South Korea: A Digital Showcase
By John Geirland, Tue Apr 09 00:00:00 GMT 2002

World's 'first digital city' is the next milestone for technology mania South Koreans.

Imagine a vast urban landscape transformed into one big point-and-click gallery. Leave your money, credit cards and checkbook at home. Sporting an infrared equipped mobile phone, walk into any store, pick up a shirt or CD and carry it to the clerk’s terminal. The clerk initiates the sale. Point your phone and shoot your encrypted credit card information at the receptor. Almost instantly, an electronic receipt is beamed back to your phone. No numbers to punch (or air time charge). No cumbersome barcode to download. Elsewhere in the city, bus stops, toll gates and kiosks are similarly equipped, making your excursion almost friction free.

This scenario is becoming a reality today in Seongnam (pop. 930,000), a densely urbanized suburb of Seoul, Korea. It is part of the government’s three year plan to transform this middle class municipality into the world’s “first digital city.” In March, the Korean company Harex Infotech, equipped 10,000 point of sale terminals and toll gates in Seongnam with infrared attachments – and a total of 50,000 nationwide. (Expect 250,000 units by year-end.) LG TeleCom is supplying two million infrared enabled handsets. KT Freetel will be offering infrared handsets and service this May, with SK Telecom following up later in the year. The initial focus is on payment transactions, but Harex executives say many other kinds of local transactions are possible, from downloading theater tickets to coupons and subway passes.

A model broadband society

“I hate those people who brag about Korea!” says Dr. Jung Uck Seo, “honorary chairman” of Harex Infotech and a central figure in the history of the Korean telecommunications industry. “I like to be very humble.” Humility aside, Seongnam is only one example of the broadband culture emerging on the Korean peninsula.

Consider: Forty percent of Korean households are wired for broadband services (50% in Seoul). Koreans spend more time online than any other Asians. 70% of stock transactions here are conducted online. Koreans earn less than half what the Japanese do, but spend more shopping online. Meanwhile, Korea Telecom and Hanaro Telecom plan to set up 25,000 WLAN hotspots throughout the country by the end of 2002, providing broadband connections to anyone with a local area network card in their PC or PDA.

Korea’s accomplishments in the mobile sector are similarly notable. Sixty-one percent of Koreans own mobile phones. The country launched the world’s first CDMA network in 1996, multiple Korean carriers already provide CDMA 2000 1XRTT service. Depending on whose list you consult, the Korean conglomerate Samsung is now the number three handset manufacturer and Korean telecom companies are a major presence in China and increasingly throughout the world. Late in setting up their wireless networks, the Koreans have transformed their country in a few short years into a digital showcase – just in time for the soccer World Cup (co-hosted with the Japanese).

How did they do it?

Government role

Economic development in the “hermit kingdom” has come in a series of leaps forward, prodded and guided by the Korean government. In the 1960’s it was textiles, then iron and steel (70’s), and semiconductors (80’s). At the start of the 90’s the government decided that telecommunications was the best path to becoming a rapidly developed country – and a booming export market.

In the early stages, government regulators formulated telecom policy, set goals and objectives and even became involved in nuts and bolts activities like establishing prices. “The regulators in these [Asian] countries are definitely more hands on,” notes Yankee Group analyst Shiv Putcha.

The government also helped fund much of the R&D work in IT at Korean universities, set up think tanks and established Taedok Science Town, a major high tech research center on the outskirts of Taejon, Korea. Preferential loans were also made available to the country’s burgeoning venture sector. The government gave a further boost to the telecom industry by selling 3G licenses for a fraction of what the Europeans paid, allowing Korean carriers to use the extra cash for building better networks.

In tandem with the government, the chebol – Korean conglomerates - have been instrumental in the country’s growth in the past – and continue to be big players in IT. The conglomerates have long experience spinning off startups that they create and control to service their internal needs. Many founders of Korean venture startups got their training in the conglomerates.

The relationship between the private and public sectors in Korea is a harmonious one. Dr. Seo’s own resume provides a telling example. A former Minister of Science and Technology and past president of SK Telecom, he has held a variety of private, public and university posts over the years – transitions he appears to have made with ease. In the early nineties Dr. Seo struck the deals with Qualcomm that brought CDMA – at the time an unproven technology - to Korea.

CDMA – A calculated gamble

Most knowledgeable observers will tell you that Qualcomm pulled out all the stops to sell CDMA to the Koreans. Dr. Seo explains the decision this way: “Spectrum is a scarce resource. In the long range vision, you have to do something revolutionary.” He also admits that the decision to adopt CDMA was a calculated – and risky – attempt to give a boost to Korean manufacturing. “We came in five or six years later than GSM,” Dr. Seo recalls.

Deploying another GSM network would have meant no patents or press coverage. And Korean companies like Samsung, LG, Hyundai and Daewoo would have missed out on the opportunity to build CDMA switches for export.

Adopting CDMA fit the model of Asian manufacturers – importing technology and turning it into finished products for export. “Qualcomm shipped [the Koreans] chips and software and they focused on making phones smaller and sexier,” says Paul Jacobs, president of Qualcomm’s Wireless and Internet Group. Most analysts say the decision was a seminal one for Korea, enabling companies like Samsung to become global players. “CDMA was a big gamble for Korea,” notes Allen Kupetz, a former telecommunications policy officer at the U.S. Embassy in Seoul in the mid-90’s, “but one that has paid off handsomely.”

Brute force commercialization

Another reason for Korea’s recent success has been the government’s willingness to “force some [technologies] into commercialization” – even if those technologies “have some problems,” says Zoop International senior vice president Michael Watson. (Zoop International is the service brand name for Harex Infotech.) The Koreans appear to compensate by simply working harder than anyone else and making sure all the bases are covered. It is said that when Samsung engineers meet with a carrier they dump a load of phones in an advanced stage of development on a conference room table and ask, “which phone do you want us to finish?”

Protecting the domestic base

In 1997 the WTO reached a telecommunications services agreement that had the effect of raising the limit of foreign investment in Korean telecom firms from 33% to 49%. The timing was apt. Many Korean companies were going bankrupt and the country desperately needed foreign investment to bail them out.

Despite this opening, Korea remains a difficult country for foreign firms to penetrate. “Yes, Korea chose CDMA,” says Kupetz, “but the PCS licenses were at 1.7 GHz instead of 1.8 GHz [the standard for CDMA elsewhere in the world], making it unprofitable for non-Korean companies to build switches for such a small market.”

What comes next?

The Koreans have done a brilliant job of taking other people’s technology and “productizing” it into high quality, high end products. Samsung, for instance, “now has a strategy that’s very much [focused on the] high end,” says Charles Golvin, a senior analyst at Forrester Research. The image of Koreans products being cheap “has flipped around,” he adds.

In time, the Chinese will encroach on Korea’s traditional turf, beating the Koreans on price and edging upward in quality. To protect their export markets, the Koreans will need to conduct more basic research to develop “indigenous technologies” (Dr. Seo’s phrase), rather than relying on technologies developed in other countries. By transforming the nation into one huge testbed, Korea can export both new products and expertise.

This is exactly what Harex Infotech is doing with its infrared technology. “We started in Korea and we’re commercializing first in Korea,” says Kwangjae Chyun, vice president for overseas planning and operations. “But being Korea-centric is not what we’re about.” Korean companies are already exporting CDMA expertise. Essen Tech, a Korean RF engineering, design and system integration firm, is working with China’s Unicom to optimize its CDMA network in eighteen cities.

Last January the Korean and Japanese governments agreed, with much fanfare, to begin working together to develop 4G technology and standards. 4G networks are projected to be up to 50 times fasters than 3G networks, making possible instant video downloads. Both countries may be acting (at least partly) to protect their important infrastructure companies, says Allen Kupetz. He adds: “The [Korean] government will likely introduce obstacles to prevent alternatives to costly cellular 4G networks – like Nokia’s Rooftop or MeshNetworks – from disrupting or threatening the incumbent carriers.” The government, it appears, will continue keeping its hand in the game.

Dr. Seo, for one, believes the government’s involvement in telecom is diminishing. “I don’t think the Korean government has anything to do in developing 4G technology, even though they talk about it,” he says. He compares the government’s future role to that of a referee. “The referee watches the ball. He doesn’t kick it.”

John Geirland is co-author of "Digital Babylon," a book about the online entertainment business, and writes about mobile wireless developments from Los Angeles.