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Broadband Internet in Korea History, Status, Strategy and Lesson

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  1. Broadband Internet in Korea(History, Status, Strategy and Lesson) Taipei August 27, 2001 Hyunje Park ( ZooIn.Net, Co., Ltd. Seoul, Korea

  2. Contents • Profile of Internet in Korea • Profile of Applications • Profile of Broadband Internet • Key Drivers of Broadband Growth • Status of Infrastructure • Broadband Applications/Portal • History of Korean Internet • Thrunet Case Study • Problems and Issues • Conclusions Korean Broadband

  3. Introduction • Well-developed Physical Infrastructure • Liberal and Competitive Telecommunications Providers • Killer Applications for Eager and Sophisticated Users • Conducive Social, Economic and Political Environment Need to Become Digital Society: for Realization of Full Potential of the Internet. Korean Broadband

  4. (Unit: 000’s users) Sweden 20,930 65% 19,040 Canada 60% 59% US Switzerland 51% 10,860 Singapore 46% 45% Korea Hong Kong 34% 3,103 Japan 33% 366 731 138 1,634 60% 0 10% 20% 30% 40% 50% ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01.3 Profile of Internet Users(1) • Drastic increase of Internet users during the past 2 years Internet Users: approx. 21million Outlook of Internet Usage by countries Internet service launched The first Broadband Service launched by Thrunet ※ Source : Ipsos Reid, Internet survey, May. 2001 ※ Source : KRNIC, Mar. 2001 Korean Broadband

  5. Profile of Internet Users (2) • Users by Type of Access Source : MIC Korean Broadband

  6. Profile of Internet Usage (1) • Outstanding Internet usage: qualitative & quantitative aspects No. of page views & time spent on-line at home per month Percentage of Internet users using the audio-video and game protocols 774 54.1% World Average Korea 9.1 73.9% 8.6% Hong Kong 35.0% 2,164 Korea 4.7% 16.3 Singapore 32.0% 678 5.8% US U.S. 29.5% 10.0 1.9% France 788 25.3% Japan 2.9% 7.9 Denmark 23.0% 0 20% 40% 60% 80% Page view per person Connection hours per person Audio-Video GAMES ※ Source : Nielsen/NetRatings, Mar. 2001 ※ Source: Netvalue, Feb. 2001 Korean Broadband

  7. Profile of Internet Usage (2) Top 10 cities & countries with most “.com” domains Top 10 sites by page views ※Source : NSI(Network Solution Inc.), Dec. 2000 ※ Source : Alexa Research, Sep. 2000 Korean Broadband

  8. Profile of Internet Usage by Applications(1) • e-Commerce (Unit : Million Won) * Estimate Source : KISDI Korean Broadband

  9. Profile of Internet Usage by Applications(2) • Internet Banking (Cont’d) <Growth of Internet Banking Users (Bank of Korea, April 23, 2001)> Korean Broadband

  10. Profile of Internet Usage by Applications(3) • Internet Market • Internet Advertising Source : Samsung Economic Research Institute • Internet Game * Estimate Source : Korea Entertainment System Industry Association (Unit : 100 Million Won) (Unit : 100 Million Won) Korean Broadband

  11. Profile of Broadband Internet Usage • Rapid increase of subscribers No. of broadband subscribers % of Internet HH connecting via broadband (Unit: 000 Subscribers) 6,000 Korea 57.3% 6,250 11.1% US 5,000 8.1% Hong Kong 3,870 4,000 7.1% Singapore 2,679 3,000 6.0% France 2,000 1,555 5.8% Denmark 649 1,000 5.0% Germany 272 3.1% 0 UK ’01 6 ’99 12 ’00 3 ’00 6 ’00 9 ’00 12 ※ Source: Ministry of Information & Communication of Korea (MIC) ※ Source: Netvalue, Mar. 2001 Korean Broadband

  12. Profile of Broadband Internet Usage(2)30 Dominance of ADSL in broadband Internet access market Broadband users by last mile technologies, US & Japan (At year-end 2000) (Unit: 000 Subscribers) 3,500 ADSL (55%) U.S.A 3,000 2,500 CATV (32%) 2,000 1,500 JAPAN Others (13%) 1,000 500 0 `98 `99 `00 `01.5 ※ Source : MIC, KRNIC ※ Source: Korea Information Society Development Institute (KISDI) Korean Broadband

  13. Key Drivers of Broadband Growth • Introduction of fair competition • Well-developed physical infrastructure • Always-on service for just US$ 30 per month • Informed, eager and sophisticated users • Increase in usage of multimedia contents and network games • High urban density and residential area • Promotion of IT industry • Driving force from pioneers • Rapid proliferation of PC cafes Korean Broadband

  14. Introduction of Fair Competition

  15. Introduction of Fair Competition • Telecommunications deregulation creates tremendous growth opportunity for new market entrants in 90s. • Monopoly by Korea Telecom in early 90s slowed adaptation of ISDN. • The service quality has been improving with keen competition between KT, Hanaro, Thrunet etc.. • Introduction of various broadband access technologies • Extension of service area • The fall of the price • The improvement of service quality Korean Broadband

  16. High-speed Internet Access by Companies • Cable Modem : 10 Mbps • ADSL : Downstream (1.5 ~ 8 Mbps) Upstream (16 ~ 640 Kbps) < High-Speed Access Service Subscribers (Mar., 2001) > Source : MIC Korean Broadband

  17. Speed of Broadband Internet < Speed test > Source: Thrunet Korean Broadband

  18. Physical Infrastructure

  19. Physical Infrastructure • Multiple nation-wide fiber optics cables • Korea Telecom • Korea Electric Power Co.. Basis for Thrunet, Hanaro, and Powercom • Korea Gas Co and Korea Road Co Basis for Dreamline and GNG • Construction of Optical Internet based on physical dark fibers in 2000 Korean Broadband

  20. Physical Infrastructure • Backbone • is developed by several infrastructure companies • Status of Fiber Optic cables (source:Thrunet, 2000) Korean Broadband

  21. Physical Infrastructure • electric pipe, a steel tower, electric pole Source: Thrunet(March 1998) To usea basic facilities of communication net 2450Km electric pipe of and 5,800,000 electric pole In the whole country 100% fiber optics network is Makes of 2,000 Optical Node. Korean Broadband

  22. Information Superhighway (1) • 1st Stage (1995~1997) • Optical Network in 80 Urban Centers • ATM Testbed Exchange Network • 2nd Stage (1998~2000) • Nationwide Service of ATM Network (July, 2000) • Nationwide Optical Network (Dec., 2000; 155 Mbps ~ 5 Gbps) 3rd Stage (2002~): Plan being finalized <The Status of Infrastructure Implementation> Korean Broadband

  23. 철원 속초 화천 양구 양양 인제 파주 춘천 강릉 홍천 양평 서울 횡성 동해 정선 인천 평창 원주 울릉 삼척 영월 태백 수원 제천 충주 울진 단양 봉화 음성 영주 괴산 안성 진천 당진 천안 아산 예천 안동 서산 영양 문경 청주 예산 연기 보은 홍성 상주 공주 청송 영덕 의성 청양 보령 군위 대전 부여 옥천 영동 서천 논산 구미 왜관 금산 익산 김천 영천 포항 대구 성주 군산 무주 경주 진안 전주 김제 거창 고령 청도 장수 울산 부안 임실 합천 함양 밀양 양산 창녕 정읍 산청 남원 순창 고창 담양 함안 김해 의령 마산 곡성 장성 부산 영광 구례 진주 진해 광주 함평 광양 사천 하동 고성 무안 나주 화순 순천 통영 거제 남해 여수 목포 영암 보성 고흥 장흥 강진 진도 해남 완도 제주 Information Superhighway (2) 연천 포천 가평 의정부 고양 김포 구리 광주 안양 성남 여주 이천 안산 화성 용인 평택 범 례 622M - 5Gbps (12) Node 155M - 622Mbps Access Point(132) 성산 ○ 포 Korean Broadband

  24. Uijeongbu KIST Sungdong Kangreung YWCA Kangdong Mok-dong Suyoo SKT Pyongchang Donghae Guro S. Seoul T/C KEPCO Samsung-dong Kangwon SKT Yangpyong Shinsegi South Inchon D/O Borame SKT Thrunet HQ Wonju Taebaek Inchon SKT Jooan Bundang Icheon Anyang Shinsegi Yongwol Thrunet node (DWDM 80G) Suwon Jechon Taejon SKT Pyongtaek Chungju Taejon #2 Cheonan Taejon Shinsegi Chungju Taegu #2 Thrunet node (2.5G) Taegu Shinsegi Taejon #1 Gumi Pohang Taegu SKT Customer node (2.5G) Taegu #1 Ulsan Jeonju Kwangju Shinsegi Masan Pusan #1 Kwangju #1 Jinju Suncheon Pusan SKT Kwangju #2 Powercomm node (2.5G) Pusan Shisegi Kwangju SKT Pusan #2 Thrunet Network • Basic backbone cables were leased from KEPCO, SK, and GNG. • Local Network : Owns 30,000 Km fiber optic network in metropolitan areas Thrunet HFC Network SK Telecom Fiber Optic Core Rental : 1,781km GNG Networks Fiber Optic Core Rental : 524km Korean Broadband

  25. Optical Internet of Thrunet in 2000 서울DC 노원 동대문 동부 동서울 경기북부 신당 중앙 용산 속초 양천 의정부 서초 강릉 횡성 문산 서서울 한강 나라 강남 일산 …. 송파 춘천 강서 북인천 강동 관악 원주 남동 서인천 영월 인천RDC 남인천 서해 원주RDC 광명 부천 한빛 경기남부 용인 안양 분당 이천 기남 평택 충주 김천 영주 태안 진천 청주 영남 안동 동구 구미 문경 대전RDC 대구RDC 금호 푸른 경북 포항 수성 전주RDC 동구 동구 대구 서구 울산 남원 익산 금강 중구 진구 북구 기장 군산 김제 범진 정읍 동남 부산RDC 해운대 진주 부산S 서경 마산 금정 광주RDC 부산H 중부산 중구 창원 경남 서부산 Index 남구 목포 서광주 낙동 main (DC, RDC): 8 Old SO,H/E(’99): 38 New SO,H/E(’00): 46(10) trunk (2.5G, 1G, 622M) 제주 circuit (OC12, OC3,T3) 서귀 Korean Broadband

  26. Access Network • KT • Houses of more than 90% of major cities is located in 3.5Km from Central offices. • KT maintains 20-30% of telephone lines every year. • Cable TV by KT and KEPCO • Cable TV home pass ratio is 60%, 8.02million of 13.37 million household • 55% of 8.02 million home pass is bi-directional(KEPCO area) • Extension of access networks by broadband ISPs using seed of KEPCO and other’s cables: Thrunet and Hanaro Korean Broadband

  27. 속초 춘천 동두천 강릉 양주군 의정부 고양 파주 구리/남양주 김포 하남 부천 성남 광명 과천 인천 서울 광주군 안양 시흥 군포/의왕 원주 안산 용인 수원 이천 오산 평택 제천 당진군 천안 충주 예산군 아산 서산 홍성군 괴산군(증평읍) 영주 청주 연기군 안동 공주 부여군 영동 의성군 보령 김천 논산 대전 칠곡군 구미 금산군 포항 대구 영천 익산 경주 군산 전주 경산 김제 정읍 울산 양산 함안군 김해 창원 부산 마산 광주 진해 나주 순천 진주 광양 거제/통영 보성 목포 여수 고흥군 제주 서귀포 Network Plan of Hanaro Telecom Securing early mover advantage and selective rollout 2000 2001 • Total Cities 66 77 • Km Fiber 9,341 10,672 Owned 6,447 7,049 • Coverage - Fiber N/W 2.6M 3.0M (ADSL) - HFC 4.8M 7.5M (Cable Modem) - LMDS 0.2M 0.2M Korean Broadband

  28. Price

  29. User’s Internet Need Thrunet Mission Always On easy use and installation Multimedia Contents connection at high speed End of World Wide Wait Popularization of internet Building Next Generation Internet Infrastructure of 21st century communication Active coping with revolution of Internet Korean Broadband

  30. Price Strategy by Thrunet in 1998 Phone fee • basic assume – the value of Dial-up Modem customer Home User using the internet 135,000 Seg1 : over 5h (1.6%) 29,568pers. Seg2 : over 3h (9%) 166,320pers. Seg3 : 2~3h (23.4%) 432,432pers. Seg4 : 1~2h (25%) 462,000pers. Seg5 : 30min~1h (26%) 480,480pers. Seg6 : below 30min(15%) 277,200pers. The customer Value Demand Curve 81,000 • 59.6% of user use 1 hour/day and pay 30,000won/month. • If the fee is 38,000won, it’s very attractive to 54% of user. • In case of 48,000won, size of market is 40% of user(700,000 pers.). 67,500 48,000 38,000 30,000 20,250 13,000 seg1 seg2 seg3 seg4 seg5 seg6 59.2% 54% 40%

  31. Price Strategy by Thrunet in 1998 • Thrunet’s goal in 1999 : 125,960persons • ’98 Dial-up Modem user at home : 1,662,000persons - Heavy user (over 3hours/a day ): 11%, 196,000persons - Medium user (1-3hours/a day) : 48%, 894,000persons • Initial Target Customer : Heavy User To catch the heavy user will be enough for the goal. Main strategy is not lower cost but high quality services that they want. • Chasm Overcome Program : Reducing the Price Maximize the chain reaction effect by the successful development of Initial market A reduction of price for spreading Thrunet over Medium user. Development of killer service for Early majority

  32. Very high speed service! 100 times faster than dial-up modem Convenient as TV! Turn on and connect without action Always on! No need to connect or disconnect Use phone and Cable TV at the same time Economical service Thrunet Internet Service - Promotion • Thrunet’s Five Good Services ! Korean Broadband

  33. Price • Monthly fee: 52,800won fixed-rate by Thrunet in 1998 • Usage fee: 41,800won • Modem rental fee: 10,000won • Price down by competition • Promotion of free modem rental • Economic version of broadband service: less than 29,000won • ADSL G.Lite • Home PNA • LAN version Korean Broadband

  34. Charge System • High-Speed Access Service Charges (Unit : Won) Source: MIC Korean Broadband

  35. Broadband Access Service Charge by Countries Source: KISDI 2001 Korean Broadband

  36. Informed, Eager and Sophisticated Users

  37. Analysis of Customer Needs by Thrunet in 1998 User Behavior Dissatisfactions internet PC communication The purpose of use 74% 38% internet PC communication A slow speed/ Interruption the Connection Obtain Information 78.7% 24% 6% 20.1% Information lack 55% Offer a free S/W 4% 6.3% cost/price Community 5.2% 21% 18.3% 3% variety service 16.1% The others 3% Business Insight Insight To catch the pc communication users  Strengthening shareware hosting services and community services PC communication users feel uncomfortable about the speed, variety of contents and other services etc.. source: Gallup Research 97, electronic paper source: Gallup, the Nation Assembly communication committee, E&Y Analysis

  38. Market Survey on Internet Usage • Growing discontentment of dial-up Internet users Access Speed Major complaints of Internet Users (Oct. 1999) - Transmission capacity per bandwidth Tariff - Burdens of a time-based usage rate Service Quality - Frequent disconnection during peak hours ※ Source : National Information White Paper 2000 Korean Broadband

  39. Analysis of Customer Needs by Thrunet in 1998 User Behavior use time (1day/average) Pay the cost internet PC communication Over 5hours 8.1% 1.6% internet PC communication Over 3hours 10.8% 9% 4.4% Over 60,000won Average rate 53.000won ( communication fee : 11,000won+ Additional service : 6,000won+ Phone fee : 36,000won 2-3hours 18.1% 23.4% 30,000~50,000won 8.4% 1-2hours 38.5% 25% 10,000~30,000won 20.1% 22.4% 26% Below 10,000won 7.4% 30minutes-1hour Below 30minutes 2.1% 15% none 54.5% Insight Insight 75% in Internet user and 59% in PC Communication access internet over 1hour per one day to obtain information for working in school and working place free internet service. Internet user access internet services with LAN that is low fee. Over 50% in them access free. PC communication user pay about 50,000won, but doesn’t realize about phone fee. It’s Important that the person make decision of the purchase. source: the Nation Assembly communication committee, hangkyoreh 97, E&Y Analysis

  40. Profile of Internet Users (3) • Internet Users out of Total Population by Gender Source : KRNIC Internet Users out of Total Population by Age Source : KRNIC Korean Broadband

  41. Killer Applications - Multimedia Contents and Games

  42. Killer Applications Overcome Chasm Saturation (Maturity) Rapid Growth Chasm Major market Market Development Decline Innovator Early Adoptor Early Majority Late Majority Laggard Time • Innovator : 2.5%(2-5%) • Early adopter : 13.5%(10-15%) • Early majority : 34%(30-40%) • Late majority : 34%(30-40%) • Laggard : 16%(5-20%) Korean Broadband

  43. The Broadband Opportunity • We offer a full range of Korean-language multimedia content and applications in addition to search, news, weather and sports Web/Mail Hosting, VPN VOD, TOD, NOD IP phone/fax Always on Internet Access Cable Network Virtual School, Distance learning Multimedia BBS, Multimedia Chatting, Virtual Community Free Web Mail, Unified Messaging, Video Conferencing E-commerce, Financial Transaction Korean Broadband

  44. Thrunet Vision Enabling e-business & e-life: Integrated IP Service Provider Customers Individual Enterprise Residence Anywhere SME Large Corp. / MNC Total IP Service Mobile IP E-content/ Digital Media Integrated IP Service Fiber Optic Leased Line Services Internet access VOD/ ITV Home network VoIP IP Fiber OpticNetwork Integrated IP Solution Always on access Highest speed broadband(2 way) Bundled service; single billing Usage/Needs based billing opportunity Multi-device Mobile connectivity anytime, anywhere • One ID,one billing • Cyber home • E-life enabler Independent Network; Reliability Best quality, best price Bandwidth bundled with applications One stop total service Value Proposition Broadband Internet Access Enterprise Network Business Business Unit Korean Broadband

  45. Vision of Hanaro Telecom INTERNET GLOBAL LEADER Integration of Online & Offline Business Access Business Residential Subscriber Membership HanaNet.Net Family, daily living, care Entertainment Web Life Internet Commerce Biz Value Creation Co-location Solution ASP Opportunity Sharing Corporate Subscriber Partner N-Gene(IDC) Korean Broadband

  46. Fever of Starcraft • Starcraft is an Internet game by Blizzard, released at April, 1998 • Starcraft is the best application for PC Bang in 1998 and 1999. • Half of higher ranker in World top rank 100 was Korean in 1999. • Korean gamers won some world champion titles. • Starcraft brought the develop of Internet industry, game industry. Korean Broadband

  47. Adult Contents • Internet becomes alternative medium for adult contents to avoid strong control by government. • Adult movie on demand services is one of the most used applications. • Person-to-person based video distribution is one of the hot applications. Korean Broadband

  48. Profile of Internet Usage by Applications • Internet Stock Trading • Rapid Growth of Online Stock Transactions • 94% of Online Transactions by Internet • Internet Phone • More than 15 Internet Phone Service Providers • Serome Technology (Dialpad), Thrunet (Thruphone), etc. Korean Broadband

  49. WP 1.8% other 1 % content retrieval 11.5% chatting 16.1 % Game 76.4 % Usage of Applications • Internet Plazas Broadband Applications The others advertisement Korean Broadband

  50. Others 13% Total broadcast 23% Education 11% Culture/art 9% Personal menia 9% Health 2% Music 26% Entertainment /enjoyment 7% Internet Broadcasting and Video Chatting # of Broadcasting station Activation of Internet Broadcasting since 2000 Music broadcasting is most popular. Personal broadcasting service supported by video chatting Korean Broadband