opinion


KCC’s voice-over-WiBro plans doomed to fail

South Korea’s Communications Commission (KCC) came into being in late February to streamline the regulatory process in the convergence era and end the years of stalemate caused by bickering between the broadcast and telecoms regulators.

In its five months of operations, the KCC has done an impressive job in some areas, most notably in the efficient progress it has made toward finalizing the IPTV-regulatory process, which had caused so much friction between its predecessors, the Ministry of Information and Communication (MIC) and the Korean Broadcasting Commission.

But the KCC’s latest policy proposal, to allow new operators to launch voice services over the country’s barely used WiBro networks, does not augur well for its major goals of creating greater competition in the mobile market and lowering mobile tariffs.

The KCC announced July 28 that it had directed researchers at the Korea Information Society Development Institute (KISDI) to investigate the long-term effects on the mobile market of allowing operators to offer voice services on WiBro networks.

KISDI is scheduled to submit its report to the KCC by the end of October, and local analysts suggest that KISDI is likely to recommend that new operators act as MVNOs on the WiBro networks of KT and SKT.

The KCC says allowing voice-over-WiBro services would promote use of the struggling WiBro networks – to which KT has attracted only 200,000 subscriptions and SKT only a few thousand – and provide new competition to the established big three mobile operators.

Some backers of the KCC’s plan say voice-over-WiBro could be the killer application the struggling service has been searching for and that allowing voice services to operate on the network could massively boost WiBro’s subscription base.

The KCC’s move to allow voice-over-WiBro services is a big departure from the policy of previous telecoms regulator the MIC, which had been resolutely against voice-over-WiBro for fear that it would damage the profitability of the three major mobile operators.

But with the KCC under pressure from the government of newly elected President Lee Myung-bak to find ways of lowering telecommunications expenses for financially struggling users, the regulator has had to embrace the possibility of introducing voice-over-WiBro services.

The big problem with the KCC’s voice-over-WiBro plan is that it will not lower mobile voice tariffs or boost the take-up of WiBro services, for three main reasons.

First, any MVNO offering voice services on the WiBro network will be at a huge disadvantage in terms of the pricing and range of handsets it will be able to offer. With the prices of HSPA handsets offered by mobile market leaders SKT and KTF – which already had a combined HSPA-subs count of 12.3 million at end-June – falling dramatically because of the huge global take-up of HSPA, there is no way that a WiBro voice operator could offer comparable handset pricing.

Second, the SKT/Hanaro merger and the move toward full IPTV services have meant that all three of the country’s major telecoms operators – KT-KTF, SKT-Hanaro and the LGT-LG Group – are offering quadruple-play services on their fixed and mobile networks.

In this kind of market, a stand-alone WiBro operator offering only wireless voice and data services would have almost no chance of remaining competitive, given that its rivals can offer high-speed fixed-broadband and IPTV services as part of a bundled offering.

Third, the KCC must realize that even if an MVNO were able to launch even moderately successful voice-over-WiBro services, the big three operators have the financial muscle and marketing power to make aggressive price cuts and eliminate the opposition in no time at all.

That would leave the KCC stuck between a rock and a hard place, given that pressure from the government means that it can’t block the price cuts from the big three, at the same as it is compelled to protect MVNOs’ voice-over-WiBro services from anticompetitive price cutting.

Voice-over-WiBro is a red herring, designed to buy the KCC time so that it can appear to be delivering on its promises to the government to lower mobile tariffs, while putting the real cause of high mobile tariffs – the cozy three-way mobile market – on the back burner.

The KCC knows that the only way to lower mobile tariffs is to introduce competition into the mobile market, either by finally introducing MVNOs or by issuing new licenses. South Korea’s three big cellcos – whose dominance has been entrenched nearly a decade – are staunchly opposed to the introduction of new competition, which they say will hurt their profitability and lessen their ability to upgrade networks.

It is little wonder that the firms are so adamantly opposed to new entrants when they are raking in huge profits. Even LGT, long considered the sickly child of the mobile market, recently reported net profits up 25 per cent year-on-year in 1H08, to KRW67.6 billion (US$67 million), and revenues up 7.8 per cent year-on-year, to KRW1.25 trillion, giving an indication of the riches on offer.

As a result, the KCC knows that it is going to come under huge pressure from the operators not to sanction any new entrants under the spectrum-reallocation program it plans to implement in 2011. As part of the program, market leader SKT is set to finally lose its exclusive access to the “golden” spectrum in the 800MHz band, which provides quality network coverage in the country’s rural mountainous areas and which KTF and LGT are desperate to access.

In breaking up the 800MHz spectrum, the KCC has its best chance to create a substantially more competitive mobile market, by granting some of the spectrum to new operators, though it retains the possibility of giving them access to the less desirable 700MHz and 900MHz bands.

The KCC appears to be heading toward providing a more competitive mobile market, but don’t place any bets on voice-over-WiBro to play anything other than a minor role.


One comment

  1. Paul 21/08/2008 @ 11:35 pm

    These sort of articles are written for Mobile operators to scare off the competition. How on earth can you compare HSDPA to WiMAX?
    Perhaps the idea is to scare off WiMAX roll-outs to make time for LTE to come to life. I say take on the Mobile operators NOW with WiMAX, let them reduce their pricing but at least they will not have the cash built up later for new technologies that keep them ahead of the rest. Why have somany mobile operators bought chunks of WiMAX spectrum???

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