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Broadband Network Strategies : 

Broadband Network Strategies June 4~5, 2002 Dr. Nae-Chan Lee nclee@kisdi.re.kr OECD Broadband Workshop 2000, Hotel Lotte World, Seoul, Korea

Contents: 

Contents

Broadband service, interwoven by various networks and functions : 

Broadband service, interwoven by various networks and functions Internet Core Network Control Office Apartment complex House Building Contents Provider (CPs) Internet Service Providers (ISPs) Internet Access Providers (IAPs) In-building Service Providers User Interface Network Contents In-building & Home Automation ADSL: optic Pole Cable modems: HFC Network Network ADSL: copper Wire center

Transmission Capacity: 

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 Through KII-G connecting 144 calling zones with optic fibers and installing ATM switches (1995 ~ 2000)

Investment as IT Booster : 

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

Subscription: 

Subscription 8. 5 million (as of April 2002), penetration rate of 50.4 percent 100 inhabitants, recording the highest in the world

Pattern of Growth: 

Phase I: Launch 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 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 Pattern of Growth

Evolution of Marketplace : 

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 on-net 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 Demand Side

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 Supply Side

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. Revenue increases proportionately with the number of subscribers What if alternative services such as wireless Internet, Power Line Communication and IP sharing come in on the scene too early ? Capturing as many customers as possible

First-mover or Follower : 

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 : 

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 : 

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 : 

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 !: 

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