Lessons from South Korea

G. Sharmila
Sept 9, 2014

Malaysia has its broadband strategy all wrong with some of the lowest speeds in Asean and the highest charges. Perhaps it could learn something from South Korea which has been very successful in increasing broadband penetration.

When you think of the words “high-speed broadband” and are asked to associate an Asian country with it, there’s no doubt that South Korea will be at the top of your list.

It’s hardly surprising then that in its 1Q14 State of the Internet report, Akamai Technologies highlighted that at country/region level, South Korea continued to have the highest average connection speed at 23.6 megabits per second (Mbps) and maintained a broadband adoption rate of 94% in the first quarter.

According to BuddeComm, a global independent telecommunications research firm, South Korea has the world’s highest number of broadband services per capita. Into 2014 over 38% of the population and around 95% of households were broadband subscribers.

It also pointed out that since 2006, South Korea’s policy emphasis has been on completing a Broadband convergence Network (BcN) with wireline speeds of 50-100Mbps per household and 1-2Mbps on wireless connections.

It’s not just high broadband speeds that South Korea is famous for, but also the affordability of high-speed broadband.

Myeong-Cheol Park, head of the department of business and technology management at the Korea Advanced Institute of Science and Technology, points out that Koreans pay around US$20 (RM63.80) monthly for an unlimited 100Mbps broadband connection.

Compare this to Malaysia, where a basic 5Mbps UniFi package with a 60GB cap costs US$47 or RM149, or some two half times the price for speed which is one twentieth that of South Korea!!.

So how did South Korea manage to get to its enviable state of broadband adoption today? According to Park, the story began in 1993, when the Korean government prepared a blueprint for high speed information infrastructure in the country.

The following year, state-owned Korea Telecom (now KT Corporation) started providing commercial Internet services based on the ISDN technology. (ISDN, which is short for Integrated Services Digital Network, is a telecommunications standard for sending voice, video and data over telephone lines).

“KT had a monopoly in the market and prices were very high for ISDN services. The service was pay-per-use and expensive; this was a hurdle to widespread broadband adoption,” Park told KiniBiz in a recent interview.

Things started to change for the better in 1999, when a privately-owned company called Hanaro Telecom (now known as SK Broadband) started providing ADSL services. “It was not commercially proven technology, only tested in the lab, therefore it was innovative, though risky,” he explained.

However, Hanara Telecom introduced low fixed monthly usage fees for its ADSL service. “By setting the prices low, they got the numbers and were able to make profits due to economies of scale,” said Park.

The entry of Hanara Telecom in the broadband game was welcomed by the South Korean government, which posed no intervention although KT was state-owned at the time (it was privatised in 2002). In fact, the government encouraged competition. “95% of people in South Korea lived within a 4km radius, so ADSL was very good technology for them,” he said.

What was KT’s reaction to Hanara? “It decided to give up on ISDN services and started providing ADSL services,” said Park, who added that the company later introduced VDSL (Very High Speed Digital Subscriber Line) and FTTH (Fibre-To-The-Home) technologies to compete against Hanara Telecom, which worked in the public’s favour. What this did was to spur even greater competition between the players and drive down prices of broadband.

Park also pointed out that the government also gave incentives to players to offer broadband services, apart from playing a role as an early adopter by becoming a broadband customer itself.

By 2001, South Korea had become number one in the world in high-speed networks and had amassed 20 million Internet users, said Park. By 2004, it had 30 million Internet users and in 2006, began offering FTTH services, as well as introduced the world’s first WiBro and HSDPA (High-Speed Downlink Packet Access) services. (WiBro is the South Korean service name for the IEEE 802.16 e (mobile WiMAX) international standard).

“Between 2001 and 2002, most schools and public agencies had access to broadband. The government also ran public awareness programs on broadband. For instance, South Koreans undergoing military service were given free training on how to use the Internet and free training programs were also made available to housewives.

“The government also realised the importance of liberalisation and deregulated the market. To become a Internet service provider, companies had to have their own facility network, meaning they had to build network infrastructure. This led to facilities-based competition,” he explained.

“The government gave subsidies to PC manufacturers so they could manufacture lower priced, more affordable PCs,” he added. Between 2001 and 2003, the government also introduced the cyber building certification system, under which the authorities issued a certificate to a building with high-speed telecommunications capacity. This system worked well in South Korea, as most housing comprised apartments.

“Back then, there was also demand for high broadband speeds from a technology-savvy, young population. There was also the growth of killer apps, which fueled demand for broadband speeds. Examples are popular online games, extensive use of IT in education, Internet broadcasting stations and online stock trading, which became widespread,” said Park.

“Not every house had computers either, so PC cafes filled the gaps. The dotcom boom also helped promote awareness towards broadband services. Full-blown competition erupted among service providers,” says Park of that period.

What is his advice to Malaysia when it comes to broadband policies? “When there is a monopoly, there is no incentive to lower costs, you need competitors. The market should evolve by itself and the government should provide incentives to make it work. The government also needs to assume the early adopter role where broadband usage is concerned,” he said.

“You need to reach critical mass as fast as possible, services will be delayed if you don’t reach critical mass,” he emphasised. He added that pricing policy also matters. In the case of Korea, low prices increased the customer base for service providers; the sequence of doing this is less important than the actual mass broadband adoption, he said. “You need small successes to build a big momentum,” he added.

  1. #1 by Noble House on Saturday, 13 September 2014 - 4:29 am

    A Free market not only promotes but spurs innovation because, along with goods and services, the flow of trade circulates new ideas. Since companies must compete with their local/overseas counterparts, Malaysian firms can take note of all the successes as well as the failures that take place in the global marketplace. Consumers then benefit because companies in a freely competing market must either keep up with the leader in order to retain customers or innovate to create their own niche.

    In contrast, protectionist policies designed to restrict business competition exact a heavy cost on consumers. There are no economies of scale where the consumers are concerned. This is bad for the economy.

  2. #2 by waterfrontcoolie on Saturday, 13 September 2014 - 8:08 am

    When the so-called privatization is indeed ‘piratization’ of the nation based on negotiated tender process with hand-picked cronies, all Malaysians will pay the price based on planned inflation from these operators. This basic approach will never change as long as the cloned DNA continues to call the shot. What we are concerned with is this very approach itself has permeated throughout the whole society; hence no matter how they may style themselves, the same approach will be used. Just look at Khalid, of all persons around! Maybe this nation is marked and endorsed to 3rd World for the rest of this Century.

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