Mobile in Korea

I made a post regarding 'Voice Service on WiBro (Mobile WiMAX)' in last August. SK Telecom has maintained a negative stance about voice service on WiBro because voice service on WiBro might cause the cannibalization effect toward SKT's existing voice service on CDMA and WCDMA. However, KT had asked that the government should grant the voice service of WiBro. KT has ever demonstrated the VoIP service using WiBro in OECD Ministerial Meeting of last June. KT seems to solve all technical problems for providing VoIP service using WiBro.

However, KT changed their stance regarding voice service on WiBro. Through 3rd quarter conference call, KT announced that they would not provide voice service using WiBro for quite some time. Why does they change their stance? I think there are two reasons.

First, KT might be concerned about the cannibalization effect as SK Telecom. KT has a plan to become incorporated with KTF, one of their subsidiaries. KTF is a mobile operator and provides CDMA and WCDMA service. If KT provides voice service on WiBro, the service would come into collision with KTF's existing business models.

Also, the coverage and quality of service for voice service might be burdens to KT. The coverage of KT's WiBro service covers only 40% of Korean population. Moreover, KT's WiBro service does not support sufficient quality for voice service in INDOOR SPACE. KT has often communicated with customers by informing that WiBro service could make the best performance in outdoor space. Thus, KT should enlarge the service coverage and improve the quality of service in indoor space as well as outdoor space in order to pursue the voice service on WiBro. It might be not a easy decision.

On the other hand, the Korean government seems to be disappointed that SKT and KT are passive for WiBro business in domestic market. A few days ago, the Government announced that another new WiBro service provider will be selected next year. The Government has additional 27MHz available whithin 2.3 GHz bandwidth. It will be given to a new service provider and both data service and voice service are expected to be permitted on WiBro network. The Korean Government wants to invigorate the WiBro business in domestic market by raising new competition among KT, SKT and a new service provider.

The Korean mobile market is wondering which one will be a new WiBro service provider.

The biggest mobile operator in Korea, SK Telecom announced 57% decline in its third-quarter profit. The higher marketing costs seems to be a root cause of the decline.

SK Telecom has competed with KTF in order to attract customers with WCDMA(3G) service. SK Telecom has maintained its doninant position with market share of over 50%. However, SK Telecom has poured extraordinary marketing cost for attracting 3G service users. Although SK Telecom succeeded to defend its market position against KTF and LG Telecom, the total number of mobile services has not increased. Because most of 3G service users are not new users of mobile service but existing users who only change their mobile service from 2G to 3G.

The penetration rate of Korea's mobile market is already over 90%. Additional growth in the domestic market might be not expected any more except for mobile data service area.

Please refer to the below table regarding SK Telecom's profit.

   Korea Communication Commision requested in-depth research about voice service on WiBro to Korea Information Society Development Institute. WiBro was commercialized by KT and SKT in 2006, but WiBro was permitted for only data service, not voice service. Because voice service can not be provided on WiBro, call number for each WiBro device is not necessary until now.

   However, because KISDI started to investigate the long-term effects to the telecom industry of Korea if voice service is allowed on WiBro, new competition might be started on mobile industry of Korea. Real mobile services, including voice and data services, are only provided by mobile operators such as SK Telecom, KTF and LG Telecom. If voice service on WiBro is possible, KT can participate in the competition. KT has steadily insisted that voice service on WiBro be provided.
 
   If Korean Government permits the voice service on WiBro, will KT and SK Telecom start the service? I think it is not sure. There are two reasons.

   First, COVERAGE of WiBro!! Even if KT and SK Telecom commercialized WiBro service in 2006, the services only cover Seoul and near areas of Seoul. In addition, WiBro is well operated outdoor only. Indoor, the signal of WiBro is very weak. KT and SK Telecom should invest much money to strengthen the network coverage. Because the penetration rate of mobile voice service in Korea is already over 90 percent, it is not sure whether the operators make the huge investment on WiBro.

   Second, the merge of KT and KTF is expected within near future. Even if KT promotes WiBro service aggressively and wants voice service on WiBro in order to strengthen WiBro service now, KT might lose the driving force for voice service on WiBro after merging KTF. KT can provide mobile voice service through KTF without voice service on WiBro.

   I am wondering how KISDI will make the final decision about the voice service on WiBro. I will make a posting after announcement of the decision.

   On July 30, KT announced that KT launched a SoIP Video Phone. SoIP means 'Service of IP'. SoIP usually includes VoIP service and other IP-based services. SoIP video phone allowed customers to use a high-quality video call.

   Since last year, KTF and SKT have provided mobile video call on HSDPA network. However, mobile video call is made on 2 inch display of mobile handset. KT provided the SoIP phone having 4.3 inch display and wide QVGA resolutions. In addition, although mobile handset provides low-quality picture with 5 to 15 frames, the SoIP provides high-quality picture with 24 frames. KT's SoIP phone also provides some value added services such as internet banking.

   Last week, the Board of Audit and Inspection of Korea insisted that Korean mobile operators, SKT, KTF and LGT got unjustified profits of $870 mil from customers in 2007. However, mobile operators criticized that the Board of Audit and Inspection of Korea ignored the environment of Korean mobile industy, so that the profits of $870 mil were assumed as unjustified profits.

  The main point is that the mobile rates in Korea are calculated based on the usage per 10 seconds. (Usually, the mobile rates per 10 seconds are about 2 cents.)  The Board of Audit and Inspection of Korea pointed out that, even if a customer hang up at the time point of 11 seconds after starting the call, the customer should pay about 4 cents - the rates for 20 seconds. The Board of Audit and Inspection of Korea requested that mobile operators modify the scheme of mobile rates based on the usage per 1 second.

  However, mobile operators mentioned that the scheme of mobile rates is resonable compared with the scheme of other countries' mobile operators. For example, the mobile rates of US are calculated based on the usage per 1 minute and those of some European countries are calculated based on the usage per 30 seconds. In addition, mobile operators insited that they have lowered the rates for mobile data service and video call.

  Since last year, Korean government has continued to put pressure on mobile operators to lower rates. As a result, mobile operators started to offer "intra-network" discount package. The intra-network discount system gives 1 50-percent discount for inner-network calls. For example, if a customer pay additional $2 for the discount service, the customer get a 50-percent discount benefit when calling to other SKT's subscribers.

  Moreover, SKT started to offer "family price discount plan" without additional charge. If members of a family subscribe SKT's mobile service, the members can get discount benefit when calling to each other. The discount rates have variation based on the subscription period of members.

  Even if Korean mobile operators offer various discount options, government put pressure on mobile operators consistently. Some experts are pointing out that the pressure for price discount might make mobile operators decrease the investment because of the expense pressure and the investment reduction might hamper the growth of IT industry in Korea.

[Statistics : Mobile Market Size of South Korea (June, 2008)]

• Population of South Korea : 47,925,000
• Penetration Rate of Mobile Service : 93%