South Korea has the most developed broadband infrastructure in the world, so getting up to the minute news about the World Cup is one less thing to worry about. You may be wondering how this has happened, and whether we can learn from the Korean experience to speed up broadband roll-out in Europe

A recent OECD report[1] shows South Korea as having the highest broadband take up in the world, with a significant drop off before other countries’ take up levels, and shows the UK as 21st in the league table. This article examines the reasons behind Korea’s accelerated broadband roll out.

Factors behind Korea’s success

The development of a broadband network has been supervised and encouraged proactively by the government in the Republic of Korea (South Korea). The Korean government has driven forward the industrialisation and economic development of the country over the past 2 decades and is now pushing for an effective communications network in the belief that it will help the country achieve a competitive position in the global market. Key features of the Korean communications market:

  • population density (approximately 40% of people live in apartment blocks which average 600 people per block),
  • families willing to invest in broadband to further their children’s education,
  • cross media competition,
  • massive policy initiatives (see below),
  • competition (which seems to distinguish the Korean market from several others),
  • proliferation of online gaming and stock trading,
  • content offerings which justify premium access,
  • attractively priced services, and
  • lack of other forms of gambling and pornography.

The view which is most commonly held as to being the most significant factor leading to the accelerated broadband take up is the high population density, which has allowed ADSL lines to be spread throughout the urban areas, covering a high proportion of the population with comparatively little effort. This equates to relatively low development costs when compared to Europe and the US.

Why and how has the Government backed broadband development?

The Korean government has based its support for ADSL and broadband on the same policy grounds as other governments around the world. In particular:

  • building a learning society,
  • growing IT industries,
  • boosting skills,
  • connecting local communities, and
  • promoting e-governance.

The Korean government has taken a number of steps to bring about an acceleration in the uptake of broadband. This has ranged from laying its own network to link government departments, schools and universities to providing loans for the major Korean telecoms operators for them to lay cables throughout the country. The regulatory environment has been adjusted (by relaxing restrictions on financing and allowing cross-industry joint ventures) to encourage competition between the 40% state owned Korea Telecom and the other telecoms operators, in particular the privately owned Hanaro Telecom.

The government has adopted an ‘asymmetric regulation policy’ where the authorities maintain regulation of the dominant operator but relax regulations for new entrants in order to allow them to gain a stronger competitive position.

The government has invested 22US$ billion in broadband rollout, in support of private investment. A further 15US$ billion has been earmarked for investment before the end of 2005. A significant part of this investment has been through loans given to the major operators. The government has also pressured banks to provide generous finance facilities to help the major operators develop the market.

The most recent example of intervention by the Government was in April 2002, when it announced that it is to give a series of loans worth over £40 million to the key players in the market (including Korea Telecom and Powercomm, the cable TV provider, in which the state also holds a significant interest). The purpose of these loans is for the recipients to increase the number of homes with broadband access from 55% of homes to 70% by the end of the year. As noted above 40% of Koreans live in apartment blocks, which are relatively easily covered, and so this next stage in the development will be more difficult.

Korea Telecom accounts for over half of the broadband subscribers (4 million ADSL customers). Hanaro has almost 2 million ADSL customers. Other operators are offering broadband via cable modems. Powercomm is a major player in that respect. There are currently talks taking place about the sale of the Government’s stake in Powercomm to a private operator.

The Government has led an initiative whereby new buildings were rated on the level of broadband access which they offered. This allowed building firms to charge more if they offered broadband facilities and led to partnerships between building firms, ISPs and telecoms firms who looked to offer broadband enabled complexes. Some provinces have since made it mandatory that any new apartment blocks which are built offer ADSL ports for internet access.

Korean conglomerates (chaebols) are relatively closely controlled affairs and they have been forming strategic partnerships with each other to capitalise on the expansion of the digital market. This has included such things as engineering firms who involve themselves in physically wiring up buildings forming joint ventures with content providers and property development firms.

Statistics

  • Nielsen / Netratings data shows 94% of internet users in South Korea as having broadband access.
  • Population – 47,904,370 (July 2001)
  • Population density – 2001 – 485 per km sq. This is 4 times the average in Asia and more than 150 times the average for Europe.
  • Age structure –

0-14 years: 21.59%
15-64 years: 71.14%
65 years and over: 7.27%

  • Telephones –

main lines – 24 million (1999)
mobile – 27 million (2000)

  • The cost per month for 1.5 mbps is 25 USD and the premium service of 4 mbps and over is 35 USD.

Why does this growth look comparatively fast?

The way in which the market has developed in Europe means that the standard of access which most people have is outdated when compared to the general standard in Korea. The vast majority of internet users in Korea have moved straight on to broadband without going through other, slower, forms of access such as dial-up access. Content has developed for each market respectively, and so the type of content which is normal in Korea is more sophisticated than that which is normal in Europe where content providers are still catering for the non-broadband masses.

The development of ADSL in western economies is further hindered by the following factors:

  • Cost – broadband pricing plans have lacked clear structure and have been regarded as overpriced.
  • Limited access – the physical cables are not in place (although in some countries where there is a potential for access this hasn’t been taken up – in Australia there are 2.5 million homes with cable access, but only 110,000 households have taken up broadband Internet access).
  • Dissatisfaction of current customers – the services which are available have often fallen short of the expectations of those who have subscribed. Therefore there hasn’t been the expected drag in of new customers through spreading the word by happy customers. The statistics in some respects seem not to stack up. For example, those users in Australia who have signed up for broadband use the Internet 3 times as much as non-broadband users, even though the content market is relatively undeveloped. This implies that there is a certain level of satisfaction among those customers. However the people who have signed up early in Australia are likely to be business users and dedicated early adopters whose use will ordinarily be higher than average.
  • Content doesn’t justify the demands – the financial outlay and technical hassles are quite high. The market is likely to be expanded first by mp3 bootleggers and network gamers but it is considered unlikely that there will be a big push by other content providers to develop suitable content while so much of the existing customer base does not have broadband access.

Economic growth and regulatory environment

South Korea has had an incredible record of growth. This has been focussed on three levels of industrial development, firstly in the 1980s when the government had a big push to develop industry generally and to support development of the transport and facilities necessary for that industry. This involved close ties between business and government, including dedicated credit, import restrictions and sponsorship of specific industries. In the 1990s development of the market came through the use of regulation to stimulate investment and competition.

The late 1990s saw the Asian financial crisis expose the weaknesses in the Korean economic model which relied heavily on high debt/equity ratios and massive foreign borrowings. This then brought about a push by the government for the third stage of development, which began in the late 1990s and early 2000s, in the development of the telecommunications and internet environment. This is being heralded as being as important as the industrial revolution in Korea and the general attitude seems to be that broasdband access and facilities via the internet are normal utilities and not a luxury.

Before the push for development began in the 1980s Korea’s GDP per capita was comparable with the poorer countries of Africa and Asia. However it is now equivalent to the lesser economies of the EU.

The current environment is one in which the government helps fund the major development of the networks and encourages competition in the laying of the ‘last mile’.

Could any of this transfer to Europe?

The Korean success depends largely on social factors such as population distribution, and on Government involvement in operator strategy, and funding ofbroadband investment. Fundamental differences in each of these areas between Korea and EU countries suggest that it could not easily translate to the European market. Although new housing developments are increasingly cabled at the time of build, European populations are unlikely to reach the regional densities seen in the Far East. EU liberalisation has seen European governments sell off their interests in telecoms operators, thus relinquishing control of market strategy. And any subsidy of broadband roll-out which is not required by the EU, could fall foul of EU rules on state aids.

However, the Korean example can teach us that the perplexed European debate, about whether infrastructure investment should drive content development or vice versa, is a bit of a distraction. When other factors combine to encourage development, such as high population density making infrastructure investment economic and massive desire for broadband content for social reasons other than entertainment, broadband infrastructure and content will both follow, hand in hand.

Questions about broadband? Email clb@twobirds.com.


[1] OECD Working Party on Telecommunication and Information Services Policies The development of broadband access in OECD countries (DSTI/ICCP/TISP(2001)2/FINAL), 29 Oct 2001