I found this at Telematrix web site. The article is from Time
Magazine Asia June 16, 1997:
telematrix.co.jp
The Telecom Club is No Longer So Exclusive
Japan's Telematrix leads an
army of guerilla phone
companies that are taking on the
old order - and could well
destroy it
By SEBASTIAN MOFFETT TOKYO TIME ASIA June 16, 1997
TETSUJI YAMADA FELT HE WAS GETTING ripped off. Editor of a Japanese business telephone directory, he spent hours on the phone to distributors in the United States. Calling from Tokyo cost nearly $3
a minute, but return calls from the U.S. were less than 50 cents. A genial man by nature, Yamada got angry thinking about the money he was
forking over to Japan's international carriers. "Their attitude was, "We'll let you use our service - and if you don't like it, hard luck," he says. So in 1994 he did something that until recently would have been unthinkable:
he set up his own telephone company in Tokyo. Called Telematrix, it
now provides calls for as little as a quarter the price charged by KDD,
Japan's main international carrier.
Telematrix is part of anew army of guerrilla phone companies that is
challenging the industry's old order - and may destroy it. The telecom
business used to be strictly giants only, an exclusive club of semi-public
utilities that reaped comfortable profits amid limited competition. Those
days have been swept away by a confluence of technological advances
and deregulation, which means that just about anyone - even a 51-
year-old former publisher like Yamada can go into the international
telephone business. The upstarts' first popular service was "callback",
which routes calls via cheap lines available in the U.S. the guerrillas are
getting more sophisticated. Helped by dramatic drops in the cost of
computing power, Telematrix and several other companies plan later this
year to let users talk to the other side of the world by making local calls
that are funneled into the Internet.
Telematrix's style is as
spartan as its prices. Working
out of cramped rented offices
in Shibuya, a Tokyo
entertainment district, the
company employs just 15
people. But now Telematrix
is feeding at the same troughs
as behemoths like KDD,
whose 32-story tower looms
just up the road in Shinjuku.
Over the past two years ,
Telematrix has gathered
almost 22,000 clients,
including more than 15
embassies and major corporations such as the Aiwa electronics company
and the Daiei supermarket chain. Several hundred customers are being
added each week, says managing director Darcie Anderson, and "we
haven't even started Internet." For the business year that ended in March,
Telematrix made its first profit: $2 million, on revenues of $9.1 million.
Callback is still a relatively small business for Telematrix. In Japan,
where customers make a combined $3 billion in overseas calls a year, the
country's 30 or so callback firms account for only around one-tenth of
international traffic by volume - and far less in terms of revenues.
Yamada has higher hopes for his more radical move into Internet
phoning. To leap into that new business, Telematrix is installing
$100,000 computers in each of three major Japanese cities: Tokyo, Osaka,
and Nagoya. In smaller cities the company will use computers costing
less than half as much. It plans to double its staff shortly when it begins
hiring Internet engineers. Yamada considers Telematrix more of a
high-tech operation than a public utility. Says he: "Only our customer
service department is like a phone company."
Cut rate calls may cause a price implosion that squashes the core business
of huge phone companies. Following the deregulation expected in Japan
later this year, Telematrix will soon offer overseas calls at just 22 cents a
minute - one-eighth KDD's current rates. "The Internet will eventually
become the standard way to make international calls," says Toshiaki Iba,
telecom analyst in the Tokyo office of Germany's Dresdner Kleinwort
Benson Securities. According to London consulting firm Phillips
Tarifica, the storm these tiny providers are brewing will, by the year
2001, cost KDD $300 million of its $2 billion annual revenue. Singapore
Telecom stands to lose $50 million a year (2.6% of 1996 revenues) and
Hong Kong Telecommunications $45 million (1%).
As if the challenge from aggressive young companies wasn't enough, big
corporations that previously had nothing to do with telecommunications
are entering the business too. Japanese firms that lease phone lines for
internal use have been allowed since last October to use them to sell
domestic long-distance calls. Tomen, Japan's seventh-largest general
trading company, has signed up 1,000 customers since February. "We've
increased our phone system's capacity 50% for this new service,"says
Susumu Tsuchiya, president of Tomen's telephone services unit. "If you
already have a one-story house, the extra cost of a second floor is not
that high." He predicts that, in a few years, 20% to 30% of international
calls will be placed through services like his.
The giants are doing their best to stave off competitive threats. KDD
asked Japan's Ministry of Posts and Telecommunications to declare
callback illegal - which the ministry has not done. For good measure
KDD wrote Telematrix's clients to tell them that the service was likely
to be banned. Yamada says he can't find slots for television commercials,
and some magazines refuse to run his ads. The reason, he says, is pressure
from KDD, a major advertiser. In 1995 a TV crew filmed scenes at
Telematrix and an interview with Yamada for a feature that was never
aired. The producer told him KDD had objected and the TV station
spiked the story. A KDD spokesman says such interference is
"unthinkable."
Other big telephone carriers have decided they can't beat the new trend -
so they're better off joining it AT&T similarly asked the U.S. Federal
Communications Commission to outlaw callback. After the FCC
refused, AT&T announced last November that it would start a callback
service for Japanese customers. KDD's stock immediately plunged 5.6%
on the news and is now languishing at 40% below its 1994 peak.
According to a Credit Lyonnais analyst in Tokyo, the shares had been
falling since August on -expectations of competition Hideki Nishimori a
manager in KDD's service planning division says the company is fine
and that its competitors provide erratic service, in contrast to KDD's
glowing customer- satisfaction record. Indeed, a recent survey by British
trade magazine Data Communications rated KDD as the No. l
international leased-line provider, citing its reliability. "People trust our
technology," says Nishimori. True - but they don't want to pay too much
for it. |
