South Korea: A Window into The Future
By Dan Briody, Wed Jan 15 13:00:00 GMT 2003

With a population that’s wild about wireless, South Korea is leading the way in next-generation services.

Walk down any street in Seoul and its impossible not to notice the love affair South Koreans have with their technology. It seems like every other store is selling mobile phones, handheld computers, and electronic games. Koreans type text messages with lightening speed into their phones, surf the Internet on tiny screens, and send digital photographs racing through thin air. If you want to see the future, you don’t need a time machine. Just book a flight to Seoul.

Indeed the success of South Korea’s wireless industry can, and should, be viewed as an example to the rest of the world of how to migrate customers onto next generation services. While Europe continues to struggle with GPRS, the United States can’t seem to convince wireless users that you can do anything beyond talk with your mobile phone. And even Japan, once heralded as the most progressive wireless nation in the world, now takes a back seat to its northern neighbor.

While it may be too late to recreate the magical confluence of events that led to South Korea’s success, it’s not too late to learn from what the country has done well, and duplicate it in other locales. A combination of aggressive marketing, clever government policy, and standardized technology has conspired to make South Korea the biggest success story in the wireless world. Now it’s time for the rest of the world to play catch up.

A Wireless Juggernaut

Just how successful is the South Korean wireless industry you ask? Consider this: South Korean operators launched their CDMA2000 1X services way back in the fourth quarter of 2001. This is a standard that many experts consider to be a 3G technology because of its speeds of 144kbits/second. Some will argue that it is not a true 3G technology, but judging by the data intensive services Koreans are utilizing on the network, it is as close as anyone has come to 3G. In the 8 months following the launch of 1X, the Koreans had created a user base of more than 12 million subscribers (some say the number is 16 million today), according to Ovum, a wireless consultancy based in London. That’s more than a third of the 31 million mobile subscribers in the entire country, which by the way, represents a market penetration of more than 65 percent of the total population.

The Koreans have shown a remarkable knack for transitioning customers onto newer phones and faster services. In Japan, where NTT DoCoMo’s FOMA network – a real 3G network capable of 384 kbits/second and streaming video – has only been able to entice a tiny fraction of its customer base onto the new service. According to Strand Consulting, an independent consultancy based in Copenhagen, only 4 out of every 1000 mobile users in Japan are using a FOMA terminal. Compare that to 400 out of every 1000 in South Korea owning a 1X terminal, and you start to see the disparity.

“Everyone is talking about Japan and DoCoMo and i-mode, and that is a classic case of the emperor has no clothes,” says John Strand, president of Strand Consulting. “i-mode’s biggest success was in getting the international marketing around it, but what makes Korea so interesting is that they have been up and running with 1x for one and a half years. People are paying more for the advanced devices, generating more revenue, and using more airtime. Korea is the land of milk and honey.”

Perhaps the most remarkable aspect of South Korea’s success has been that they have done most of it without the benefit of wireless carriers subsidizing handsets. In most countries, mobile phones and handsets are subsidized by the wireless carriers that offer service on them. It makes the phones affordable for customers and encourages them to upgrade to phones that offer advanced services, in the hopes that they will use more airtime and boost revenues back to the carrier.

But in South Korea, subsidies were banned in June of 2000. Some experts feared that the bans would grind the upgrade cycle to a halt, but it has not happened, as the stunning adoption rates of 1X have proven. The upgrade cycle has slowed down a bit, from a frenetic 6 months to about a year, but the phones that are purchased now include features like digital cameras and full color Web browsers. Meanwhile, Japan continues to heavily subsidize its FOMA phones, but still can’t seem to attract the customers.

So how did South Korea do it? How did this tiny country build itself into a wireless powerhouse? And what can the rest of the world, which is struggling mightily to migrate to next-generation services do to emulate them?

Wireless Web-heads

The foundation of success in South Korea is built on the population’s ongoing love of all things high-tech. Some may complain that the fundamentals for success that exist in South Korea, like the Korean’s appetite for new technology, cannot be duplicated in other countries. But the Korean vendors worked very hard to create an overall demand for technology. South Koreans weren’t just born lusting after the latest gadgets.

Wireless carriers have been able to “train” their customers (their word, not mine) to want the latest technology. For example, the carriers will hold contests in which users compete over who is the most adept at using the technology. “We have a kind of tournament that challenges who can type fastest on their phone,” says Moon Gie Kim, a spokesperson for SK Telecom, the largest wireless provider in South Korea. “We offer an award and put her picture in the newspaper. That is what we mean by training.” It’s worked. There are more than 27 million Internet enabled phones in South Korea. And wireless gaming, a sector that increases airtime minutes substantially, is huge. According to Ovum, as much as 45 percent of mobile users in South Korea play wireless games.

Many people also point to the fact that South Korea standardized on CDMA technology early on as the reason for the country’s success in wireless. Because all of the handset manufacturers were using the same technology, and the phones worked on all of the networks, the industry was able to progress more rapidly. But that argument breaks down when you look at Europe, which is entirely standardized on GSM, yet still struggles to move folks onto GPRS.

The real success story is in how the wireless carriers worked with both their vendors and content providers in moving quickly to make advanced services available. “I think the main difference is that the Korean operators and manufacturers tend to move more rapidly,” says Dr. Irwin Jacobs, CEO and founder of Qualcomm, the company that brought us CDMA. “They’ll make decisions and move to them quickly rather than spending a lot of time on the market research and a lot of the other aspects that tend to delay U.S. operators.”

Speed has definitely played a role in South Korea’s success, but perhaps the most defining characteristic of the South Korean market is the relationships that have been forged between the wireless carriers and both their equipment vendors and content providers. The revenue sharing arrangements go a long way in motivating every link in the wireless value chain. And working closely with the vendors has improved communication, so there is no misunderstandings about what the customer is looking for in the end market.

“At the time when we started wireless services, there was no one that had completed an application,” recalls Moon Gie Kim. “So we worked with the application developers to start the new services. Since then we have developed strong ties with the application developers and we work with them at our facility together.” Like every other country, South Korea went through some growing pains in establishing revenue sharing agreements with their content providers. At first the content providers offered content for free in order to cozy up with the carriers. But now revenue sharing agreements are in place and have proven lucrative for both parties involved.

In addition to working with content providers closely, carriers in South Korea are also tight with their manufacturers. “They also work very closely with their manufacturers,” says Dr. Jacobs, who, as one of their manufacturers, would know. “As a result they are willing to introduce the technology from the manufacturers into the networks a little more rapidly, with a little less operator testing.” Risky? Maybe, but who can argue with the results?

Before we get too carried away with the success of the South Korean market, it is also important to note it is not without its challenges. The high speed data network known as CDMA 2000 1x EV-DO was supposed to be operational in time for the World Cup this past summer, which took place throughout South Korea and Japan. As one of the dozens of journalists at the World Cup in Seoul, I can tell you that it was not ready. And in the few areas where EV-DO is available, the adoption rates have not been as quick as 1X was.

But despite its more recent problems, South Korea will continue to be the example of how to make next-generation mobile services work. And with any luck, Europe and the United States will learn something from the Koreans. There’s no reason that any country with a relatively advanced wireless infrastructure, shouldn’t be able to duplicate the success of South Korea. If you’re lucky, it could be yours.

After failing miserably at every attempt to become the next great American author, Dan Briody settled in San Francisco and started writing about the technology revolution in the mid-90s. Today he is the author of Red Herring's Wireless Watch column, and he is still trying to write the great American novel.