Korea Broadband Market Report 2005

 

 

 

 

 

 

 

As a condition of complete privatisation, KT has to deliver broadband to all villages in the country i.e. universal service for broadband. The threshold for broadband, at the time of complete privatisation in 2002, was considered to be 1Mbps or higher. As a result, Korea was one of the first countries to implement universal access for broadband[5].

 

 

Korea's broadband policy is closely linked with its general industrial and economic policies. The main economic goal is for GDP per capita to grow to $20,000 and the exploitation and utilisation of ICT, and broadband in particular, are seen as critical to achieving this goal[6].

 

The Korean government estimated in 1999 that the cost of developing broadband technology, building the infrastructure and marketing it would be around US$30 billion between 2000 and 2005[7].

 

The Korean government published its broadband strategy in 1995. The Korea Information Infrastructure (KII) initiative was a US$24.5 billion project, amongst which the government invested US$1.5 billion.

 

One aim of the KII initiative, sub-named KII-Private or KII-P, was to stimulate the broadband service market in the 'last mile', mainly through market competition and private sector investment. Facilities-based Service Providers were allowed to enter the market free of entry and price regulation, stimulating competition. Another part of the initiative, KII-Government or KII-G, involved the construction of a national high-speed public backbone network. The backbone was used to deploy broadband services to around 30,000 government and research institutes and around 10,000 schools. The initiative also provided government test beds, KII-Test bed or KII-T, that allowed companies to avoid financial risk while encouraging R&D. The overriding target of the initiative was to provide FTTH connectivity to all households by 2015. This target has been continually revised and upgraded and the current target is to provide 20Mbps connectivity to all homes by the end of 2006 and 50-100Mbps by the end of 2010.

 

The Korean government's efforts to create an information-based society were strengthened with the announcement of Cyber Korea 21. The purpose of the initiativewas to realise the vision of becoming a knowledge-based economy.

The main aims of the initiative were to:

 

 

The initiative also aimed to reduce the 'digital divide' and, as part of this, free internet access was provided in 3,000 public places, such as post offices and community centres.

 

More recently, the government has promoted different schemes designed to allow Korea to take a leadership role in emerging technologies, notably the "U-Korea" programme, the "Broadband IT Korea Vision 2007" and the IT 839 strategy.

 

IT 839 Strategy – This strategy will seek to establish three new major infrastructures: the Broadband Convergence Network (BcN), the Radio Frequency Identification/Ubiquitous Sensor Network (RFID/USN), and the Internet Protocol version 6 (IPv6). These networks will become the base for eight new services: WiBro, Digital Multimedia Broadcasting, Home Network Service, Telematics Service, RFID Application Service, W-CDMA Service, Terrestrial DTV Service and Internet Phone (VoIP) Service. These services will be available over the converged network and will ensure that internet access is available at any time and in any place.

 

The network rebuilding project has been dubbed the "U-Korea program" and it is hoped that it will strengthen the relationship between the private and pubic sectors. One target of the U-Korea program is the National Computerisation Agency's stated goal of 100% IPv6 conversion by 2007.

 

Broadband IT Korea Vision 2007– The main objectives of the Vision 2007 include:

 

 

As well as the aforementioned initiatives, other broadband related initiatives in Korea include:

 

Public Fund Programme - The government provided low interest loans to Facilities-based Service Providers (FSPs) in order to reduce the financial burden of investing in access networks. In 1999 US$77 million in loans were provided and this was followed in 2000 by another US$77 million for the provision of access networks in small and medium sized cities. As private companies focused on maximising profits by concentrating on densely populated areas, the government shifted its focus to closing the 'digital divide' by giving greater funding for remote areas.  As such, a further US$926 million of loans were made available between 2001 and 2005 to provide access networks in rural areas in an attempt to close the 'digital divide'[9].

 

The Certification Programme for Broadband Buildings - This programme certifies the network availability and speed of connection in new apartments with more than 50 units and building bigger than 3,300m². Buildings receive a premium, 1^st, 2^nd or 3^rd class certificate depending on whether they provide 100Mbps, 10-100Mbps or 10Mbps broadband connections. More than 1.5 million buildings and apartments had received certificates by February 2005.

 

 

Educational Broadcasting System (EBS)– High school education programmes are broadcast over the internet. This has created high demand from parents for high-speed broadband connections for their children to take advantage of the EBS.

 

IT literacy programmes– The government initiated literacy programmes targeted at traditionally neglected social groups such as the elderly, prisoners, military and housewives. The free or subsidised courses were aimed at stimulating demand for broadband and were particularly successful with the housewives as they traditionally hold the main purchasing power in the household. More than 8.1 million people were trained between 2000 and 2002.

 

Plan for Promoting ICT Use and Distributing PCs to Children of Low Income Families -  Launched in 2001, the plan provides those who can't afford ICT with a PC and discounted internet access[10].

 

As well as the aforementioned initiatives, the government also provides subsidised broadband access to SMEs.

 

 

The incumbent operator, Korea Telecom (KT), was formed in December 1981. The government has gradually reduced its share of the company since 1993 and sold its final block of shares in May 2002[11].

 

 

As regards international bandwidth, Korea had the twenty-ninth highest level per inhabitant in the world in 2004, according to theInternational Telecommunications Union (ITU), with around 1.5Mbps per person. Denmark had the most at around 35Mbps per person and the UK had the fourth highest bandwidth at around 13Mbps per person[12].

 

 

Culture has played a large part in the economic development of Korea. Korean culture is based on Confucian values which places a high value on learning and stresses family relationships. Education is perceived as one of the main sources of social advancement. Parents are held socially accountable for their children's success, meaning that children study for very long hours. Status and merit are also regarded as very important, and are to be achieved through personal effort. These cultural values that promote hard work and personal development have been important factors in ICT development.

 

The government has influenced the broadband market through publishing official documents asking for cooperation from the private sector. Although these are not official orders, the private sector usually tries to follow what the government wants it to do.

 

A cultural characteristic that has facilitated the take-up of broadband services is the 'copycat syndrome'. If one household subscribes to a broadband service, other households in the neighbourhood will subscribe to an equal or superior service in order to maintain their social standing, even if the service isn't really required. This characteristic is thought to be particularly evident in Korea due to it being a very ethnically and linguistically homogeneous nation, and due to the high importance placed upon status and merit.

 

 

In terms of ICT usage, the latest available figures show that in 2005 78% of all households had a PC. Furthermore, 86% of households had access to the internet. These figures place Korea as one of the most advanced nations in the OECD regarding basic ICT penetration. Interestingly, the figures indicate that Korea is the only country in the OECD that has a higher internet penetration than its PC penetration, indicating that Korea is an advanced nation with regards to accessing the internet through a variety of devices.

 

 

In terms of the benefits of ICT, a key government objective is to ensure that ICT is used to make a significant difference to the daily lives of citizens.

 

Furthermore, Korea has sought to exploit the benefits of ICT within key public services and has implemented extensive eHealth, eLearning, eTransport and eProcurement programmes in accordance with their Ubiquitous Network Initiatives, with positive results. One example of these programmes is the Korea Maritime eCommerce Network, which will provide Korean ship owners/managers with an independent web based eProcurement platform for the purchase and management of all their supply requirements, ashore and from ship-to-shore; and to provide Korean suppliers with solutions to service their clients in Korea and abroad more efficiently and competitively[13].

 

Improvements in government procurement systems through eGovernment are said to have significantly improved government efficiency[14]. All 143,000 central government employees have their own PC and ICT training is made widely available to all employees in order to ensure that the government makes effective use of ICT[15].

 

 

 

 

The market growth is far short of reported growth across the OECD of 33%[17] and of worldwide growth at 37%[18] for the same period. The low growth and high penetration levels in Korea suggest that the market is nearing saturation and is not expected to grow a great deal, if at all, during 2006.

 

 

 

 

 

Latest figures from the OECD place Korea in second place in the OECD in terms of broadband penetration per head of population; with a take-up of 25.4 connections per 100 inhabitants in December 2005. This figure is far ahead of the OECD as a whole, which had an average penetration of 13.6 connections per 100 inhabitants at that time. Iceland, with 26.7 connections per 100 inhabitants, had the world's highest penetration while the lowest in the OECD was Greece at 1.4 broadband connections per 100 inhabitants. Comparatively, broadband penetration in Wales stood at 18.2 broadband connections per inhabitant at the end of 2005[20].

 

With regards to broadband penetration per household, 78.5% of households had a broadband connection in December 2005, placing Korea as the world's leading nation. This figure is more than double that of the UK at 38% and is also far ahead of some of Europe's most advanced broadband nations such as The Netherlands and Denmark, who score 58% and 54% respectively. This particular statistic emphasises how far in advance of the UK the Korean market has become in terms of connectivity[21].

 

 

In terms of the business market, there are around 3 million businesses in Korea; with small and medium sized enterprises accounting for around 99.8% of them[22]. Latest figures indicate that 94% of all businesses with 10 or more employees had internet access in 2004. Furthermore, 92% of all businesses with 10 or more employees had a broadband connection. As such, Korea is the leading nation in the OECD in terms of broadband penetration of businesses, with Canada being the only other nation to surpass 80% penetration. Broadband penetration of businesses in the UK stood at 44% during the same period[23].

 

 

Figures from Ovum indicate that 97% of the population have access to broadband[24]. Around 90% of the population can receive ADSL services and some 58% can access cable services.

 

Broadband coverage is amongst the highest in the world; however, it still lags behind the UK where 99.7% of the population can access broadband services. Availability of broadband is expected to reach 100% in Korea by the end of 2007[25].

 

 

In terms of broadband services, the dominant technology in December 2005 was DSL, accounting for 53% of total broadband connections. Cable accounted for 33% of the market and fibre accounted for 14%; the second highest fibre share of the market in the world after Japan[26].

 

 

The first ADSL service was launched in April 1999 by Hanaro Telecom, around a year later than the first cable broadband service. Despite the late start, DSL became the dominant technology in the market during 2000 after strong growth in new connections.

 

The issue of distance does not apply for DSL services, as it does for many other countries, as the average distance from a telephone exchange to a household is 2.2km. Furthermore, 95% of end-users are within 4km of an exchange[27].

 

In terms of high-speed DSL services, the first commercial VDSL service was launched by Hanaro in 2002, providing 20Mbps downstream connectivity and 6Mbps upstream connectivity. In response, KT trialled VDSL in February 2003 and subsequently launched a service offering 50Mbps downstream and 4Mbps upstream. It is unclear how many households are able to access VDSL services.

 

 

Korea has one of the world's only examples of true facilities-based competition, where side-by-side networks compete against each other using the same technology. Operators have open access on broadband networks which allows any carrier to provide service over other types of networks. Open access is a key element behind the fierce competition in the market. Many economies have unbundled the local loop, with varying success. However, Korea has gone a step further by also unbundling the cable loop. A carrier such as Hanaro has open access to KT's unbundled loop, as well as Thrunet's extensive cable network. This allows Hanaro to provide service nationwide and over multiple technologies, even if it does not have a physical network presence in the area[28].

 

With regards to the provision of services in apartment complexes, telecommunication service providers terminate their lines in the telephone exchange and the telephone network from the exchange to individual apartments is privately owned and operated by the apartment complex i.e. the landlord, and not the incumbent, owns the local loop wiring in apartment complexes. This creates a positive incentive to a competitive telecommunication provider such as Hanaro because by installing one fibre optic line to the exchange, it can offer services to users in the complex without having to pay KT for use of the unbundled local loop. As a result, Hanaro has built an extensive fibre network to apartment complexes with at least 200 potential customers[29].

 

Access at the local level is equal for all operators in the apartment complexes so there is no requirement for LLU.  This has reduced the need for heavy regulation of the incumbent allowing KT to operate with comparatively few regulatory restrictions, compared to BT in the UK[30].

 

However, KT does own some of the local loop beyond the apartment complexes and in an attempt to increase competition in these areas LLU was introduced by an amendment of the Telecommunication Business Act in January 2001. In April 2002, the MIC issued a public notification of LLU requirements, standards and full implementation, which led to the opening and sharing of KT's copper line network and the broadband network of the ISPs[31].

 

As the most intense competition in the market is in the densely populated areas where households are predominantly in apartment complexes, the use of LLU is fairly limited. It is unclear how many broadband connections are provided via LLU over KT's local loop.

 

 

The first broadband services in the market were provided via cable modem when Thrunet launched a service in July 1998. Cable remained the dominant technology until being overtaken by DSL in 2000. According to Thrunet some 8.5 million households can access cable networks. This equates to around 58% of all households.

 

Most cable ISPs have leased network access from Powercomm, who were previously not allowed to offer retail services of their own and other cable operators. As such, the cable networks in Korea have effectively been unbundled.

 

 

Fixed Wireless Access services are offered by Hanaro, covering 160,000 households. Analysys Research estimate that there were around 14,000 FWA connections at the end of 2005; accounting for less than 0.1% of total broadband connections.

 

During 2006, a new wireless broadband service is expected to be launched. The South Korean government believes WiBro (Wireless Broadband) services will become the mobile equivalent of DSL connections. WiBro is based on the same technology as the WiMax family of technologies. WiMax is a wide-area wireless networking technology that promises to deliver wireless broadband access over a range significantly greater than that of WiFi technology. WiBro offers a maximum 3Mbps download speed at a distance of up to 1km from an access point for devices travelling at up to 60kmph. According to the MIC, the technology is expected to attract 9 million subscribers in the country by 2011[32].

 

Mobile operator, SK, and KT have both acquired WiBro licences and access points are being built in the capital, Seoul, and 19 other cities. The WiBro services will be offered to mobile phones, which will give users VoIP, high-speed Internet access and digital media broadcasting capabilities. The Korean Electronics and Telecommunications Research Institute claims that WiBro will increase country's production by US$21billion and exports by US$7.25 billion[33].

 

In April 2005, Hanaro gave up its WiBro license in order to concentrate on its core broadband operations. It has, however, indicated that it will monitor the development of WiBro and will, if necessary, provide fixed and wireless converged services through partnerships with relevant wireless service providers.

 

 

Fibre broadband connections are available to at least 4.4 million households, or 26% of all households.

 

The market share of fibre broadband has increased from 9% at the end of 2004 to 14% at the end of 2005. This indicates that the market has begun to show that it is advancing to the next stage of development where existing subscribers are switching platforms for increased bandwidth. According to the OECD fibre broadband connections grew by 52% during 2005 at the expense of DSL, which experienced a loss of 3.3%, and cable, which experienced a loss of 1.7%. This switch-over effect suggests that fibre will become the fixed-line delivery technology of choice for broadband in the future[34].

 

Analysys Research estimate that there were more than 1.7 million fibre connections at the end of 2005.

 

 

According to Analysys Research, there were around 2,600 satellite broadband subscribers at the end of 2005.

 

 

 

 

Despite its late entry into the broadband market the incumbent, KT, is the largest operator and in 2002 became the largest broadband access provider in the world. KT had previously focused on ISDN for internet access provision. However, having seen Hanaro and Thrunet gain large numbers of broadband subscribers it reacted quickly by launching its own DSL services in 1999.

 

 

The second largest broadband operator, Hanaro, was founded in September 1997 when the MIC created a license for a second local telecommunications operator in order to increase competition in the telecommunications sector. Hanaro was jointly formed by some of Korea's chaebols (business conglomerates) which, with encouragement from the government, provided it with strong economic backing. Having encountered difficulty with providing local telephone services, Hanaro decided to focus on the provision of internet access, particularly through the use of ADSL broadband connections. Its strategy has been to target densely populated areas by laying fibre cables to apartment blocks and then use the ADSL to provide services over the copper network within the apartment block. Furthermore, Hanaro has used KT's local loop to extend its footprint, has provided cable services over Powercomm's cable network and also provides fixed wireless broadband services in some areas[35].

 

Powercomm has entered the broadband market by launching a high-speed fibre service. Under the banner of 'Xpeed', Powercomm is offering 100Mbps connectivity in apartments and 10Mbps in houses. Powercomm is hoping the new service will make a difference in the market as it will retail at a price lower than the 4Mbps services of other broadband operators such as KT and Hanaro Telecom. Powercomm also hopes to start VoIP, IPTV, and triple-play services as soon as possible[36].

 

 

Despite the huge success of broadband in Korea, operators have struggled to make a profit. Hanaro has had difficulties recording a profit and Thrunet sought court protection in March 2003 and was eventually acquired by Hanaro in December 2004. With little prospect of increasing revenue through growth in new connections, operators have begun to focus on content delivery in order to increase ARPU (Average Revenue Per User).

 

There are around 80 retail ISPs in the Korean market which is relatively low for such a mature market[37]. By comparison, there are more than 300 retail ISPs in the UK.

 

 

Research from Korea suggests that a 1% increase in the number of mobile phones results in a reduction of 0.1-0.2% in new fixed connections and a 0.1-0.2% decrease in existing connections.The mobile network has now become the primary access network. However, this does not necessarily mean that it is used more heavily than the fixed-line network[38].

 

 

 

VOD and IPTV

 

 

The same issues do not exist in the UK as the regulator, Ofcom, are responsible for the regulation of both broadcasting and telecommunications.

 

The regulatory delays have meant that Korea has not been the first country to launch commercial IPTV services. However, it is likely that it will be the first to launch HD IPTV. Korea's digital switchover will see a move from analogue to HD digital TV, as opposed to standard definition digital TV in the UK, and HDTV programmes have been available since 2003.

 

The Electronics and Telecommunications Research Institute forecast that there will be 3.5 million IPTV subscribers in 2010[40].

 

 

 

 

Although prices are low, when taking the low levels of household income into account, subscription prices are actually higher than in most Western European countries[41]. This indicates that pricing alone is not the reason for the high penetration levels of broadband.

 

 

Baseline DSL and cable services have downstream speeds starting from 4Mbps. This is significantly higher than most Western European countries where baseline services begin at around 512kbps to 2Mbps. ADSL and cable services with 4-10Mbps downstream and 640kbps-4Mbps upstream connectivity cost from EUR22 to EUR31 per month at the end of 2005. These prices are similar to the costs of 1-2Mbps services in many Western European markets such as the UK, The Netherlands and France.

 

Residential high-bandwidth services are becoming increasingly popular. These services are available over a variety of technologies; ADSL2+, VDSL, cable and fibre. 100Mbps symmetrical fibre services are available in some areas for as little as EUR25 per month. There are no comparable services to this outside of Japan and Korea as fibre has yet to reach 'mass market' status outside of these two countries. The fastest services in Europe are 24Mbps ADSL2+ services that are widely available in France for around EUR30 per month (EUR15 per month in some unbundled areas). A comparative service in Korea would be available for a similar price.

 

The Korean telecommunications market is one of the most advanced in the world and has been characterised by fierce competition. The success of the telecommunications market has been put down to a number of factors. Economic and geographical conditions have played a key role in the development of ICT and broadband. With around 48% of households located in apartment blocks, the high urban population has been a particularly important factor in the ease of deployment of broadband networks. Korea's highly populated areas have allowed ICT to develop easily because operators have fewer lines to install in order to reach a sizeable proportion of the population.

 

Broadband penetration levels are amongst the highest in the world at 25.4 connections per 100 inhabitants at the end of 2005. This equates to around 79% of households having a broadband connection which means that the broadband market is closing in on tele-density levels; 90% of Korean households have a fixed phone line[42]. As such, the Korean broadband market is nearing saturation with little scope for further growth in connections.

 

In this mature market, there is a high choice of services at competitive prices. Korean access providers offer very high-bandwidth services to the end-user with 100Mbps symmetrical fibre connections available in many urban areas for as little as EUR25 per month. Operators' focus has begun to move towards the delivery of content, particularly TV services, triple-play packages and converged services. However, regulatory issues have hampered early progress in these areas and these issues will have to be resolved quickly if Korea is to remain as one of the world's leaders for technological innovation.

 

Government focus is also moving towards content delivery, converged services and the provision of 'anytime, anywhere' access. This is being driven by the deployment of the Broadband Converged Network and the provision of services such as WiBro and Digital Multimedia Broadcasting.

 

 

References

---