Qualcomm and Teleepoch
Enter Into a 3G CDMA Subscriber Unit License Agreement, October
6, 2007
MTN chooses Cambridge Broadband
Networks for multi-service wireless network in Rwanda, October 6,
2007
Brazilian government to
publish 3G bidding rules soon, October 6, 2007
KTF 3G service suffers
from technical problems, October 6, 2007
Argentina’s Personal
lunches 3G service in Rosario, October 6, 2007
Russia has it's first 3G
network, October 6, 2007
AT&T could drop Alcatel-Lucent
as 3G mobile network supplier, October 6, 2007
Enea Extends License Agreement
with ZTE for 3G Handsets, October 2, 2007
LG to unveil premium handsets
in Brazil, October 2, 2007
KTF 3G subscribers doubled
in less than 3 months, October 2, 2007
3G policy in India will
be non-uniform, October 2, 2007
- previous news
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South Korea Claims Success with 3G
October 9, 2003
Taken at face value, South Korea’s determined early-to-market 3G strategy
is paying dividends. Since the November launch of their “Enhanced Version
– Data Only” or EV-DO 3G network, South Korea’s mobile leaders SK Telecom
and KTF have boasted enviable statistics
- Within eight months of launch, SK Telecom acquired more than 1 million
EV-DO users, equalling roughly 5.6% of total subscribers. KTF has nearly
0.7 million or 7% of total subscribers. This was in spite of having just
four to five compatible $US500 handsets in a market where subsidies are
banned.
- Better still, the introduction of EV-DO 3G services has caused a spike
in data spend. SK Telecom says it’s the monthly ARPU from its EV-DO services
is $US14 -- nearly three times higher than revenues from the slower-speed
CDMA1x. Similarly KTF’s monthly EV-DO ARPU is $US10.
- Wireless video is popular with 3G users. EV-DO networks allows transmission
speeds of up to 2.4mbit/s, allowing streaming of video. The most popular
services are movies (condensed into snapshot-sized 2.5 minute videos)
and mobile broadcasting of news, traffic and sport. More than 90% of KTF’s
EV-DO revenues coming from video-on-demand and broadcasting. This is viewed
as proof of pent-up demand for 3G services.
But this success has come at a price. Dig deeper and a story of aggressive
marketing, cut- throat promotional pricing and heavy early acquisition
costs emerge. Not surprising in a new network launch, but raising questions
about just how long this growth can be sustained.
South Korea’s mobile market matures -- EV-DO growth comes at a price
South Korea’s overall mobile growth has stalled, and subscriber numbers
have decreased for two consecutive months. Yes, wireless data revenues
are rapidly increasing but still only comprise about 10% of total ARPU.
This is still considerably lower than some western markets where SMS-fuelled
data ARPU is as high as 14 to 17%. Voice revenue growth is slowing and
competition increasing.
EV-DO is therefore the centrepiece to operator’s strategy of increasing
customer value. While EV-DO network technology is cheaper to deploy than
the competing W-CDMA technology, other costs are high. In 2002 SKT’s overall
marketing expenses escalated 80% to $1.4 billion, against total revenues
of $7.5 billion. Marketing costs rose 37% between Q3 and Q4 alone -- the
period when EV-DO was re-launched as a commercial service. This contributed
to a 19% drop in operating income. This, coupled with a 60% increase in
network capex, lead to a powerful investor backlash against SK’s 3G plans
early in 2003.
At the same time, both SK Telecom and KTF offered heavy promotional discounts
-- all-you-can-eat flat rate packages of $US20 per month until June 2003.
While consumption of video and data was high (averaging 40,000 packets)
during this period, it more than halved halved to 18,000 packets as soon
as new higher tariffs were introduced. For all the range of sophisticated
services on offer in South Korea, the vast majority of users still favour
cheap and cheerful ringtones, screensavers, logos and messaging. It means
video at a higher price tag is likely to prove a harder mass market sell.
Another cost is development of content. Both operators are now keeping
a higher proportion of content revenues to cover much higher costs of
rights management and licencing. SK Telecom is commissioning as well as
creating its own 3G video content. It offers more than 6000 pieces of
content, 30% of which are recently developed or custom made. This has
lead to a change in business model – SK is directly investing in the production
of films and video with content owners, which it is then repurposing for
mobile at no extra cost. It’s a strategy that would be prohibitively expensive
undertaking for most mobile operators who lack the size and clout of SK.
EV-DO paves the way for W-CDMA
The sustainability of EV-DO’s success will depend on a number of factors.
One is the price of handsets coming down -- difficult in view of the ban
on handset subsidies in South Korea. The other is cost of content. We
expect EV-DO data revenues and usage to stabilise and possibly decline
in the short term as users re-adjust to higher tariffs and operators recoup
costs of content-rich services and move towards a more sustainable business
model. But in the longer term, if EV-DO services are to translate into
a popular mass market medium, then operators face a tricky balancing act
between offering tariffs that encourage migration from the simple and
popular services of today without underselling the product.
Yet for South Korean operators, the stakes are too high to risk losing
momentum. They need EV-DO to work, in order to shore up the business case
and familiarise users with 3G services. Otherwise they risk an investor
backlash ahead of the launch of W-CDMA -- an entirely new 3G network they
are obliged to begin building this year under licence requirements.
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3G Motorola A920
