If aboard a train in Seoul, you’re bound to notice several people with out wristwatches. Strange for a city that’s active, energetic, and most importantly, highly time-conscious! Talk to a native co-passenger about the anomaly, and he’ll most likely take out a tiny device from his pocket and show it to you—his mobile phone! "Why should I keep multiple devices?" he’ll ask you back.

Seoul is one city that’s truly mobile. If you want to make a call from the underground metro, you can still use your cellphone. In fact, Seoul is the only place in the world where this holds true, thanks to CDMA telephony.

Moves That Paid off
"The role of the government (providing strong leadership and strategic direction), societal contribution (strong informational revolution, and a strong electronics industry are the prime drivers for the success of CDMA in South Korea," Kenny H Ryu, international roaming manager, Global Alliance Team (technology strategy), LG TeleCom, says. Elaborating further, Kwang Yung Choo, professor/chair, Dept of Communication, Seoul National University, says, "At the time of going for the technology choice, we were confronted with this issue of GSM versus CDMA. After a long thought and discussion, it was felt that we need to be leaders and this could be achieved through going for a technology that is easy to roll out, cost-effective, and the latest with a definite edge on quality. We took the risk to go for CDMA."

The South Korean government has adopted a two-pronged strategy of standardization and deregulation. As part of the standardization strategy, the Korean Electronics and Telecommunication Research Institute (ETRI), in 1991, took the brave step of backing Qualcomm, then a little known-company, and signing up an MoU with it. Although ETRI was impressed with the claims about CDMA’s spectral efficiencies, the key to the decision was Qualcomm’s willingness to work with ETRI to develop a solution. ETRI was given $55 million in 1989 by the Ministry of Communication (MoC) to develop a digital solution for Korean cellular.

The task was to evolve a model suitable for the Korean market. The project got accelerated in 1991, when it was realized that the customers were growing in numbers that surpassed expectations. The original plans provided for trials in 1996 and for commercial service in 1997, but MoC was worried that it would be too late and decided to import a solution from North America’s IS-95 CDMA brought forward the trials to 1994. In 1993, South Korea decided to adopt CDMA as a national standard, based on the fact that CDMA was the most effective method to utilize the limited spectrum resource. Also, the government wanted to develop the technology independent of advanced nations. During this period, ETRI and four Korean manufacturers continued to develop products based on the CDMA standard. ETRI and Qualcomm divided the task so that the mobile switching and many parts of the base station controllers were being implemented under ETRI’s initiative, while the mobile station and base transceivers were being developed by Qualcomm.

As part of the deregulation strategy, in accordance with the WTO basic telecommunications concession, the South Korean government, in February 1997, pushed up the foreign ownership ceiling to 33 percent. In 2000, the foreign ownership ceiling was further liberalized to 49 percent and the ceiling on single person ownership was also scrapped. And to encourage new players, processes were simplified.

A Postpaid-driven Market
South Korea has more postpaid subscribers than prepaid. "About 90 percent of the mobile users are postpaid. It’s because Koreans prefer to pay for a service after using it. This is unique, I understand," says Kenny. A Korean citizen, when contacted, confirmed this perception. "We would like to use the service as much as possible and pay for the same." On trying to find out if the trend was due to any different pricing strategies, it was observed that it had nothing to do with the tariffs. The tariffs for the postpaid are about 15,000 won as fixed monthly charges and about 18 won per 10-second pulse.

It needs to be mentioned here that the market is reaching a saturation point. At present, there are three major operators—SK Telecom, KTF, and LG TeleCom with subscriber bases of 16.7 million, 10.1 million, and 4.4 million, respectively. SK Telecom accounts for about 53.5 percent of the total market. According to MoC, the number of new subscribers in 2001 was estimated at 29.08 million, an increase of 8.5 percent over the previous year with the diffusion rate being 61 percent. It was expected to grow at an average annual rate of 2.1 percent thereafter. In 2000, the mobile subscriber base was 26.82 million and sales stood at 11.75 trillion won. According to Daniel D W Lee, general manager, material group (digital network display division), LG Electronics Inc., "What is important to recognize is that the market is approaching the maturity stage on the life cycle with a high penetration rate. And now data services will be the next in-thing."

A quick look at the ARPU reveals that the data ARPU has gone from 1,200 won in 2000 to Rs 2,054 won in 2001, a growth of 71.1 percent. The total ARPU grew from 33,045 won to 34,400 won during the same time (a growth of 4.1 percent).

According to another report (from KISDI), "Following the introduction of CDMA2000 1x in 2000, the IS-95/A/B band-oriented service is expected to decline at an average annual rate of 21.1 percent from 27.05 million in 2001 to 8.26 million in 2006. The CDMA2000 1x service of the existing band is expected to undergo a rapid growth at an average annual rate of 40 percent from 2.04 million in 2001 to 10.95 million in 2006 with an increased usage of wireless Internet service. Meanwhile, for the 2-GHz band, under the assumption of the launch of synchronous service in 2002 and asynchronous service in 2003, the number of subscribers in 2002 is expected to be approximately 660,000, thereafter increasing to 13.08 million in 2006."

Commenting on the diffusion rate, Kenny says, "We are reaching a saturation point in the domestic mobile telecommunications service market. It is hard to expect a rapid increase in new subscribers. But there will be greater usage of wireless Internet service. This will increase the income from providing contents." The KIDC report also suggests that there may be a decline in sales for the mobile telecommunications service market due to the cut in the rate for voice communications service and the introduction of a packet rate system in data communications brought on by competition among carriers. However, the overall market is expected to maintain continued growth with increased usage of wireless Internet service. This will be mainly due to the introduction of CDMA2000 1x and the accompanied increase in call quantity per user, the increase in fee income from providing contents, as well as the increased income from global roaming service with the commercialization of 3G. The market size for 2001 was estimated at 13.8 trillion won, an increase of 12.3 percent over the previous year, and is expected to grow at an average annual rate of 5.2 percent after 2001 to reach 17.8 trillion won in 2006.

Future Revenue Streams
The point to note here is that the new revenue generation streams will be from the data services. According to Kenny, feelring and MMS will be key drivers to improve data revenues. Feelring is a ring-back tone that amuses callers with beautiful melodies and comic chats instead of the routine boring ring-back sound. Similarly, Java games, stocks, photo portals, and video-on-demand are popular. Besides these attractive services for subscribers in general, the operators are also looking at the corporate clients. For example, LG TeleCom has tied up with Korea Digital Satellite Broadcasting (KDSB) for allowing the latter’s subscribers to download content. It has also tied up with Hyundai-Kia Motors company for telematics, with CJ GLS for fleet management, with Lotte-Chilsung for offering sales solutions, and so on.

KDSB has formed a very good example in interactive satellite TV. With KDSB, LGT has an exclusive contract, to offer CDMA-enabled set-top boxes and its network for upload and download of KDSBs programs. LGT receives a monthly fee of 12,500 won per subscription from about 3 lakh subscribers. Kenny points out, "There will be additional opportunities from TV commerce and home automation."

A recent survey on the usage of mobile phone says that people of age 12 or more cellular phone owners use text messaging, voice mail, and other additional services approximately 14.9 times a month. Customers are satisfied more with portability than operability or exterior design. The usage of wireless Internet among women is 28 percent, a little higher than the usage among men, which is 26.9 percent, but there is little distinction among the sexes. The age group 12-19 has the highest rate of using wireless Internet and the usage of wireless Internet decreases as it gets to the older generation. The age group of ‘50 and above’ has the lowest rate at 1.5 percent.

Studying this market helps one to draw some important conclusions. Today, there are just three operators. Moon-Suk Oh, vice-president (economic research center), LG Economic Research Institute, explains, "Consolidation is the key."

There were several operators earlier, but they have been merging to consolidate. The government took some measures too so that market momentum was sustained and monopoly didn’t set in. It introduced the discontinuance of the handset subsidy to secure profitability and improve management for mobile telecommunications service carriers… and the subsidies on mobile handsets went off in June 2000.

It was stipulated that SK Telecom would keep its market share below 50 percent by June 2001 and that SK Telecom would limit the purchase of handsets to 1.2 million units per year by 2005 as a condition for the M&A between SK Telecom and Shinsegi Telecom. It may be mentioned here that Shinsegi was the No. 3 operator after Korea Telecom and the merger of the two would have created an imbalance. Later, there was the merger of Korea Telecom Freetel (KTF) and Korea Telecom M.com in May 2001, which is now called KTF.

Ch. Srinivas Rao in Seoul, South Korea.