 2020 • Total number of respondents 1,025 (Male: 506 Female: 519). The analysis covers 249 samples of survey respondents, excluding 776 samples of resistant and contradictory responses. In this survey, the number of resistant and contradictory responses was extremely high. An underlying factor is the unfamiliarity of the “right to be forgotten” in Japan and the fact that we could not help respondents appreciate it sufficiently in the questionnaire, which are limitations of this study. Nevertheless, given that the intention toward the “right to be forgotten” in Japan has not yet been empirically clarified, the analysis is expected to yield useful findings. Table 4 below summarizes the basic attributes of the sample used for analysis.

3.5 Details of Conjoint Analysis This study employs a selective conjoint analysis. Orthogonal design per Table 3 narrows down the number of conjoint cards from 64 to 8. The statistical processing software R is employed to implement the orthogonal design. In the question for conjoint analysis, two conjoint cards from Table 5 are presented randomly, and respondents are asked to choose the card they think is most desirable. If respondents find neither to be good, they are asked to choose the one they do not want to use. Therefore, respondents have three options. This process is repeated four times for each respondent. The same conjoint cards as in the first session were presented in a different order in the fifth session. If there was a difference between the first and fifth responses, they were excluded from the analysis as inconsistent responses.

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Table 5 Estimation results (all samples) Coefficient

Standard errors

p-value

Scope of data that can be deleted (1)

−5.379e-01

9.999e-02

7.49e-08

Scope of data that can be deleted (2)

−8.447e-02

9.838e-02

0.39057

Scope of data that can be deleted (3)

−5.058e-01

1.008e-01

5.25e-07

How to obtain consent (based on opt-out)

−5.914e-02

1.054e-01

0.57458

Usage fees

−3.864e-05

1.286e-05

0.00266

ASC

−5.093e-01

1.468e-01

0.00052

To implement the process in the web survey, we prepared seven patterns of six randomly generated conjoint questions as one segment and divided the respondents into seven segments to obtain their responses. Estimation was conducted with a conditional logit model, a discrete choice model that models the act of choosing one from multiple alternatives; it is used when the independent and identically distributed condition is satisfied.

3.6 Estimation Results First, Table 5 present the estimation results for the entire sample. In this estimation, the scope of data that can be deleted (1), the scope of data that can be deleted (3), usage fees, and ASC were negatively significant. The scope of data that can be deleted (2) and how to obtain consent were not significant. Note that ASC is an option-specific constant term, set for the option “do not use” in this analysis. That is, it can be regarded as a variable indicating resistance to the basic “right to be forgotten” service. Next, to understand the characteristics by gender, Table 6 presents the results of estimation using only the male sample. In this estimation, the scope of data that can be deleted (1), the scope of data that can be deleted (3), and ASC were negatively significant. The scope of data that can be deleted (2), how to obtain consent, and the usage fee were not significant. Table 6 Estimation results (male) Coefficient

Standard errors

p-value

Scope of data that can be deleted (1)

−4.917e-01

1.356e-01

0.000289

Scope of data that can be deleted (2)

−2.349e-01

1.364e-01

0.085149

Scope of data that can be deleted (3)

−3.345e-01

1.390e-01

0.016140

How to obtain consent (based on opt-out)

−2.051e-01

1.461e-01

0.160318

Usage fees

−2.212e-05

1.729e-05

0.200779

ASC

−6.357e-01

2.061e-01

0.002040

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Table 7 Estimation results (female) Coefficient

Standard errors

p-value

Scope of data that can be deleted (1)

−6.363e-01

1.529e-01

3.17e-05

Scope of data that can be deleted (2)

1.254e-01

1.460e-01

0.390248

Scope of data that can be deleted (3)

−7.407e-01

1.519e-01

1.07e-06

How to obtain consent (based on opt-out)

1.562e-01

1.559e-01

0.316460

Usage fees

−6.724e-05

2.030e-05

0.000924

ASC

−3.961e-01

2.122e-01

0.061897

Similarly, Table 7 presents the results of the estimation for the female sample only. In this estimation, the scope of data that can be deleted (1), the scope of data that can be deleted (3), usage fees, and ASC were negatively significant. The scope of data that can be deleted (2) and how to obtain consent were not significant. Furthermore, we attempt to understand the differences among respondents’ prior knowledge. Respondents that answered, “I knew the words and details of the right to be forgotten,” “I knew the words but not the details of the right to be forgotten,” and “I knew that such a right existed but did not know the words of the right to be forgotten” were selected as those with prior knowledge. Those that answered “I did not know the words and details of the right to be forgotten” were selected as those without prior knowledge. Table 8 shows the estimation results for the samples with prior knowledge. Accordingly, the scope of data that can be deleted (1), the scope of data that can be deleted (3), usage fees, and ASC were negatively significant. The scope of data that can be deleted (2) and how to obtain consent were not significant. Moreover, Table 9 presents the results of estimating with the sample without prior knowledge only. In this estimation, the scope of data that can be deleted (1) and the scope of data that can be deleted (3) were negatively significant. The scope of data that can be deleted (2), how to obtain consent, usage fees, and ASC were not significant. Table 10 summarizes the WTP amounts for attributes that were significant for the previous estimates. In summary, among the attributes prepared for this analysis, the scope of data that can be deleted (1) and the scope of data that can be deleted (3) were negatively Table 8 Estimation results (with prior knowledge) Coefficient

Standard errors

p-value

Scope of data that can be deleted (1)

−6.311e-01

1.495e-01

2.43e-05

Scope of data that can be deleted (2)

−8.409e-02

1.475e-01

0.568697

Scope of data that can be deleted (3)

−5.859e-01

1.528e-01

0.000126

How to obtain consent (based on opt-out)

−1.536e-01

1.580e-01

0.330810

Usage fees

−4.498e-05

1.907e-05

0.018305

ASC

−8.073e-01

2.252e-01

0.000338

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Table 9 Estimation results (without prior knowledge) Coefficient

Standard errors

p-value

Scope of data that can be deleted (1)

−4.623e-01

1.349e-01

0.000609

Scope of data that can be deleted (2)

−9.252e-02

1.325e-01

0.484918

Scope of data that can be deleted (3)

−4.448e-01

1.347e-01

0.000960

How to obtain consent (based on opt-out)

1.725e-02

1.418e-01

0.903200

Usage fees

−3.403e-05

1.747e-05

0.051345

ASC

−2.828e-01

1.943e-01

0.145504

Table 10 Willingness to pay for attributes that are significant Condition

Scope (1)

Scope (2)

Scope (3)

Opt-out

ASC

Total

13,920 yen

–

13,090 yen

–

13,180 yen –

Man

–

–

–

–

Woman

9,463 yen

–

11,015 yen

–

With prior knowledge

14,030 yen

–

13,025 yen

–

17,947 yen

Without prior knowledge

–

–

–

–

–

significant in all sample groups. Conversely, the scope of data that can be deleted (2) and how to obtain consent were not significant in any sample group. First, the scope of data that can be deleted (1) is different from the scope of data that can be deleted (2) and (3) because a company handles the data subject’s information. Users are reluctant to have their information used by companies. Therefore, it may be beneficial to have a system that guarantees the right of data portability and allows users to grasp and manage their personal information through a system such as the right to be forgotten or an information bank. Regarding the scope of data that can be deleted (3), as in the scope of data that can be deleted (2), a remarkable difference even though a third-party user handles the data subject’s information shows that individuals’ privacy concerns are more about mentions in unknown places than their own actions. As cyberbullying, revenge pornography, and fake news are regarded as problems, it may be possible to recognize a system that can address mentions from third parties, such as the right to be forgotten. Moreover, how to obtain consent was not significant for any of the sample groups. The method of obtaining consent when companies handle personal information differs in the EU and US. Miyashita (2014) found that the consequences of specific measures differ greatly per whether opt-out or opt-in is adopted. Thus, the method of obtaining consent has an important meaning. However, the analysis revealed no significant difference for users in the way consent is obtained. Concerning the WTP, the amount for ASC for respondents with prior knowledge of the right to be forgotten was more than ¥3,000 higher than that of the total respondents. Prior knowledge of the rights underlying the service evidently impacted the intention to use the service significantly.

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4 Conclusion This study employed conjoint analysis to clarify whether the right to be forgotten in Japan, which lags relative to the EU and US given its lack of recognition, is needed and, if so, what form it would take. Specifically, users want to be able to delete personal information such as photos, comments, names, and addresses uploaded by data subjects on the Internet, shopping history data on Internet shopping sites, and to delete them completely from the database of Internet service providers. It is also clear that users want to be able to delete posts by third parties that mention the data subject through social networking sites made irrespective of the data subject. However, it is clear that users do not attach importance to whether the consent for the use of the service is opt-in or opt-out and the ability to stop or delete the spread of the data when a third-party spreads what the data subject posted via social networking sites. In addition, the WTP was higher for respondents who were aware of the right to be forgotten in advance, indicating that the degree of prior awareness of the system and service impacts users’ intention to use it. Future examinations of the right to be forgotten in Japan must be premised on the characteristics of this analysis. Acknowledgements This work was supported by JSPS KAKENHI Grant Number JP 19K01648.

References Ishii K (2015) The meanings of the “Right to be Forgotten” and surrounding discussions. J Inf Process Manag 58(3):271–285 Jitsuzumi T, Kasuga N, Nakamura A, Shishikura M, Koguchi T (2018) Policy analysis on the OTT industry. Keiso Shobo Kamitsukue M (2014) The right to be forgotten and privacy. Sapporo Law Rev 25(2):59–79 Koguchi T (2015) Economic analysis of personal data. Keiso Shobo Miyashita H (2014) For and against “The Right to be Forgotten.” Comp Law Rev 47(4):29–66 Okada H, Takahashi I (2011) Privacy analysis by conjoint method: using an empirical validation of location awareness in cell phone e-money as an example. Inf Commun Policy Rev 2:1–16 Rosen J (2012) The right to be forgotten. Stanford Law Review Online 64(88):88–92 Someya M (2014) The “Right to be Forgotten” ruling and privacy rights in the U.S. and Japan. Around Law (Rikkyo University) 43:1–25 Takasaki H (2016) The study on user preferences of personalized services; an empirical analysis assuming plurality of privacy concerns. J Inf Commun Res 34(3):25–39 Takasaki H, Koguchi T, Jitsuzumi T (2014) A study on causes for privacy concerns about personalized services on mobile devices. J Public Util Econ 66(2):25–34 Takasaki H (2018) Economics of privacy. Keiso Shobo World Economic Forum (2011) Personal data: the emergence of a new asset class. https://www.wef orum.org/reports/personal-data-emergence-new-asset-class. Accessed 31 July 2021

The Economic Value of Personal Information: Analysis of Information Leakage Incidents Teppei Koguchi and Shogo Maeda

Abstract The purpose of this chapter is to elucidate the economic value of personal information by clarifying the following two points: 1. Whether the amount of willingness to compensate differs depending on the type of data leaked at the time of a personal information leak incident, and 2. If so, which types of data would be considered more expensive. Through this analysis, it could be understood that the desire for compensation differs depending on the type of data leaked in a personal information leakage incident. The conjoint analysis particularly showed that when personal information is leaked from social networking services, mail order sites, Google, and government offices, the willingness to compensate is the highest in the case of social networking services, followed by mail order sites and government offices, and the lowest in the case of Google when other conditions are the same. In addition to the type of data leaked, it was also revealed that the factors affecting the amount of willingness to compensate for personal information leakage incidents depended on whether or not the company suffered actual damage and whether an appropriate corporate response was taken after the announcement to confirm the fact of personal information leakage. Keywords Personal information · Economic value · Privacy · Leakage incidents · Personal data protection · Compensation · Conjoint analysis · Social networking service · Google

T. Koguchi (B) College of Informatics, Shizuoka University, Shizuoka, Japan e-mail: [email protected] S. Maeda Faculty of Informatics, Shizuoka University, Shizuoka, Japan e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 T. Jitsuzumi and H. Mitomo (eds.), Policies and Challenges of the Broadband Ecosystem in Japan, Advances in Information and Communication Research 4, https://doi.org/10.1007/978-981-16-8004-5_10

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1 Introduction This chapter elucidates the economic value of personal information by clarifying the following: 1. Whether the amount of willingness to compensate differs per the type of data leaked during a personal information leak and 2. if so, which types of data would be considered more expensive.

1.1 Personal Information Protection With the development and widespread use of computers, a wide variety of data has been generated everywhere. Moreover, the trend to utilize large amounts of accumulated data (Big Data) is expanding. The Ministry of Internal Affairs and Communications (MIC) (2012), p. 154) states that “while the characteristics of Big Data differ from the perspectives of data users and those who support them, common characteristics include large volume, variety, and real-time nature. With the progress of ICT, it is now possible and easy to generate, collect, and accumulate data with these characteristics. The significance of the utilization of Big Data lies in the fact that it enables the provision of services that meet the needs of individual users, the improvement of the efficiency of business operations, and the creation of new industries through the detection of unusual changes and the prediction of the near future.” Today, nine years later, we can see examples of its use in our daily lives. Particularly in marketing, one-to-one marketing, which targets individuals based on personal data, including location and website browsing history, has been practiced given the wide availability of such data via the spread of smartphones and other devices. For example, Amazon, a major US e-commerce company, analyzes product browsing history and purchase history data to accurately suggest products in which each customer may be interested. Amid such progress in data utilization, privacy and the right to control personal information have become a concern, leading to the formulation of legal systems concerning personal data in many countries worldwide. In the EU, the “Regulation of the European Parliament and the Council on the protection of natural persons [regarding] the processing of personal data and on the free movement of such data” came into effect in 2018, including a general prohibition on the transfer of personal data obtained in the European Economic Area and more detailed rules on the acquisition of personal data. In Japan, this regulation is known as the EU General Data Protection Regulation. Since the regulation came into effect, global companies doing business in the EU have been required to comply. There have been discussions on the utilization of data in Japan, and the Basic Act on the Advancement of Public and Private Data Utilization was enacted in 2016. Per the law, the revised Act on the Protection of Personal Information was enacted in May 2017, which includes the establishment of the Personal Information Protection Commission, the requirement of data item notification for opt-out procedures, and the

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introduction of anonymously processed information that can be distributed without the consent of the data subject. Domestically and internationally, legislation is being developed to clarify the information to be protected and establish a framework for utilizing information that does not fall under that category. As discussed, increasing focus is placed on how private and public institutions will utilize personal data.

1.2 Personal Information Leak Incident Companies have tapped into advancements in the use of personal data to acquire customers’ personal data. Thus, various personal data leak incidents have occurred. In March 2018, there were allegations that Cambridge Analytica obtained personal data fraudulently through Facebook and used the data for political purposes. A whistleblower claimed that Aleksandr Kogan, a researcher at Cambridge University who designed the application, illegally sold the personal data of users and their friends who responded to the personality test application on Facebook to Cambridge Analytica, a third-party organization. Further, the data were said to have been used for the US presidential election campaign. Although Cambridge Analytica denied some of the allegations, its business performance deteriorated because of the emergent distrust; it eventually suspended its operations by filing for bankruptcy. In Japan, a customer-information leak by Benesse Corporation, a major correspondence education company, came to light in 2014. Apparently, the personal information of customers was sold by a temporary employee to list brokers, which subsequently leaked. Benesse Corporation investigated the matter after receiving inquiries from its customers who became suspicious of direct mailing from other companies with which they had no association and confirmed that personal information had been leaked. Although Benesse Corporation decided to compensate the customers with 500-yen cash vouchers, several lawsuits were filed against the company and its affiliate seeking compensation for damages. An article in the Nihon Keizai Shimbun, June 20, 2018, reported one of the lawsuits as follows. On June 20, the Tokyo District Court ruled on a lawsuit in which a total of 180 affected customers sought a total of 14.78 million yen in damages from the company and its affiliate in the Benesse Corporation customer-information leak case that came to light in 2014. Judge Yoshihide Asakura (verdict read by Judge Yoshitaka Ichihara) dismissed the claim by saying, “the court did not find that there was emotional distress to the extent that justifies compensation. The plaintiffs plan to appeal the decision.” ... In addition to stating that the plaintiffs had not suffered any actual harm, the court considered the fact that Benesse distributed a letter of apology and a cash voucher worth 500 yen. Therefore, the court did not award 30,000 to 100,000 yen in damages per person sought by the plaintiffs.

In such cases, the company is not legally liable for compensation from a judicial standpoint and does not need to pay further compensation. However, the damage to the company’s reputation was inevitable because customers were not satisfied with

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the apology letter and 500-yen vouchers. The number of subscribers of “Shinkenzemi” and “Kodomo Challenge” decreased from 2014 to 2015; it is difficult to believe that damage control was successful. An article in the Nihon Keizai Shimbun, December 27, 2018, reported another verdict in the same case as follows. On December 27, the Tokyo District Court ruled on a lawsuit filed by 462 customers who suffered damage in the Benesse Corporation customer-information leak case that came to light in 2014, seeking a total of 35.9 million yen in damages, including compensation from the company and its affiliate. Judge Yoshimitsu Kawai ordered the affiliate to pay 3,300 yen per person or about 1.5 million yen in total. He did not find Benesse liable for the damages and dismissed the claim. The court ruled that compensation of 3,000 yen was reasonable for emotional distress caused by the information leak. sThe court awarded damages of 3,300 yen per person, including 300 yen in legal fees. The judge did not order Benesse to pay compensation since it was not possible for the company to foresee how the temporary employee tranfered data with a smartphone, and there was no relation to the company’s control and supervision.

Despite different judicial decisions per lawsuit for the same personal data leak incident, there remains room for debate on the appropriate compensation for a personal data leak. Therefore, this issue should be addressed immediately. Moreover, since the economic value of personal data is unclear, how much should be allocated to security measures, including personal data protection from the standpoint of companies, is not clear. The unclear risk associated with leaks may become a barrier to the smooth use of data. As the utilization of Big Data, including personal data, has become a business trend, with more data collection and utilization desired than ever before, clarifying the economic value of personal data is an important and urgent task for all stakeholders. Legislation is being formulated regarding the purchase and sale of personal data. However, to ensure smooth and fair market transactions, the value of personal data must be clarified and widely understood by the public. Additionally, regarding personal data leak incidents, compensation for victims whose information has been leaked is made per the company’s judgment. Otherwise, it is common to wait until the judicial decision is made after filing a lawsuit for damages. It is necessary to make it widely known that compensation should be acceptable to victims during a personal data leak.

2 Previous Studies This section summarizes the research conducted in Japan on privacy concerns and compensation for personal data leak incidents.

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2.1 Privacy Awareness The MIC (2014) identifies the levels of privacy based on the types of personal data. The survey was conducted using a four-point scale regarding privacy and the option of “cannot judge” for 37 types of data in six categories considered personal data. Based on the survey results, the ministry concluded as follows: “Users tend to feel that the level of privacy is high for data that can be used to have direct access to them, such as names, addresses, e-mail addresses, and telephone numbers. Moreover, the results showed that many users tend to feel that the level of privacy is high for financial and credit information such as account information and credit card numbers, as well as authentication information such as personal identification numbers and biometric information” (MIC 2014, p. 7). Sato and Yoshida (2007) clarified what types of personal information people do not want others to know and what types of information about others they want to know on the Internet. This study investigated the degree to which they do not want others to know about personal information and the degree to which they want to obtain information about others regarding 11 types of data describing themselves and other people. The study employed a consultation setting where people revealed their problems on the Internet via a five-point scale and performed factor analysis. Among the designated private, attribute, and identification information, the degree to which people do not want others to know their information was higher for identification information, including name and photograph. The results also concluded that this tendency was particularly apparent for women.

2.2 Compensation for Leak Sakurai (2009) clarified the information security value evaluated by the network users. In calculating the subjective assessment value by the network users against the security damage, the amount of willingness to compensate is estimated via conjoint analysis with four standards: emotional distress, actual damage, company response, and compensation. The results of the conjoint analysis indicate that the amount of willingness to compensate changes with the degree of emotional distress and actual damage in many cases, and the amount of willingness to compensate can be reduced by company responses such as cash vouchers and letters of apology even for the same emotional distress and actual damage the users suffered. Moreover, Sakurai (2009) estimated the amount of willingness to pay (WTP) for four scenarios of personal information leak and four scenarios of information security damage using the contingent valuation method to calculate the information security value assessed by the network users. Sakurai (2009, p. 113) concluded as follows: “The average estimated value has a larger difference from the median value than generally said. It was 3.4–13.3 times higher for the personal information leak and 1.9–4.5 times higher for the information security damage. In particular, the value

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was 13.3 times higher for medical information while it was 10.6 times higher for financial information. These two types of information were also highly evaluated in the willingness to compensate by the conjoint analysis. Some users who answered yes considered protecting these types of personal information as particularly important. It means that the average value is close to the subjective evaluation of individuals. That is, considering the average value relatively, it is possible to compare the differences in the value of information.” Following the conjoint analysis, he acknowledged that medical and financial information has a greater value relative to other information. Jitsuzumi et al. (2018) clarified the value of personal data per the amount of WTP and the amount of compensation accepted in the case of a leak. They estimated the amount of WTP and willingness to accept compensation when personal data is leaked from a video viewing service provider. The amounts were estimated for the following three cases: basic information such as name and phone number is leaked, YouTube viewing history is leaked together with basic information, and the viewing history of adult video site is leaked along with basic information. The estimation results showed that the WTP and the willingness to compensate are the highest when only basic information is leaked, even though the leaked information amount is smaller. The approach using the analytic hierarchy process revealed that the emotion users felt during personal data leaks affects the WTP and accepted compensation amounts. The result of evaluating emotions during personal data leak regarding “anger,” “a sense of guilt,” and “worry” for each case showed that “a sense of guilt negatively affected the WTP and accepted compensation amounts.” Jitsuzumi et al. (2018, p. 94) state that “in our past research, even if the types of leaked personal data are many, WTP and [willingness to accept] are small when leaks occur after watching videos. There is a possibility that ‘the sense of guilt’ is related to this. In other words, even if more personal data are leaked, the amount of compensation that victims seek could be small because they feel guilty thinking the leak occurred partly because they used the service.” It is impossible to estimate the amount of compensation based only on the number of leaked data types, and the emotions experienced by the victims of the leak should be considered. The studies reviewed thus far present the following insight. At least in Japan, studies on the economic value of personal data are still not substantial. Sakurai (2009) and Jitsuzumi et al. (2018) estimated the direct monetary value by assuming a case of personal data leakage. However, 10 years have passed since Sakurai (2009). Considering the explosive spread of smartphones and the fact that a wide variety of services are provided by collecting user data, users’ sense of value regarding personal data may have been transformed as a result. Moreover, the value of data such as web browsing history and location information, which have been used increasingly in recent years, has not been estimated. Regarding Jitsuzumi et al. (2018), leakage is limited to video viewing. Today, as the utilization of various types of data advances, it is worth estimating the economic value of personal data by assuming a leakage incident could occur.

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3 Analytical Framework and Research Overview 3.1 Definition of Terms The definition of “personal information” in Japan is stipulated in Article 2 of the amended Act on the Protection of Personal Information as follows. The term “personal information” as used in this Act shall mean information concerning a living individual that falls under any of the following items: (i) Information that can be used to identify a specific individual due to its inclusion of a name, date of birth, or other description contained (any and all matters [excluding individual identification codes] written, recorded, or otherwise expressed using voice, movement, or other methods in documents, drawings, or electromagnetic records [meaning records made by electromagnetic format: electronic, magnetic or any other format that cannot be recognized through the human senses]); the same applies to next paragraph, item (ii); the same applies to Article 18, paragraph (2); the same applies hereinafter to . . . information that can be cross-checked against other information and thereby used to identify a specific individual. (ii) Information that contains individual identification codes (2) The term “personal identification code” as used in this Act means any character, letter, number, symbol, or other marking that falls under one of the following items specified by Cabinet Order. (i) Any character, letter, number, symbol, or other marking converted from a distinguishing part of a specific individual’s body so that it may be used with a computer and any such information that can identify the specific individual. (ii) Any character, letter, number, symbol, or other marking allocated to an individual regarding the use of services provided or the purchase of goods sold or that is entered into cards or other documents issued to an individual or recorded by electromagnetic format and any such information that can identify the using individual, the purchasing individual, or the individual being issued through the allocation of differing character, letter, number, or symbol, or writing or recording of such information to differentiate between said using individual, purchasing individual, or individual being issued.

However, some points should be noted in defining personal information. First, it is not possible to conclude whether certain information is personal information based solely on the type of information, say, for example, that “a name is a personal information” or “the date of birth is a personal information.” The definition provided by the amended Act on the Protection of Personal Information may be interpreted this way: information is personal information if (1) the information is about a living individual, and (2) an individual can be identified by the information, an individual can be easily identified by cross-checking with other information, or it contains a personal identification code. “Personal data” is defined by Koguchi (2015) as personal information and information about individuals that do not point to any particular person. According to the MIC (2017, pp. 53–54), personal data include personal attributes, movement, behavior, purchase history, and personal information collected from wearable devices. Meanwhile, because the amended Act on the Protection of Personal Information (discussed in detail later) has established a system of “anonymized data

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processing” to create an environment conducive to the appropriate use of Big Data, personal data also include elements such as human-flow information and product information that are processed in a way that specific individuals cannot be identified. Therefore, in this chapter, “personal information” refers to information that is clearly defined by law, while “personal data” refers to a wide range of information related to individuals, including not only personal information but also information whose boundary with personal information is ambiguous. Hence, this study focuses on cases involving personal information leaks because personal information that points to specific individuals could lead to actual damage, making it easier for survey respondents to imagine the damage. Moreover, although personal data include personal information, the term “personal data” is currently not well known, and the difference between personal data and information may be challenging to understand.

3.2 Conjoint Analysis This section summarizes the conjoint analysis employed following Ida (2007) and Nakamura (2016). Conjoint analysis has been used in marketing. The preferences of individual subjects are accumulated and statistically processed regarding items composed of several factors, and the degree of importance of each factor to these items is examined for an overall trend. The factors that may contribute to the preferences are called “attributes,” and their specific contents are called “levels.” One level is assigned to each attribute to generate conjoint cards that provide the options presented in the survey. If the number of attributes is X and the number of levels is Y, the number of conjoint cards would be Y to the Xth power. Beyond examining the preferences for all patterns, there is a method of reducing the number of conjoint cards using the orthogonal table. It is an experimental design method that utilizes the fact that if each factor is considered a vector, the independence of each factor is not lost when there is orthogonality. There are several ways to investigate the conjoint card preferences, such as asking people to rank the conjoint cards, give each conjoint card a score, or choose the best conjoint card. This study focuses on the differences in the economic value of personal information depending on the type of data. When personal information is leaked, situations in which only the phone number or only search history is leaked are rare. Therefore, it is not desirable to conduct a survey involving questions about a situation that is challenging for respondents to imagine, such as “how much compensation would you accept if only your phone number is leaked?” Thus, this survey establishes several cases of leaks that involve different types of information and are concrete, realistic, and easy for respondents to imagine. Table 1 presents the cases. For other attributes, “actual damage” and “corporate response” were established by referring to Sakurai (2009), who conducted a conjoint analysis to estimate the

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Table 1 Assumed leakage cases Leakage type

Source of leakage

Type of information leaked

SNS

SNS providers, such as Facebook and LINE

Name, phone number, password, e-mail address, date of birth, gender, the content of exchanges, photos Year, month, date, gender, content of correspondence with acquaintances and photos

Online merchant

Operators of online shopping sites, such as Rakuten and Amazon

Name, phone number, password, e-mail address, residence location, credit card number, product purchase history, product browsing history

Google

Google

Name, phone number, password, e-mail address, date of birth, gender, search history, web browsing history, location information from smartphone

Government

City and town halls

Name, Personal ID number (My Number), address, date of birth, gender, family composition Family Structure

economic value of personal information, assuming a case of personal information leakage. There are cases where actual damage occurs when personal information is leaked and cases where any actual damage does not occur even though victims may feel some anxiety. The extent of the damage felt by victims of a personal information leak may differ significantly per whether they experience actual damage given the misuse of the leaked information or whether they are informed by the company but do not experience any actual damage. We regarded this point as essential to match the personal information leakage participants would imagine from the conjoint card. Companies have become more prompt in responding to leaks in recent years, becoming more creative in their initial response immediately after a leak is disclosed. Regarding a personal information leak at Takufairubin, the initial report on January 25, 2019, included the type of customer information that had been leaked, the number of victims, the circumstances in which the incident occurred, and a request that customers change their login password. A subsequent report released on January 28, 2019, added a request for caution against spoof e-mails and announced that the company established a toll-free number for inquiries about the case. Victims’ perceptions of companies that (do not) prepare themselves for security incidents and respond quickly and appropriately may affect the behavior of companies in the future. The level of compensation was determined by referring to major court cases and the amount of WTP for overall security measures for personal information protection examined by Sakurai (2009). Table 2 presents the main judicial precedents.

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Table 2 Personal information leakage cases and court decisions Year number in the hito-futa-mi counting system)

Source of leakage

Leaked data

Compensation

1999

Uji City (subcontractor)

Name, address, date of birth

10,000 yen + 5,000 yen (legal fee)

2000

TBC

Name, address, date of birth, body measurements, concerns about physical conditions, etc.

30,000 yen + 5,000 yen (legal fee)

2004

Yahoo! BB

Name, address, phone 6,000 yen number, e-mail address Field address, etc

Table 3 Attributes and levels

Level

Attribute

Leakage type

SNS, online merchant, Google, government offices

Actual damage

Yes, No

Corporate support response

Yes, No

Compensation payment

5,000 yen, 15,000 yen, 30,000 yen, 50, 000 yen

Although there have been cases in which plaintiffs sought compensation in excess of one million yen per person in court cases concerning personal information, in reality, many victims of leaks do not seem to go as far as filing lawsuits because of the complexity and cost of legal procedures and the possibility of losing. Sakurai (2009) estimates the average amount of WTP for overall security measures for personal information protection to be 23,523 yen. Regarding these factors, we set the level of compensation between approximately 5,000 yen and 50,000 yen. Table 3 summarizes the established attributes and levels.

3.3 Questionnaire Survey For this analysis, we conducted a questionnaire survey. Survey method: Web-based questionnaire survey through NTT Research. Target of survey: A closed survey (consumers). Survey period: January 18, 2019. Total number of respondents: A sample size of 1,105 (566 males, 539 females).

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The analysis comprised 846 responses, excluding 259 contradictory responses to the conjoint questions. Table 4 summarizes the basic attributes of the sample group. This study employed a selection-based conjoint analysis. It employed an orthogonal design per Table 3 and narrowed the number of conjoint cards from 64, the total number of cards, to 16. Three of the 16 conjoint cards were presented at random, and respondents were asked to choose the one they think was most appropriate. This process was repeated six times for each respondent; on the seventh, the same conjoint cards presented the first time were presented again to check for inconsistencies. To implement the aforementioned process in the web survey, we prepared 10 patterns with six randomly generated conjoint questions grouped as one segment in each and divided the respondents into 10 segments to obtain their answers. Estimates were performed using the conditional logit model, leveraging the statistical processing software R. The conditional logit model is a discrete choice model that models the act of choosing one option from multiple options; it is when the independent and identically distributed conditions are satisfied.

3.4 Discussion of the Results of the Analysis Regarding the results of our estimations, we first present the results for the entire sample (Table 5). When considering the type of leakage against a base of mail-order sales, Google and social networking services were positively significant for each, actual damage was negatively significant, and corporate response and compensation were positively significant for each. Only government offices were found to be not significant. Table 6 presents the results of the analysis when the sample was narrowed down to males only (Table 6). Regarding the type of leak, with mail-order sales as a base, only Google was positively significant, the actual experience of damage was negatively significant, and corporate response and compensation were positively significant. Social networking services and government offices with a base of mail-order sales were not recognized as significant. The results of the analysis when the sample was narrowed down to women only (Table 7) showed that Google and government offices were positively significant regarding leakage against a base of mail-order sales, actual damage was negatively significant, and corporate response and compensation were positively significant. Further, we analyzed the results by whether the respondents had experienced a personal information leak. Table 8 shows the results estimated only for the sample who answered that they have never experienced a personal information leak. Only Google is positively significant for the type of leak, negatively significant for actual damage, and positively significant for corporate response and compensation. Table 9 shows the estimation results using only the sample that answered that they had experienced a personal information leak in the past. All the leakage types were

0

3

3

0.4

Male

Female

Total

Percentage (%)

Under 19 years old

Table 4 Basic attributes of the sample group

2.1

18

12

6

20s

14.4

122

85

37

30s

27.7

234

129

105

40s

28.5

241

119

122

50s

19.5

165

56

109

60s

6.0

51

12

39

70s

1.3

11

2

9

80s

0.1

1

0

1

Over 90 s

100.0 (%)

846

418

428

Total 50.6% 100.0% (%)

49.4%

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The Economic Value of Personal Information … Table 5 Results of the estimations (Across the whole sample)

225 Coefficient

Standard errors

p-value

Google type

1.58e−01

5.11e−02

0.0019

SNS type

−9.55e−02

5.33e−02

0.0733

Government type

4.41e−02

5.41e−02

0.4153

Actual damage

−7.46e−01

4.03e−02