|
Current Issue: October 2007
Korea BANGs into broadband
With nine out of 10 households connected to broadband, what’s next for the world’s most wired market?
by Sarah Parkes
Hunched shoulder-to shoulder in the gloaming of a darkened 10th-floor room in a downtown Seoul high-rise, 40 or so young males perch intently over the garish glow of racked computer screens. Some are as young as 7 or 8, and most have been in the bang—one of Korea’s famous PC gaming rooms—for several hours, immersed in the esoterica of celebrated adventures like Lineage and World of Warcraft.
Korea’s enthusiasm for online gaming is legendary. With an estimated 20,000 bangs nationwide and a local games market valued at more than US$1bn annually and growing, MMORPGs (massive multiplayer online role playing games) have been a key driver of national broadband uptake.
But as the country moves to the next level, embracing next-generation networks and wireless broadband, ultra-high speed access is being viewed as a given. This commoditization is in turn shaping product development strategies within so-called chaebols (corporate groups in Korea), such as LG, Samsung and SK, adding weight to their bid to lead the world in converged consumer electronics.
Tech-led economy
Once considered an industrial backwater, Korea’s effort to reinvent itself as a high-tech powerhouse has seen the country notch up a broadband scorecard the rest of the world yearns to emulate. In 1995, Korea had less than one Internet connection per 100 inhabitants; today, this modest nation of 72 million people leads the world with a household broadband penetration of 89.4 percent.
Korea’s avid belief in technology as a potent driver of economic development has taken it to the No. 1 spot worldwide in terms of digital opportunity, according to a comprehensive survey by the International Telecommunication Union (ITU), a United Nations agency (see The Digital Opportunity Index: the top 20 countries, at right).
The ITU’s Digital Opportunity Index measures a wide range of indicators across four principal categories: coverage and affordability; access technology and device; infrastructure; and quality of service. Scoring 0.8 out of a possible perfect 1.0, Korea’s success in rolling out affordable high-speed services has helped position broadband as an everyday ubiquitous utility, much like power or water, rather than the premium service offered by operators in markets elsewhere. That’s in turn spurring new product and service innovation, as manufacturers and operators alike scramble to take advantage of higher speeds and more robust NGN-based network architectures.
Sure, rapid growth in highly wired countries like Denmark, Iceland, Netherlands and Germany is pushing Korea down the rankings in terms of total number of broadband connections, while near saturation of the domestic market is slowing subscriber growth. Certainly, accelerating uptake in leviathans like the United States and China now makes Korea’s 14.1 million subscribers look paltry by comparison. Growing prosperity, unbridled enthusiasm for new technology, political will and the urgent need to identify new broadband revenue streams, however, are keeping all eyes on the Korean market as the bellwether of global trends.
Broadband vision
That Korea should have emerged as a world-leading broadband market is testament to the enormous energy of its people and the vision and determination of its government. "With a relatively large land mass and a modest per capita income, Korea was not demographically or economically disposed to emerge as the global front-runner," says Dr.Tim Kelly, head of ITU’s Telecommunication Standardization Policy division. "The linguistic barrier was also problematic: the country was unable to leverage easily the overwhelming mass of Web content, while its own Han-gul pictographic font is hard to computerize."
Those impediments aside, the country had some advantages that proved instrumental in driving uptake. Housing density was one factor: four-fifths of the population is urban, with more than half its people living in high-rise towers. With 90 percent of potential subscribers within 4km of an exchange, operators have found it easy and cost effective to wire hundreds of households at a time to DSL, cable and, increasingly, FTTx.
Korea’s burgeoning high-tech manufacturing industry has also played a role. In 1960, Korea’s per capita GDP was lower than sub-Saharan African countries such as Mozambique and Senegal. The country’s miraculous transformation into an export-led, technology-focused economy owes much to the influence of neighboring Japan and the U.S.—both global high-tech leaders in their own right.
Local chaebols like Samsung and LG Electronics have proved highly adept at seizing second-mover advantage, building on the R&D efforts of foreign competitors to develop leading-edge products that are now setting global benchmarks for functionality and design.
That strong local manufacturing base has in turn helped minimize network and consumer equipment shortages and kept prices low, creating a virtuous circle whereby growing subscriber numbers fuel even greater economies of scale. Cheap, locally made PCs also helped household penetration climb to more than 80 percent, giving operators a ready made market for high-speed services.
Hi-tech passion
National mentality has played its part indisputably. Technophiles par excellence, young Koreans’ community-oriented culture and preoccupation with social status help keep product development cycles in overdrive, as manufacturers vie to be first to market with the next cool gadget, service or application. With the Internet still largely regarded as a residential service rather than a business tool, 97.7 percent of surfers access the Net at home, compared with just 23.7 percent at work. Today’s killer apps are personal e-mail, IM and online games. Astonishingly for such a wired economy, less than one-third of Korean businesses have a corporate Web site and less than two-thirds of companies with five or more employees have a LAN.
Korea’s impressive literacy rate—at more than 98 percent it’s one of the highest in Asia—and exceptionally high level of school enrollment also means young Koreans are motivated and empowered to embrace the online world. Under the government’s commitment to what it terms "edutopia," 10,000 schools have been connected to the Internet and 330,000 teachers and 210,000 classrooms provided with PCs. At the same time, 50,000 high-achieving students from low-income families have been given free PCs with five-year broadband subscriptions. A vocational program of Internet High Schools, launched in 2000, now offers intensive specialist training in ICTs.
Broadband for all
Social factors aside, there’s no disputing the indispensable role enlightened public policy has played in driving Korea’s success in broadband deployment and ICT development. Above all things, the government’s vision of ICT as the fundamental enabler of economic growth across all sectors, along with its commitment to concrete, measurable programs to implement that vision, are the crucial factors underlying Korea’s phenomenal success.
One pillar of that ICT-centric vision has been an egalitarian emphasis on universal access. In a bid to eradicate long waiting lists in the early ’80s, the government adopted a one-phone, one-family policy, separating Korea Telecom from the Ministry of Communications, developing cheaper local network components to reduce reliance on costly foreign imports, reducing tariffs and installation charges, and doubling investment in national infrastructure.
At the same time, a host of programs such as Cyber Korea 21, which offered affordable IT education to marginalized groups like home-bound women, together with the establishment of specialized agencies like the Korea Agency for Digital Opportunity and Promotion (KADO), have helped realize rapidly the government’s vision of a ubiquitous networked society.
KADO currently operates more than 9,000 free Internet Access Centers nationwide and runs specialist IT courses targeting the illiterate, the elderly and the disabled. "With network access no longer a real issue, we’re focusing on closing the digital divide through effective digital literacy strategies and special devices that help disabled people participate in the knowledge society," says Dr. Cheung Moon Cho, director of KADO’s Global Cooperation and Planning team.
Backing up its efforts to get citizens online, the country embarked on a comprehensive e-government program. The Korea Infrastructure Initiative, launched in 1995, invested US$24m in a national fiber optic backbone that provides more than 28,000 government departments and agencies with fast broadband access. All 140,000 central government civil servants have their own PCs and e-mail addresses, more than 80 percent of all central government documents are computerized, and most government documents are handled electronically.
At the same time, the government has backed local R&D through the funding of several not-for-profit ICT development organizations, including the Electronics and Telecommunications Research Institute (ETRI), the country’s premier developer of innovative technologies which also serves as an incubator for start-ups; the Korea Advanced Research Network (KOREN); and the Korea Information Society Development Institute, a think tank providing ICT-based public policy consulting services.
Competitive landscape
Policy wise, the creation of a highly competitive broadband market arguably has been the most important strategy. Progressive liberalization in the early 1990s was instrumental in driving high-speed penetration, with new operators using broadband as a clear service differentiator that capitalized on Korea Telecom’s initial reluctance to enter the ADSL market after its hefty investment in ISDN.
"The establishment of a framework for facilities-based competition in 1998 also proved effective in overcoming delays in network unbundling and was bolstered by government policies that encouraged infrastructure investment," ITU’s Kelly notes.
Hanaro Telecom (HT), the country’s second fixed-line operator, was quick to gain market share, as was leading cable TV provider Thrunet (recently acquired by Hanaro), which launched broadband cable modem services in 1998 to the 8+ million homes passed by cable TV. The recent market entry of Powercom is expected to inject even more rivalry into an already fierce market. Intense competition has helped keep prices low and speeds high: a typical monthly subscription costs approximately US$30 for a 37+Mbps connection.
The country’s highly urbanized population has made it a natural for WiFi. There are now more than 10,000 hotspots, from bars to local beaches, and most operators bundle WiFi with broadband for a small additional charge.
With the market for plain vanilla broadband close to saturated, the highly competitive environment is spurring development of next-gen triple-play services, WiBro (wireless broadband networks), products like Samsung’s GSM/WiFi phone, and deals like LG’s new partnership with Google that’s already putting pre-installed Google services on LG handsets sold throughout Asia, Europe and North America.
Where to from here?
Not content to rest on its laurels, Korea’s government and ICT sector are moving rapidly into new territory. Next-gen network technologies are being rolled out systematically nationwide through the government’s Broadband convergence Network (BcN) initiative, while successful WiBro trials in 2005 led KT to launch commercial service in Q107. 3G mobile in the form of HSPDA services is also up and running. While currently more costly than WiBro, more extensive coverage has seen it claim the lion’s share of the market, at least for now.
Triple-play services offering converged voice, data and video are already available or imminent from KT, Hanaro, Dacom, SK Telecom and some smaller service operators. One of the first to take the plunge, Hanaro says it already has 500,000 subscribers for its VoD HanaTV IPTV portal launched 12 months ago and is forecasting 1.4 million by the end of 2008.
"By taking advantage of our three key assets—a subscriber base of 3.6 million, a world-class network, and nationwide distribution channels—we’ve been able to occupy the TPS market early and create a new growth engine," says Hanaro CEO Byong-moo Park. Basing the service on download-and-play technology, rather than streaming, means customers enjoy good quality over connection speeds as low as 2Mbps, he adds.
The rise of bandwidth-hungry, triple-play services is also prompting a large-scale migration from DSL to FTTx. With 74 percent of Korean households already passed by fiber, UK consultancy Point Topic notes that Korea’s DSL subscriber base is falling steadily, while FTTx subscribers grew by 1.2 million in the second half of 2006.
New capabilities are also driving new online applications. KT’s beyond broadband strategy aims at moving away from traditional best-effort, store-and-forward, file-oriented applications like e-mail, IM, Webchat and Web surfing toward true interactive multimedia services like VoD, VoIP applications and conferencing. At the same time, the operator is striving to overturn Koreans’ current online lifestyle habits, moving beyond services accessed mainly via home PCs outside of working hours toward ubiquitous services accessed through a range of new terminal types over both wireless and wireline networks.
In practical terms, that’s going to mean FTTH-based services with end-to-end QoS guarantees rather than the current best-effort Internet-based model. KT is already targeting dedicated 100Mbps connections to each household, faster, more affordable wireless services based on integrated WiBro/HSPDA devices, increased service personalization linked to user log-in, and the development of more specialized, appliance-type terminals to supersede the one-size-fits-all PC-based approach.
Sarah Parkes is a freelance journalist specializing in telecom and ICT-related topics.
|
