If aboard a train in Seoul, you’re bound to notice several people with out
wristwatches. Strange for a city that’s active, energetic, and most
importantly, highly time-conscious! Talk to a native co-passenger about the
anomaly, and he’ll most likely take out a tiny device from his pocket and show
it to you–his mobile phone! "Why should I keep multiple devices?" he’ll
ask you back.
Seoul is one city that’s truly mobile. If you want to make a call from the
underground metro, you can still use your cellphone. In fact, Seoul is the only
place in the world where this holds true, thanks to CDMA telephony.
Moves That Paid off
"The role of the government (providing strong leadership and strategic
direction), societal contribution (strong informational revolution, and a strong
electronics industry are the prime drivers for the success of CDMA in South
Korea," Kenny H Ryu, international roaming manager, Global Alliance Team
(technology strategy), LG TeleCom, says. Elaborating further, Kwang Yung Choo,
professor/chair, Dept of Communication, Seoul National University, says,
"At the time of going for the technology choice, we were confronted with
this issue of GSM versus CDMA. After a long thought and discussion, it was felt
that we need to be leaders and this could be achieved through going for a
technology that is easy to roll out, cost-effective, and the latest with a
definite edge on quality. We took the risk to go for CDMA."
The
South Korean government has adopted a two-pronged strategy of standardization
and deregulation. As part of the standardization strategy, the Korean
Electronics and Telecommunication Research Institute (ETRI), in 1991, took the
brave step of backing Qualcomm, then a little known-company, and signing up an
MoU with it. Although ETRI was impressed with the claims about CDMA’s spectral
efficiencies, the key to the decision was Qualcomm’s willingness to work with
ETRI to develop a solution. ETRI was given $55 million in 1989 by the Ministry
of Communication (MoC) to develop a digital solution for Korean cellular.
The task was to evolve a model suitable for the Korean market. The project
got accelerated in 1991, when it was realized that the customers were growing in
numbers that surpassed expectations. The original plans provided for trials in
1996 and for commercial service in 1997, but MoC was worried that it would be
too late and decided to import a solution from North America’s IS-95 CDMA
brought forward the trials to 1994. In 1993, South Korea decided to adopt CDMA
as a national standard, based on the fact that CDMA was the most effective
method to utilize the limited spectrum resource. Also, the government wanted to
develop the technology independent of advanced nations. During this period, ETRI
and four Korean manufacturers continued to develop products based on the CDMA
standard. ETRI and Qualcomm divided the task so that the mobile switching and
many parts of the base station controllers were being implemented under ETRI’s
initiative, while the mobile station and base transceivers were being developed
by Qualcomm.
Outlook for subscribers of mobile telcommunications service |
||||||||
Unit: thousand persons |
||||||||
Category | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2002-06 AGR |
|
Existing band |
IS95/A/B | 27,047 | 23,320 | 18,689 | 12,995 | 9,838 | 8,262 | -21.10% |
CDMA 2000 1x |
2,036 | 6,199 | 9,205 | 10,210 | 10,658 | 10,951 | 40.00% | |
2BHz band |
- | 664 | 3,053 | 8,311 | 11,484 | 13,078 | - | |
Sub total |
29,082 | 30,183 | 30,947 | 31,515 | 31,979 | 32,291 | 2.10% | |
source: |
Sales forecast for mobile telecommunications service |
||||||||
Unit: hundred million |
||||||||
Category | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2002-06 AGR |
|
Existing band |
IS95/A/B | 131,925 | 123,297 | 97,696 | 73,683 | 50,304 | 39,877 | -21.30% |
CDMA 2000 1x |
5,958 | 22,877 | 41,360 | 51,245 | 54,921 | 60,168 | 58.80% | |
2BHz band |
- | 2,082 | 11,256 | 35,584 | 60,027 | 77,767 | - | |
Sub total |
137,882 | 148,256 | 150,312 | 160,512 | 165,252 | 177,812 | 5.20% | |
source: |
As part of the deregulation strategy, in accordance with the WTO basic
telecommunications concession, the South Korean government, in February 1997,
pushed up the foreign ownership ceiling to 33 percent. In 2000, the foreign
ownership ceiling was further liberalized to 49 percent and the ceiling on
single person ownership was also scrapped. And to encourage new players,
processes were simplified.
A Postpaid-driven Market
South Korea has more postpaid subscribers than prepaid. "About 90
percent of the mobile users are postpaid. It’s because Koreans prefer to pay
for a service after using it. This is unique, I understand," says Kenny. A
Korean citizen, when contacted, confirmed this perception. "We would like
to use the service as much as possible and pay for the same." On trying to
find out if the trend was due to any different pricing strategies, it was
observed that it had nothing to do with the tariffs. The tariffs for the
postpaid are about 15,000 won as fixed monthly charges and about 18 won per
10-second pulse.
It needs to be mentioned here that the market is reaching a saturation point.
At present, there are three major operators–SK Telecom, KTF, and LG TeleCom
with subscriber bases of 16.7 million, 10.1 million, and 4.4 million,
respectively. SK Telecom accounts for about 53.5 percent of the total market.
According to MoC, the number of new subscribers in 2001 was estimated at 29.08
million, an increase of 8.5 percent over the previous year with the diffusion
rate being 61 percent. It was expected to grow at an average annual rate of 2.1
percent thereafter. In 2000, the mobile subscriber base was 26.82 million and
sales stood at 11.75 trillion won. According to Daniel D W Lee, general manager,
material group (digital network display division), LG Electronics Inc.,
"What is important to recognize is that the market is approaching the
maturity stage on the life cycle with a high penetration rate. And now data
services will be the next in-thing."
Brief History of the CDMA Market in South Korea |
|
1984: | It was for the first time that mobile wireless services were launched based on analog systems |
1992: | CDMA technology was chosen as the national standard of digital wireless service |
1993: | Pan-industrial joint project was initiated by ETRI and by private companies, such as Samsung, LG, and Hyundai |
1996: | SK Telecom launched the world’s first CDMA digital wireless service |
1997: | Three PCS operators, including LG Telecom were launched |
1998: | LG Telecom launched the CDMA-based wireless data services for the first time in the world |
1999: | LG Telecom launched mobile Internet services for the first time |
2000: | For the first time in the world, three Korean operators launched CDMA2000-1x services |
2000 December: |
3G UMTS licenses awarded to SK Tlecom and KTF |
2001 August: |
3G CDMA2000 license awarded to LG Telecom |
A quick look at the ARPU reveals that the data ARPU has gone from 1,200 won
in 2000 to Rs 2,054 won in 2001, a growth of 71.1 percent. The total ARPU grew
from 33,045 won to 34,400 won during the same time (a growth of 4.1 percent).
According to another report (from KISDI), "Following the introduction of
CDMA2000 1x in 2000, the IS-95/A/B band-oriented service is expected to decline
at an average annual rate of 21.1 percent from 27.05 million in 2001 to 8.26
million in 2006. The CDMA2000 1x service of the existing band is expected to
undergo a rapid growth at an average annual rate of 40 percent from 2.04 million
in 2001 to 10.95 million in 2006 with an increased usage of wireless Internet
service. Meanwhile, for the 2-GHz band, under the assumption of the launch of
synchronous service in 2002 and asynchronous service in 2003, the number of
subscribers in 2002 is expected to be approximately 660,000, thereafter
increasing to 13.08 million in 2006."
Commenting on the diffusion rate, Kenny says, "We are reaching a
saturation point in the domestic mobile telecommunications service market. It is
hard to expect a rapid increase in new subscribers. But there will be greater
usage of wireless Internet service. This will increase the income from providing
contents." The KIDC report also suggests that there may be a decline in
sales for the mobile telecommunications service market due to the cut in the
rate for voice communications service and the introduction of a packet rate
system in data communications brought on by competition among carriers. However,
the overall market is expected to maintain continued growth with increased usage
of wireless Internet service. This will be mainly due to the introduction of
CDMA2000 1x and the accompanied increase in call quantity per user, the increase
in fee income from providing contents, as well as the increased income from
global roaming service with the commercialization of 3G. The market size for
2001 was estimated at 13.8 trillion won, an increase of 12.3 percent over the
previous year, and is expected to grow at an average annual rate of 5.2 percent
after 2001 to reach 17.8 trillion won in 2006.
Future Revenue Streams
The point to note here is that the new revenue generation streams will be
from the data services. According to Kenny, feelring and MMS will be key drivers
to improve data revenues. Feelring is a ring-back tone that amuses callers with
beautiful melodies and comic chats instead of the routine boring ring-back
sound. Similarly, Java games, stocks, photo portals, and video-on-demand are
popular. Besides these attractive services for subscribers in general, the
operators are also looking at the corporate clients. For example, LG TeleCom has
tied up with Korea Digital Satellite Broadcasting (KDSB) for allowing the latter’s
subscribers to download content. It has also tied up with Hyundai-Kia Motors
company for telematics, with CJ GLS for fleet management, with Lotte-Chilsung
for offering sales solutions, and so on.
The Power of Numbers |
Don’t be surprised if you come to know that mobile carriers in South Korea are at loggerheads with the credit card firms there. Earlier, the credit card companies had largely monopolized the electronic billing and transaction services for offline purchases of consumer products and now the carriers want to enter the credit card business. This is mainly because they have a large pool of customer info and sales networks and they want to capitalize on it. The total number of mobile subscribers in South Korea was close to 31.3 million till June 2002. This is amazing if one looks at the total population of the country, which is about 47.6 million. That means the total penetration rate is more than 65 percent. And every household has got multiple connections. The statistics tell that the number of new subscribers in 2001 was estimated at 29.08 million, an increase of 8.5 percent from the previous year with the diffusion rate being 61 percent and was expected to grow at an average annual rate of 2.1 percent after 2001. In 2000, the mobile subscriber base was 26.82 million and sales stood at 11.75 trillion won. There are several firsts for the operators and the country. The country was the first in the world to launch commercial CDMA services (started in 1996) and also the first to begin 3G CDMA services (January 2002). It’s also the first country to have launched CDMA wireless data services and wireless mobile Internet services. SK Telecom is considered the pioneer. It launched the CDMA service in 1996, CDMA 20001x service in 2000, and 3G CDMA-CDMA 20001x |
KDSB has formed a very good example in interactive satellite TV. With KDSB,
LGT has an exclusive contract, to offer CDMA-enabled set-top boxes and its
network for upload and download of KDSBs programs. LGT receives a monthly fee of
12,500 won per subscription from about 3 lakh subscribers. Kenny points out,
"There will be additional opportunities from TV commerce and home
automation."
A recent survey on the usage of mobile phone says that people of age 12 or
more cellular phone owners use text messaging, voice mail, and other additional
services approximately 14.9 times a month. Customers are satisfied more with
portability than operability or exterior design. The usage of wireless Internet
among women is 28 percent, a little higher than the usage among men, which is
26.9 percent, but there is little distinction among the sexes. The age group
12-19 has the highest rate of using wireless Internet and the usage of wireless
Internet decreases as it gets to the older generation. The age group of ‘50
and above’ has the lowest rate at 1.5 percent.
Studying this market helps one to draw some important conclusions. Today,
there are just three operators. Moon-Suk Oh, vice-president (economic research
center), LG Economic Research Institute, explains, "Consolidation is the
key."
There were several operators earlier, but they have been merging to
consolidate. The government took some measures too so that market momentum was
sustained and monopoly didn’t set in. It introduced the discontinuance of the
handset subsidy to secure profitability and improve management for mobile
telecommunications service carriers… and the subsidies on mobile handsets went
off in June 2000.
It was stipulated that SK Telecom would keep its market share below 50
percent by June 2001 and that SK Telecom would limit the purchase of handsets to
1.2 million units per year by 2005 as a condition for the M&A between SK
Telecom and Shinsegi Telecom. It may be mentioned here that Shinsegi was the No.
3 operator after Korea Telecom and the merger of the two would have created an
imbalance. Later, there was the merger of Korea Telecom Freetel (KTF) and Korea
Telecom M.com in May 2001, which is now called KTF.
Ch. Srinivas Rao in Seoul, South
Korea.