Mobile evolution: Latest trends of Korean mobile market and its movement

Mobile evolution:
Latest trends of Korean mobile market and its movement

Changan CHOI
Market Adviser, IN Seoul office

INBDP Market Report
related to wireless future and Mobile Monday

Seoul Office, Copyright © 2006 Innovation Norway. All rights reserved.

Table of Contents

II. Introduction: success or delemma?

II. Mobile phones: more than PC

III. Maturity of mobile network: next runner, 3G network

IV. Mobile media: new trials, failures and successes

V. Mobile payment: crossing the chasm

VI. Business use of mobile Internet

VI. Industry structure and new challenges: mobile evolution

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I. Introduction: success or delemma? Korean Mobile Market

Korea has done a great job for the last decade! The highly unbalanced development, however, weighted
onto certain areas is now pulling its back from going ahead for further/continuous growth in the future

Success?
ICT industry

ma??
r/and dilem
o Too much dependent on
USD 287.7 bil (p) in 2007
Hardware
35% out of total export
Network infra. services
40% contribution to GDP growth
Technology-driven
- 16% of total GDP

Network infra.
No. 1 ICT product lines
Mobile
DRAM – 45.1%
HSDPA, Wibro, DMB
Balanced onto
Mobile phone – 24.7%
90% mobile users
LCD – 46.5% Software
Internet broadband:
PDP – 54% Application services
91% in 2006 <- 70% in 2002
Flash Mem – 41.1%
(Norway: 61% <- 10%) Practical/society use
…
World’s highest avg. speed

1/36


I. Introduction: success or delemma? Korean Mobile Market

As Korean mobile market players are making new trials balanced onto services and applications, they are to
face, are facing or faced challenges of bridging users from their innovative uses to practical ones in daily lives

Chasm theory
Geoffrey A. Moore 1991

Coverage of this report
Customer value
Mobile solutions in Korea
innovative Practical
Mobile Phone

Mobile Media
Revenue drop!

Mobile Payment

Source: Crossing the chasm, Geoffrey A. Moore 1991

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II. Mobile phones – more than PC Korean Mobile Market

Mobile users are very active in using multimedia phones such as camera and music, and a recent survey says
that they are moving toward more use of smart phone styles overtime, which has been very small in Korea

Functional popularity of mobile phone Anticipated killer applications in 2009
Strategic targets
Premium
for the coming years!!
Smart phone
Camera function Open OS
about 5% (2008)
90% (2007)
Touch Screen
Ultra low cost
Source: Allux, 2008

Priority in preference for touch phone purchase
Cf.: most of touch phone is Win CE based smartphone
Voice conference
Multimedia High resolution camera: 19.8%
function 30% (2008)
&music function
MP3/VOD multimedia: 17.4%
70% (2007)
Internal/embedded memory size: 11.7
Mobile TV/DMB: 11.2%
Multi-tasking: 9.2%
Video conf. Call: 7.7%
Source: Naver KM, etnews, i-news, 2007, 2008
Source: Survey by ARG, 2008

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III. Maturity of mobile network – next runner, 3G network Korean Mobile Market

After its launch in early 2007, WCDMA based 3G service has been growing very rapidly mostly thanks to big
subsidies both from government and telecom players – currently 1/3 of total mobile users

Total number of mobile subscribers Unit: thousand

Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08
Year

Subscribers 38916.8 39382.5 39703.2 40197.1 41101.2 42319.8 42801.2 43497.5 44266.0 44982.8
!
d!
e
at CDMA vs. WCDMA
Penetration rate d
(as of June 2008)

up
be
Mobile users: 89.2%
To Now,
50000 14000
17,000
Mobile users: 44,982,823
(Jan.)
12000
40000
45,274,511(Sep.)
10000
30000
CDMA 8000

6000
20000
Commence
4000
in Feb, 2007
10000
WCDMA 2000

0
0
Feb Mar July June
1
June, 2008
Total population: 50,429,173 (exp)
2007 2008 2009
주석
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From major stream of CDMA network until 2006, Korea has launched high speed mobile network services
including HSDPA, Wibro(Mobile WiMAX), CDMA 2000 Rev.A. And, it is said that no. of 3G subscribers will pass
the no. of 2G subscribers within this year, 2009

Major Players in Korea Make-up of mobile network
(2008.6) (2009.1)

launched
in 2006

HSDPA
LGT
(WCDMA)
18%
About 36%
KTF
launched
31%
in 2006

CDMA Rev.A
CDMA(2000),
about 1.4%
PCS
SKT
51%
about 62% launched
in 2006
Wibro*

about 0.6%

* Source: Wibro = Mobile WiMAX Source: SKT, KTF, LGT and KCC combined, 2009

4/36



With Wibro covering the Seoul metropolitan area, HSDPA covers most of residential area in S. Korea.
Recently, market leaders are seriously considering the combined service with these two, taking advantages
from both of them
Wibro(mobile WiMAX) major coverage HSDPA national-wide full coverage
Residential area for 45% of total population
Plus
major universities
and hot zones
in other provinces

No. of
Players Main coverage
Subscribers

KT 190,000 National capital area

SKT 3,400 55 hot zone in 44 cities
Source: KCC, 2008 Source: KAIT, 2007

5/36


IV. Mobile meida – new trials, failures and successes Korean Mobile Market

Mobile media in Korea can be broken down into three major categories such as online, offiline and
broadcasting, followed by 6 sub categories as following below

Intr.:
unrestricted Internet access
Web browsing
just like Web browsing at PC
Online
Case:
OZ by LGT (CDMA Rev.A)
SKT FB, limited (HSDPA)

WAP* browsing Prospect: market leaders are facing an obligation
to open its service and network based on open
Mobile Media architecture, which gets popular overtime

Intr.:
restricted Internet access
Client SW
through WAP* gateway
Offline
Case: closed telecom portals
SMS providing ringing tones, music,
VOD, gmes, information, etc. -
Nate (SKT), Magic-N (KTF)
DMB/DAB Ez-i (LGE)
Broadcasting
Prospect: as being forced to open
3G (WCDMA, Wibro) wireless network and in response
to strong demand for WB, WAB
browsing will apapt open access
more and more
* WAP: Wireless Application Protocol

6/36




Intr.:
on-deman contents update
Web browsing
through the downloaded client
Online application SW

Prospect: this type of services
are developed with M2M
services using USIM chip
Case:
WAP browsing 1. Frontpage and WAP page link - mobile video, Magazine,
newspaper, public trans. info, membership service,
Mobile Media financial service (stock, banking, credit card, etc.), ticket
reservation, online game, public service reservation
2. Stand-alone: mobile game, anti-mosquito, etc.
Client SW (VM) Intr.:
Short message service
Offline
SMS Case:
1. notification: confirmation on
payment, ticket, reservation, etc.
simple AD, alerm, gifts, etc.
DMB/DAB 2. fishing to WAP page: gifts, AD
Broadcasting 3. SMS/MMS-ticket:
text or barcode
3G (WCDMA, Wibro)
Prospect: SMS is well awared by
users and will be developed
together with M2M services

7/36



Client SW (VM)

Stand-alone Partial online Online

Server Server Server
Updates

Download Download Download,
once for all once for all connected to
the Net
Live skin

Ring tone, music

Bus, Subway
Mobile game Credit Telecom
Banking
Server Taxi, Cultural centers,
Card
Convenient store,
E-Mail, chatting SW Internet cafe,
Download
Vending machine,
Stock, lottery, Top-up/refill
USIM Public parking lot,
Online malls, etc.
banking, T-money

Location based services News
Server
Server Detail request/
Additional chrge
VOD, Magazine, News SW
Download
Reading
Mobile shopping Daily update/
USIM
early morning
8/36



As of Feb, 2009

8.1 million 7.0 million
8.5 million
Accumurated Accumurated
Accumurated
download download
download

Hit games: 6~7 month -> 3~4 month, Million downloads

9/36



?
el?
od
m
it
of
r
Daily update:
P
Auto/manual

10/36



SMS

Notification: Spam/virus/crime -> regulation -> new business model?
confirmation on your payment, ticket,
SW
Server
reservation, Simple AD, alerm, gifts, etc. download server
request
SMS/ request
or
fishing
Fishing to WAP page: WAP
access
page
Gift – ring tone, music, bg. screen, ect.
AD – mobile game, VOD & photos,
PR event, etc.
MMS
Web
Reservation/ Server
page
payment
SMS/MMS ticket, coupon: App. SW
MMS/
Info.
Barcode
Text type Screen
User or
WAP Pass/
Barcode type Reservation/ page reader
payment RF
USIM

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MMS event
MMS coupon

SMS event

Musical message
or logo song
Ring tone/ Biz ring.. 2

1

call

3

You can listen to the logo song or any sort of musikal message
when you make a call or receive a call

12/36




Web browsing Intr.:
mobile TV using DMB/DAB
Online
technology

Case:
Terrestrial DMB, Satellite DMB
TPEG* service
WAP browsing
Prospect: as 30% (15 mil.) of total population is using
Mobile Media DMB, it is expected to grow together with other
commercial services, such as TPGE, interactive services
through BIFS** technology and 3G network
Client SW Intr.:
realtime or on-demand mobile TV
Offline
service using 3G network such as
SMS
HSDPA and Wibro

Case: Nate(SKT), June (SKT), Fimm(KTF), ez-i
DMB/DAB miTV(LGT) - realtime terrestrial broadcasting, Cable TV,
Mobile TV, Home shopping, event/spotlighted program, etc.
Broadcasting
Prospect: as telecom players would get involved in the
3G (WCDMA, Wibro)
contents delivery and make more data traffic, flat fee or
discount fee based pricing models are coming out and
* TPEG: Transport Protocol Experts Group
will compete with DMB service in a way
** BIFS: BInary Format for Scenes

13/36


V. Mobile payment – crossing the chasm Korean Mobile Market

Mobile payment market is becoming a battle ground for different market players such as financial bodies like
bank, credit card companies, transportation card company, telecom players and payment portal providers

Relational map between mobile payment market players

Users

Financial bodies
Telecom

T-money
Payment portal
/transportation
Service providers
card

New technologies;
Smartcard, contactless(RF), Bluetooth, etc.

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Despite its small size yet, mobile payment market is growing very fast, and more than half of mobile users
are registered or using mobile payments in their daily lives

Mobile payment market growth % of mobile payment users

Unit: thousand (%)
Unit: KRW* bill.
22,250 (51.9)
1400
(Est.)
Mobile Payment
1200
CAGR**: 29.3% 40% Users
1000

800

600
20,651 (48.1)
400
For statistical reason, this will be covered
by two different categories:
200

Mobile banking users
0
2002 2003 2004 2005 2006 2007
Handset payment users

Source: Mobilance, K-research, NIA(2007)

*Average foreign exchange rate : 1,035/USD 193.9/NOK (2008), 929/USD 158.8/NOK (2007), 955/USD 149.1/NOK (2006)
**CAGR: Compound Annual Growth Rate

15/36



As taking 13.6% of the total Internet subscribers, mobile banking subscribers made 138.1 billion transactions
during the 2nd Q of 2008, and it is continuously growing

Mobile banking

Unit: thousand (%)
Mobile banking Internet banking during 2nd Q of 2008
- 21,990 thousand transactions (3.8% up)
- KRW 22,011.7 billion transaction (2.1% up)
-> 1.6 transaction with KRW 1.6 million per person
6,620 (13.6)

Mobile Mobile banking during 2nd Q of 2008
subscribers
- 978 thousand transactions (9.5% up)
- KRW 138.1 billion transaction (16.3% up)
Internet banking
Subscribed, but sleeping -> 0.14 transaction with KRW 20,846 per person

35,105 (69.6)
Transaction by number of cases
13,615 (27.0)
- ATM (42.9%) > Internet (24.4%) > Tele (12.6%)
Inquiry and information access
1,709 (3.4) - Internet (57.9%) > Tele (12.2%) > ATM (10.6%)
Actual users Source: BOK, NIA, 2007.6

cf.) Total population: 50,429 thousand, 2008.6

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Around 60% of survyed people have experienced different types of handset payments, and small amount
payment was the most popular type among the payments

Handset payment experience and intended ceilings

Frequency for use
Handset payment experience
Once
Once
for 3 months
Havn’t used it yet, for 2 months
Less than once 10%
but 30% of them has intention to use 8%
for 3 months
38%
40.9%

44%
More than once
per month
47.5%

intended ceilings
Subsitute for
8.0%
Small amount of
3.6%
Less than
USD 5~10
credit card payment online USD 5
More than USD 100 Don’t care
6%
6%
12%
23%
Public transportation
USD 50~100
13%

23%
17%
N=4272 Source: survery by K-research, etnews, 2008.6 USD 10~20
USD 20~50

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In the online contents market, a survey said that handset payment was answered to be the most popular
among others, where users had purchased mostly entertainment contents like music, movie, TV, games, etc.

Preferences for online contents payment; Payment usage for online contents;
less than USD 150~200 regardless of mobile payment, but it could imply future of handset payments

Music
70

Dual check answers
60
Movie, TV
50

40
News
30

Game
20

10

Community
0

Others
e-money(8.7%) Education
Gift certificate(9.7%)
Stock info.
Membership point(15.6%)
Banking(17.0%)
Others Dual check answers
ARS(33.5%)
0 10 20 30 40 50 60 70 80 90
Credit card(40.5%)
Source : NIA, KISDI, 2007.10 Source : NIA, KISDI, 2007.10
Handset payment(65.3%)

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Evolution and integration of all the
Half success with limited number of
Online contents payments are still previous services into USIM chip under
phones, financial bodies and franchise
used, being very popular WCDMA network
Timeline 2002~
Timeline Early 2000~ Timeline 2006~
Creditcard, banking,
Online game and transportation, Credit/checkcard, banking,
Usage Usage
community contents membership, online Usage transportation, membership,
contents online contents, stock, etc.
SMS, Web, CDMA
Tech.
network Smartcard, Bluetooth, Smartcard, RF, Bluetooth
Tech. Tech.
RF (integration all into USIM)
Reliance Telecom > PG
Reliance Telecom > financial Reliance Telecom =(?) financial
Security Low (USD 5~10 ceiling)
Security High Security High
Timeline 2001~( 2002), now
Open architecture for USIM
Timeline 2003~
Bank account inquiry, to telecoms, pie share
Usage
Issue between telecom and
(limited transfer) Usage Banking, transportation
financials, participation of
CDMA network, virtual Tech. Smartcard, RF, VM franchises, standardization
Tech. account, simple link bet.
Reliance Telecom = bank > PG
bank and telecom
Stage 3
Security High
Reliance Telecom > bank > PG
Security Low Survivial technologies
Stage 2
*PG: Payment Gateway solution provider
Note: this is only for the cases of normal mobile phones, because PDA
Stage 1 phone took advantaged of Internet payment services from early stages

19/36



T-Money

Top-up/refill
Public transportation

Taxi

USIM

RF
Public transportation: Public bus
buying
Bus, taxi, subway
Subway
Retailers
convenient store, theater, both, bookstore, etc.

Public facilities
Local office, toll fee, parking, museum,
vending machine, telephone, ect.

Internet
Game zone

20/36



mobile ticket/upgrade
RF ?by USIM
SMS ticket/train registration, inquiry, payment, postponement, cancel, ect.

SMS ticket/movie

21/36



While there are many mobile payment trials by different market players outside of telecom territory, mobile
telecom leaders are paying huge investments in and very keen on taking the lead of this emerging market

Online payment
Credit card
Example: Membership
Transportation card
Ticket reservation
Banking
USIM based mobile payments
ID pass
Stock security

22/36



Example:

Other trials – not popular yet

Mobile
Home/TV SMS Mobile Creditcard
phone
Shopping link Internet Number fill-in
number

Online ticket Pass
E-Ticket
or Payment or
or
Purchasing Issuing
Barcode

Vending machine Payment
Toll gate, (mostly prepaid
Parking fee, e-money)

23/36


VI. Business use of mobile Internet Korean Mobile Market

Business use of mobile Internet in Korea can be broken down into three categories such as applications to
enterprise solutions, emails on the phone and SMS/MMS for business purpose as following below

Business Use
of Mobile Internet

Users reading email SMS/MMS
Applications to ERP or enterprise solutions
on phones for business purpose

Mostly, they redesign and develop their own applications for their specific purpose in this case

Business use of mobile Internet is very limited if they do not have full support from telecom players

Due to the limitation of adopting new applications, they use PDA phones to meet their technolgical requirements

Except for PDA, telecom players under the support of mobile makers are controlling the installation of applications and

its working on the phone

Thus, business players are using existing applications for different purposes if it is not in the PDAs or the smart phones

24/36



Business Use
of Mobile Internet


Less than 5% of total mobile users (about 1 million in 2008) Cases
- enterprise email for management people mostly
Limited environments until the time
- government officers & staffs for their administration
- Mostly relying on PDAs or SmartPhones, prior to full
browsing service
Prospects: full browsing service will encourage users to use it
- not open architecture; only possible by installing client SW
and in-house or enterprise email solutions
- limited access to public/portal email accounts
- expensive; additional cost for subscription

25/36



Business Use
of Mobile Internet


Cases: Prospect: SMS is well awared by users and will be
1. notification: confirmation on payment, ticket, developed together with M2M services
reservation, etc. simple AD, alerm, gifts, etc.
2. fishing to WAP page: gifts, AD Issue of spam/junk message
3. SMS-ticket: text or barcode - 0.7 spam per day (2007), 2~3 spam per day
(2006)
- 70% of loan/financial, 15% of adultary, 6% of
game in order

26/36


VI. Industry structure and new challenges – mobile evolution Korean Mobile Market

In the mobile service market, mobile telecoms have had a higher level and a wider range of control powers
over the related parties, but in the new environment of open architecture, its power will be weaken overtime

Users/Customers

DMB,
WWW TPEG
Open access
Broadcasters
Potals
supply
Carriers
Contents providers Intervene
Telecom /mobile telecom
portal
Bigger
Supply Subsidiary
100% dependency
nego.
Phone
Contents power
Phone manufacturers
Financial bodies manufacturers
providers
Intervene
Mobile ADs
Payment Gateway
Parts suppliers
Wireless Telecom
territory

Source: modified from ppt by LGT at IT conference, 2008

27/36



Players in the mobile market are being and are soon to be surrounded by new challenges and unfamilar
business environments in the near future, where they have to compete and survive to success

Integration between wired
Government Intervention
and wireless telecom markets
New or combined
Price cut
applications
SK Broadband
SKT
Open competition
(Hanaro)
Payment/M2M - Wipi* removal
Data services
- MVNO?
Open Internet
KTF KT
- Global standard:
New media
Open architecture browser, OS, etc.
(Quadruple play?)
* Wipi: Wireless Internet platform
LGT LG Dacom for interoperability

LG Powercom

New or newly applied technologies

USIM, Smartcard, VM, RF, Bluetooth
High speed network: HSDPA, Wibro(Mobile WiMAX)
Mobile TV: DMB

28/36



As the mobile telecom market is shifting its weights onto higher speed of HSDPA network, Data ARPU is
increasing its portion to the total ARPU with increased packet consumption

KTF ARPU increase, 10~12, 2007
Unit: KRW
40000
36,481
35000
29,315
30000
Monthly use of data packets has
25000

increased after HSDPA service launch
20000

15000

7,610
10000
5,301
HSDPA user made a higher level of
5000
21%
18%
0
CDMA HSDPA ARPU including data one

KTF monthly packet use per user, 2007
Unit: packet Increased data use made a good offset
4000
for total ARPU against/despite the price
3500
depreciation of data service
3000

2500

3,580 packet in October compared to
2000

2,405 packet in 2006.10
1500

1000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct
Source: KTF, Woori stock & security, 2007, 2008

29/36



In the middle of fierce price war, use of data and voice conf. call are considered to be feasibile solutions to
telecom providers, and, recently, recovered data ARPU with increased packets is proving its potentialities

History of mobile operator’s data ARPU

2001 2004 2006 2008.08
ARPU
SKT 4.4% 18% 25% 22%

KTF 5.6% 14% 17% 19%
Voice ARPU
10%,
LGT 7.1% 6% 7%
(Oz 17%)
Source: SKT, KTF, LGT, ARG, 2008
Data ARPU
History of SKT data ARPU

40% SMS,
Follwed by
?
HSDPA
music bell
Voice Conference call
download
IMT-2000 35% 3G users
20% 3G users

Price cutting period
Source: SKT, ARG, 2008

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In response to potential user demand, the lagging telecom player, LGT, has first launched a open access
service to the Internet, and other market leaders are reacting according to the situation

Status of mobile telecoms’ unlatching door of their sanctuary
3

WWW

1
100% Telecom
Telecom
Telecom/Mobile Telecom Contents
dependent
Open WAP
Open WAP
Network Portal Providers(CPs)

User/Customer
2
Telecom
Telecom
Portals,WAP
Open CPs
Open WAP Open WAP
Telecom territory
/Pricing range

3
Stand-by screen,
VM(client SW)
service Source: modified from ppt by LGT at IT conference, 2008

31/36



As market players are struggling to survivie in the new converged environments, business environments are
getting similar to those of Internet market 15 years ago, or even more complicated, where wired telecom
sticking to closed network and its own services eventually was gone out of the market

Customer costs

Flat pricing
Combined pricing
Incentives/promotion
Very similar to
Affordable phones
Open to collaboration
what?
Customer use with unfamiliar industries

Innovative -> practical
Strategic alliance
payment, entertainment, media, search Internet market
evolved from proprietary network
Cooperation/Win-Win
15 years ago
Standard

Convergence

32/36



Though the mobile market has different restrictions and considtions from those of the Internet one, Korean
players will be able to get crucial insights from this history at large

History of closed network with low speed Drivers behind the explosion of subscribers
Vs. open Internet with hight speed
Subscribers
Broadband Internet provision
Open Internet, open architecture
& popularization
xDSL, Cable network

Pricing policy change:
meta-rate system to flat-rate sum system

Telecom community(closed network) Network environment/space expansion:
PSTN network (plus a few of ISDN)
from closed telecom network to open Internet

Abundant capital/investment inflow
Time
to the market; explosive generation of busines
models, new services, technology trials, etc.
Unit: thousand
in the open competition
’96 ’97 ’98 ’99 ’00 ’01 ’02

Users 731 1,634 3,103 10,860 19,040 24,380 26,270
Source: evaluated and surveyed by KRNIC, 2005
Source: KRNIC, 2005

33/36



Korean mobile market is opening its market to outside overtime in order to make itself more competitive

Wipi removal

10% mobile phonens from abroad

More USIM-based phones

MVNO approval soon

…

Business environment is tougher and getting similar to that of Europe market including Norway,
which means that it is familiar to Norwegian/European companies

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VII. Behind the successes of Korean ICT industry Korean Mobile Market

To be updated, with two to three points

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Thank you!!

For more information, please, refer to the the following contact information

Changan Choi (Mr.)
Market Adviser, IN Seoul office
Office: +82 767 2653, Mobile: +82 10 4847 0237
E-Mail: changan.choi@innovationnorway.no

Reidar Grevskott, Commercial Counsellor, IN Seoul office
Mobile: +82 10 3743 5992,
E-Mail: reidar.grevskott@innovationnorway.no

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Mobile evolution: Latest trends of Korean mobile market and its movement