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KT plots path for WiBro growth

WiBro gaining market traction

Korea’s fixed-line incumbent is looking to discounted bundled offers, increased network coverage, more devices and Wave 2.0 kit to spur WiBro take-up.

WiBro, Korea’s Mobile WiMAX service brand, is beginning to gain market traction. After a slow start, primarily due to limited network coverage and a very small range of devices, KT (Korea Telecom) reports that it had over 200,000 subscribers by August 2008.

This number may still appear small for a country that has a population of 48 million, a mobile penetration in excess of 90 percent and, at the end of 2007-according to figures from Informa Telecoms & Media-a household broadband penetration of 80 percent (of which KT has a 45 percent share).

But there are grounds for WiBro optimism. Although KT technically launched WiBro back in June 2006, it was only operational in five selected areas in Seoul. It wasn’t until April 2007 that KT launched full commercial WiBro service across the entire Seoul area, which helped to generate greater interest in the service. By the end of 2007, KT’s WiBro subscriber base reached 100,000, which more than doubled in size eight months later.

Supporters of cellular technology might argue that 3G, and particularly HSDPA, will be the more popular route in Korea to higher data speeds on the move. Pyramid Research says there were nearly six million HSDPA subscribers in Korea by the end of 2007, which is a strong growth rate given that mobile operators KTF (53 percent owned by KT) and SK Telecom-the country’s largest mobile operator in terms of subscribers-only started offering a nationwide HSDPA service at the beginning of 2007.

But Dr. Hyun-Pyo Kim, director of the WiBro Business Unit at KT, points out that most of the new HSDPA subscribers in Korea come from current 2G and 3G users who have been tempted to upgrade to new devices by high subsidies. “There’s not much change in the total number of mobile voice subscribers and pure market growth is negligible,” says Dr. Kim. “The mobile broadband data market, however, is a totally different story. This is a newly emerging market and most of the WiBro subscribers are new data service users who didn’t switch from other alternate services. The increase of WiBro subscribers implies almost pure and new market growth.”

WiBro differentiators

Dr. Kim expects a number of factors will boost WiBro take-up going forward. These include the extension of the WiBro network beyond Seoul and a wider range of attractively priced devices.

The introduction of bundled packages that leverages KT’s mobile operation (KTF) and its dominant market share in fixed broadband is also central to the WiBro growth strategy. By offering downlink data throughput of 3Mbps for both nomadic use and on the move (at speeds of up to 120km per hour), Dr. Kim believes WiBro can be complementary to FTTH and cellular services. (According to figures from Informa Telecoms & Media, FTTH-offering symmetrical speeds of 100Mbps and above-had a 37 percent market share of the fixed broadband market at the end of 2007; KT reported it had more than one million FTTH subscribers by August 2008.)

“A key market differentiation for us will be to offer a bundled package of either cellular and WiBro, or fixed broadband, cellular and WiBro,” says Dr. Kim. “Customer can then get price discounts on the individual services.”

In July 2008 KT introduced its ‘WiBro+Nespot (wifi)+Megapass (fixed broadband) bundled package at a 32 percent price discount compared to the cost of subscribing to each service separately. Dr. Kim expects handsets that allow hand-off between WiBro and HSDPA networks, mid-session, to become available “soon”. This would increase the attractiveness of a discounted HSDPA/WiBro offer still further.

KT has not always been allowed to offer discounted bundled offerings. It wasn’t until early 2007 that the Ministry of Communications (MIC) removed KT’s status as a dominant market operator and, by doing so, put the incumbent in a much better position to use for competitive advantage its range of fixed and mobile services through bundled offers. This is important given that SKT acquired fixed broadband player Hanaro last year and can provide quadruple-play services of its own. So too can the LG Group, the country’s third biggest telecom player, which also has both fixed and mobile networks at its disposal.

Up until the introduction of bundled packages, WiBro had only two pricing plans available: $10 for 1GB per month, and $20 for 30GB per month. By contrast, KTF’s current data pricing per month is $22 for 2GB, and $33 for 4GB, which might suggest there is a danger that WiBro cannibalises HSDPA data revenue. Dr. Kim believes not. “KTF is focusing on voice and handset devices with HSDPA rather than data-centric devices,” he says. “It’s a different strategy.”

If a KT and KTF merger should happen, and talks are underway between the two companies to achieve this, there could be even more scope for strategic cooperation. “A KT/KTF merger would help to offer a tightly-coupled pricing plan of WiBro and HSDPA data services together,” says Dr. Kim. “In addition, limited coverage of WiBro-especially in small cities or rural areas-would be supplemented by KTF’s HSDPA network.”

Wider coverage, more devices

By March 2007 WiBro coverage reached across all of Seoul, Bundang and several hot zones, including 17 university campuses near the country’s capital. The accumulated capex bill by 2007 was $670m.

For an additional $130m of investment during 2008, KT has extended WiBro coverage to 19 cities surrounding Seoul in the Gyeonggi province. These extension areas will go live from 4Q 2008, which will increase WiBro’s population coverage from 12 million to 24 million.

The extension areas will use more than 500 Wave 2 WiBro base stations-all supplied by Samsung-which incorporate MIMO and smart antenna technology. “With Wave 1 equipment [in Seoul] we managed 19Mbps on the downlink and 5Mbps on the uplink in each base station sector,” says Dr. Kim. “With 2×2 MIMO Wave 2 equipment, we can double that throughput, which will increase the usage of multimedia applications.”

KT intends to start upgrading its Wave 1 network in Seoul, although no timetable for that has yet been publicly disclosed.

Dr. Kim does not reveal either how many WiBro subscribers (and the ARPU level) that KT needs to break even on its WiMAX investment. But earlier this year, KT set an ambitious goal of 410,000 WiBro subscribers by the end of 2008.  “It’s not going to be easy to achieve this,” concedes Dr. Kim, “but we’ve now got the main drivers for growth in place: increased coverage and a greater number of devices.”

The range of WiBro devices, as of August 2008, stood at 21 terminals: three handsets, eight portable PCs and ten USB modems .To help stimulate growth, KT offers the USB modems for free, provided the customer signs up for at least an 18-month contract.

In July 2008 KT announced three mini-notebooks eligible for a discount on purchase if customers sign up for WiBro service at the same time. Buyers of the Asus EeePc 701and Kohjinsha E8 receive a KRW200,000 ($190) rebate (equivalent to a 30 percent discount) if they sign up to an 18-month WiBro contract. Those fancying the HP 2133 notebook have to commit to a 24-month contract to qualify for the rebate. None of these mini-notebooks have built-in WiBro support so they need USB modems.

“Navigation and internet browsing  area two applications that have high market potential to drive WiBro subscriber growth,” says Dr. Kim. WiBro plug-in navigation devices from Mercury and Inits are currently available, while WiBro-embedded navigation devices, says Dr. Kim,  will be released soon “from many companies”.  KT expects MIDs (mobile internet devices) to become available during Q4 2008.

Despite the increasing number of devices coming into the market, the 1A band class (2.3GHz frequency band and 8.75MHz channels) used for WiBro is unlikely to receive the same level of vendor support as the more mainstream band class 3A ((2.5GHz frequency and 5/10MHz channels).  This, in turn, would appear to limit WiBro’s chances of competing with the vast array of devices, at different price points, that are currently available for HSPDA.

Developments at the chipset level, however, could change that. “We’re seeing prices of a single chipset supporting dual-band class 1A/3A coming down to the same level as 1A only chipsets,” says Dr. Kim. “I would expect 1A/3A devices to become available by the end of this year.”

This would give WiBro an opportunity to benefit from device development at 2.5GHz as well as open the door to roaming with Sprint’s Xohm in the US and Japan’s UQ Communications. Using the 2.5GHz frequency band and counting KDDI and Intel among its investors, UQ is scheduled to start commercial Mobile WiMAX service in summer 2009.

VoIP over WiBro?

If WiBro were a standalone operation, KT would no doubt welcome VoIP with open arms-a clear way to boost subscriber growth. But the incumbent’s affiliation with KTF muddies the strategic waters. The cheaper data prices of WiBro compared to cellular would mean that VoIP, as a data application, could potentially pose a threat to mobile operators’ lucrative voice revenue, especially if attractive and competitively priced handsets became available. As such, the current government ruling not to allocate a mobile numbering system to VoIP over WiBro, which would enable WiBro users to communicate with PSTN and cellular networks, may well be one that has KT’s support.

The regulatory environment in Korea is, however, changing. MIC has been replaced by KCC (Korea Communications Commission) and the new regulatory body appears much keener on VoIP over WiBro. In July 2008, KCC announced it had directed researchers at the Korea Information Society Development Institute (KISDI) to investigate the long-term effects on the mobile market of allowing WiBro operators to offer voice services using a mobile numbering system. Moreover, KCC is reportedly considering the award of MVNO licences that would allow the winning bidders to offer VoIP calls over the WiBro networks of both KT and SKT.

Dr. Kim says that no decision has yet been made at the corporate level whether or not KT would offer VoIP over WiBro if the regulatory environment allowed it. At a technical level, however, VoIP over WiBro-and voice call handover between WiBro and CDMA networks-has already been successfully demonstrated.

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