Broadband Network Strategies
June 4~5, 2002
Dr. Nae-Chan Lee
nclee@kisdi.re.kr
OECD Broadband Workshop 2000,
Hotel Lotte World, Seoul, Korea
Korea Information Society Development Institute
Contents
What is Broadband Internet Service ?
Impact of Network Investment
Patterns of Growth
Demand Side
Supply Side
Network Strategies
Broadband service, interwoven by
various networks and functions
Apartment complex
• ADSL: copper
Internet
• ADSL: optic
House
Core
Network
Wire center
Control Office
Building
• Cable modems: HFC
Pole
• Contents • Internet Service
Provider
(CPs)
Providers (ISPs)
Contents
Network
• Internet Access
Providers (IAPs)
Network
• In-building Service
Providers
Network
• User
Interface
In-building & Home
Automation
Transmission Capacity
 Metropolitan areas: 250 ~ 130 Gbps through (Dense)Wavelength Division Multiplex
- Small-and-medium cities and towns: optical cables with
maximum transmission rates of 2.5 Gbps
Metropolitan
Capacity
(Gbps)
Seoul
Taejon
Seoul
Busan
Seoul
Kwangju
Sould
Taeku
Pusan
Kwangju
Taejon
Busan
Taejon
Taeku
Kaejon
Kwnagju
Taeku
Kwangju
248.2
191.3
173.9
171.5
132.4
164
163.7
160.4
136.5
 Through KII-G connecting 144 calling zones with optic
fibers and installing ATM switches (1995 ~ 2000)
Investment as IT Booster
 Total amount of investment by 2001: $ 4.04 billion
 Spillover effects: $ 7.07 ~ $ 9.46 billion
 Job creation: 4,900~8,300
1997
1998
1999
2000
2001
Total
Fiber
Trunks
93
42
75
120
143
473
FTTO
200
88
148
607
259
1,302
FTTC
2
13
189
618
248
1,069
ADSL
0
1
10
655
534
1,200
Total
295
144
421
2,000
1,183
4,044
Subscription
 8. 5 million (as of April 2002), penetration rate of 50.4 percent
100 inhabitants, recording the highest in the world
Number of Subscribers
(Thousand people)
9,000
8,496
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
Apr-02
Jan-02
Oct-01
Jul-01
Apr-01
Jan-01
Oct-00
Jul-00
Apr-00
Jan-00
Oct-99
Jul-99
Apr-99
Jan-99
Oct-98
Jul-98
0
Pattern of Growth
 Phase I: Launch
Revenue
- High cost and retail charges hinder the rollout of the market
- External subsidies and lowering users’ subscription barriers
may be necessary to reach critical mass
• e.g., local charge, handset subsidies, subscription fee discount
Subscriber
 Phase II: Takeoff
- Temporary shortage in supply soon after passing critical mass
- Competition spurs market growth
 Phase III: Landing
- Subscribers and revenues are being saturated
 As technology advances, new services substitute existing
one
Time
Phase 0
Phase I
Phase II
Phase III
Evolution of Marketplace
 Phase 0: No broadband service market before July 1998
 Phase I: Broadband Internet service, initiated by Thrunet and
followed by Hanaro and Korea Telecoms
- seven facilities-based providers (FSPs) by the mid of 2000
 Phase II: Facilities-based competition, intensified moving up the
‘last-one-mile’ deploying and upgrading access networks
- 8.5 million households as of April 2002
 Phase III: 13.5 million households with 20 Mbps by the end of
2005, a target of the gov’t (June 2001)
- 11 ~ 12 million households, purely market-driven (estimate)
Demand Side
 D-1: Few in Phase I, increase after passing by critical mass
- Customers keep in mind the level of charge first and foremost!
 D-2: Customers’ subscription, influenced by word-of-mouth(50%)
and mass media(25%)
 D-3: Customers, less inclined to churn(93%)
 D-4: No network externality unlike voice services
- packet flows between each customer’s PC and web servers (no onnet calls between customers like local or mobile services)
 D-5: One-line with dynamic IP for residential use, Multi-line with
fixed IP for small-and-medium sized business
 Conditions D-2 and D-3 and competition accelerate marketing
costs(Ad, incentive payment), recording the highest portion
among costs
Supply Side
 S-1: less traffic sensitive cost
- Modem: subscriber sensitive like mobile handset
- DSLAM and CMTS, of which capacity are lower than local switch
 Lower degree of Economies of scale compared to voice services
through conditions D-4 and S-1
 S-2: Flat-pricing
- Because equipping with circuit or packet billing system, costly
(cf. Packet pricing for Mobile Internet in Japan and Korea)
- An increase in packets does not match revenue
Capturing as many customers as possible
 S-3: Procurement costs, initially high, but gradually declines as the
economies of scale works in manufactures
- The price of modem has decreased 20 % in 2000 from $ 462 in 1999, while
DSLAM 30 % from $ 36,000 during the same period
 Best strategy is capturing as many customers as possible
- Revenue increases proportionately with the number of subscribers
 Observation
- Rough guess of Korea Telecoms Revenue in 2002:$ 1.26 billion
= ($ 30  12 month  3.5 million )
- Hanaro Telecom and Thrunet recorded the black on the EBIDTA basis
in fiscal year 2001.
First-mover or Follower
 Strategy I: Be a first-mover
 less inclined to churn (D-3)  preempting the market
 Procurement costs for related facilities is high
 High risk of trial and error
 Strategy II: Be a follower
 Procurement costs may be low and risks may be hedged
 The market is preoccupied by the incumbent.
 Observation
 New entrants are first-movers in Korea and Japan in the form of
fiber ADSL
 The incumbent, reluctant to be a first-mover, e.g., worrying about
substitution between dial-up and broadband services
Make-or-Lease
 Means of access indispensable
 ADSL: copper local loop or fiber cable
 Cable Modem: cable TV (HFC) networks
 Strategies: Investment or Lease
 Which option to take depends on service providers
 But, if they take the latter option, whether to implement local loop
unbundling or open access by regulatory authorities matters.
 Observation
 Most countries have adopted LLU, but not open access except e.g.,
Korea(voluntarily in the market), Canada
Skipping over Technologies
 Advances in Technology and Speedy Migration
 Broadband: Dial-up  ISDN  ADSL  VDSL or xDSL
 Strategies
 Strategy I: Taking the opportunity of grabbing the market now
- foregone sunk costs and burdens of new tech. investment in the future
 Strategy II: Wait until tomorrow, skipping to new technology.
- Foregone present market opportunity
 Observation
 Korea Telecom has skipped over ISDN and jumped to ADSL, while
Japan has devoted on ISDN. Japan, hopping onto VDSL ?
Network Extension or New Construction
 Broadband
 Strategy I: New facilities(modem, DSLAM) with existing local loop
 Strategy II: Replacing it by optic fibers
  More or less dependent on Technology
 Mobile
 Advances in Technology
- IS-95A/B  cdma2000-1x  EV-DO  EV-DV  IMT-2000
 Strategy I : Upgrade, using existing networks
 Strategy II: Overlay, newly construct
- Investment cost may be saved in the form of overlay, but upgrade is
necessary in some phases of migration.
 Observation
 Korea Telecom, although late comer, has caught up other service
providers through network extension.
Thanks for Listening !
For more details on Broadband Internet Service in Korea
“ Broadband Internet Service in Korea (2002)”
For more details on Info and Telecom Services in Korea
broadbandkorea.kisdi.re.kr