The World's First 3G Network is in Korea, Not Japan
By David James, Mon Nov 12 00:00:00 GMT 2001

Surprise! It's the Koreans, not the Japanese, who at this very moment are enjoying the benefits and pleasures of "stone reliable," high-speed mobile Internet connections. The implications are fascinating.


Koreans are an impatient lot. They always want things to go pali, pali - quickly, quickly.

For years they have had the world's highest penetration of high-speed, broadband Internet connections for their PCs (13.9 percent of the population compared to 6.2 percent in Canada, 4.5 in Sweden, 3.2 in the U.S. and 0.9 in Japan). Now they have the world's first third-generation (3G) wireless network for the mobile Internet.

It happened fast. While the world was caught up in the hype of NTT DoCoMo's launch of a 3G network in Tokyo, the three Korean wireless operators, SK Telecom, KT Freetel and LG Telecom, were deploying a 3G network called cdma2000 1xRTT. Beginning in June 2001, a variety of 1xRTT handsets - many with bright, high-resolution color screens - became readily available.

Now an estimated three million subscribers throughout Korea - a country of 47.3 million people, 59 percent of whom are wireless subscribers - are enjoying more than 160 downloaded applications and various services on the mobile Internet.

"People who thought that Korea's 1xRTT is just a 2.5G technology have suddenly realized that 1xRTT is 3G," says James Madsen, co-founder and senior vice president strategy of NextWave Telecom Inc., a wireless Internet company with offices in San Diego, California.

"It fully meets the International Telecommunication Union's definition of 3G, and Korea's network is operating very well, achieving sustainable data rates. Mobile data speeds currently average 70-80 Kbps and stationary data throughput averages above 100Kbps. By mid-2002, speeds are expected to rise to average rates of 500-600 Kbps after operators launch an upgrade to 1xEV."

Meanwhile, NTT DoCoMo's 3G FOMA network, currently deployed only in Tokyo to a mere few thousand subscribers, is not expected to exceed download data rates of 384 Kbps until late 2002.

In Europe, WAP, which provides access to the Internet's World Wide Web, is disappointing to customers, and GPRS has proved slow to attract customers. GPRS is a TDMA technology intended in Europe to bridge the gap between 2G GSM networks and 3G.

1xRTT, a CDMA technology, is prohibited in Europe owing to government policies that promote competing GSM technologies. Deployment of true 3G services in Europe is probably years away.

Mucho multimedia


The enthusiasm for Korea's 1xRTT rollout is broad. Doug Carey, a co-founder and advisor of AlwaysBEthere.com, a consulting firm in Minneapolis that does wireless technology evaluations, says that Korea's 1xRTT runs "stone reliable."

"1xRTT negotiates connections more rapidly than GPRS and has more crispness. Korean users are getting good WAP and running a lot of applications on their handsets at data speeds up to 144 Kbps." Carey adds that with speeds of around 120 Kbps you get about 95 percent of what the Internet has to offer because most application software cannot keep up with greater speeds.

"But good WAP is not the primary benefit of 1xRTT," says Terry Yen, vice president Asia Pacific Operations for inOvate Communications Group, a wireless multimedia development company. "Keep in mind that most subscribers in Korea don't use wireless to access the Web since they have high speed PC connections for that in their homes and offices and at some 18,000 popular PC bangs - Internet cafes - around the country. Instead, they use their 1x devices to download stories to read while waiting for a bus, play games, and send and receive short messages, pictures and video clips."

Indeed, recent statistics confirm that personal entertainment is the most popular use of wireless data services in Korea. SK Telecom reports that its top subscriber uses are melody downloads and comics (42 percent), character downloads (24 percent), and news and entertainment (14 percent).

KT Freetel says that its top subscriber uses are character downloads (21 percent), network games (21 percent) and melody downloads (11 percent). LG Telecom says that its top subscriber uses are info/community (32 percent), games (30 percent) and banking/stocks (16 percent).

According to Gerald Wluka, vice president marketing of NuvoStudios, a wireless entertainment software developer in San Francisco, game applications present the greatest wireless business opportunities in Korea. "Korean teenagers are playing and paying," he says.

"In 2000, Korea was the first country to introduce handsets capable of executing downloaded game applications, saving subscribers' airtime. Japan didn't introduce similar handsets until 2001. Korean handset manufacturers are very aggressive, and Koreans are early adopters of smart devices."

Banking on mobility


Don Han, an investment banker with Softbank Ventures Korea in Seoul, believes that game development and streaming technology development provide unique business opportunities in Korea. "Korea is highly advanced in terms of broadband games. There are game-dedicated cable TV channels, a professional gamers' league, and many game developers."

"These are key assets for Korea as broadband games migrate from fixed to mobile. Many game developers are already coming out with enhanced versions of their broadband games that support mobile phones, so you can continue to enjoy the same game with your phone even after you leave your PC."

Other areas of investment interest, says Han, are consumer mobile applications such as ring-tone/character downloads, mobile platform software, modem chip development, optical repeater equipment, and handset design. "We try to look at both the hardware and software sides of the mobile Internet business since Korea has unique strengths in manufacturing."

Softbank Ventures Korea is presently invested in three Korean mobile Internet companies: MBridge, a software developer that provides transcoding engine and software porting services for Samsung phones; CST, an electro-magnetic condensor (EMC) microphone company that aims to build the world's smallest microphone for mobile phones and PDAs; and Arreo Communications, a short message service provider that has more than one million users in Korea.

CDMA vs. GSM and GPRS


The implications of the success of 1xRTT in Korea are enormous, and they spread well beyond its borders. Korea was the first country - in 1995 - to adopt CDMA technologies for its wireless standards, at a time when European countries and others (including Australia, New Zealand, several Arab countries, China, Hong Kong, India, Singapore) were settling on GSM standards.

Convinced of the superiority of CDMA technologies in the long run, the Korean government supported industry with a three-year research and development project and other incentives to develop CDMA applications, banking on CDMA to provide Korean firms with significant advantages in serving global wireless markets in the future.

Until 1xRTT came on the scene in Korea this year, it seemed that Korea's efforts to establish a significant global market position for its CDMA handsets and technologies would be marginalized by commitments of other countries to GSM technologies. (Roughly 80 percent of the world's 2G wireless subscribers are currently on GSM networks.)

While the likely standard for 3G will probably be CDMA-based - most likely WCDMA - many GSM wireless operators have been planning to migrate to 3G via GPRS, thereby diminishing the potential of Korean CDMA products during the transitional years ahead.

However, it now appears that 1xRTT, and its forthcoming 1xEV upgrade, will provide such a satisfactory mobile Internet experience for subscribers that two things might happen: (1) 2G wireless operators who have not yet selected the GPRS path to 3G might decide to adopt 1xRTT, and (2) CDMA operators who deploy 1xRTT might decide to delay deployment of 3G networks even longer.

Moreover, 1x services are expected to run in tandem with 3G services, when offered, for years to come. In the meantime, Korea's CDMA products - handsets and systems technologies - will flourish at home and abroad.

Handset dynamics


Madsen believes that Korean handset manufacturers will have an important role in solidifying Korea's leadership in CDMA technologies in the next few years. "Already there are some 40 1x models on the market, compared to Japan's two models for NTT DoCoMo's 3G FOMA system," says Madsen. "Korea's color screens are at least a year ahead of the competition, and good progress is being made with battery life."

Matt Jamieson, Goldman Sachs's telecom analyst in Seoul, believes that the 1xRTT color screen handsets now being sold in Korea are themselves a driver of 1xRTT growth. He estimates that more than 75 percent of the 1xRTT handsets now being sold in Korea have color display screens, compared with just 10 percent last August. He also estimates that by 2003 more than 90 percent of the wireless subscribers in Korea will be using 1xRTT phones.

Sales of 1xRTT handsets are brisk in Korea notwithstanding relatively high prices. Currently, non-color 1xRTT handsets in retail stores in Korea sell in a range of $130-$233 (operator subsidies are not allowed in Korea) versus 2G handsets that sell in a range of $100-$150. Handsets with color displays sell at prices around $350 for STN-LCDs and $430 for TFT-LCDs. (TFT-LCD, currently used in high-end flat screen computer monitors, is the more advanced color screen technology, able to display sharper, higher-quality images and more robust color.)

Implications by the megabyte


Madsen is convinced that the success of 1xRTT in Korea will encourage many 2G wireless operators elsewhere to choose a CDMA path to 3G rather than a GPRS path. He notes that many 2G wireless operators in North America, Latin America and Asia have not yet settled on standards for their path to 3G. The key to their decisions, he says, may well be the economics of installing and operating an advanced network.

He points to a study by Qualcomm Inc. that indicates that the cost of operating a 1xEV network at medium data traffic density would be $0.03 per megabyte, whereas the cost of operating a GPRS network would be $0.43 per megabyte. The study estimates the cost of operating a 3G WCDMA network at $0.07 per megabyte. These cost differentials would give an operator significant revenue and profit opportunities to respond to the rapidly expanding demand for wireless data services.

Having achieved the world's first successful launch of 3G services, Korea must now move quickly to gain strong market positions for its products and services overseas. For a people who always want things to go quickly - pali, pali - the chances are good that they will do so.

David James is president of Business Strategies International, a San Francisco-based consulting and venture-development firm specializing in technology business opportunities.