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South Korea Emerges as Powerhouse in Broadband and Wireless Internet Markets

Dr. Madanmohan Rao
Internet Consultant & Writer
March 2001

It was an ambitious plan by any standards: laying a network of 22,000 kilometres of optical fiber linking 144 cities and smaller towns right across the country, ushering in a new era of affordable broadband connectivity. What was even more commendable was the fact that the plan finished two full years ahead of the original schedule, this past December 2000.

In short, when South Korea decides to embrace the Internet Age, it really means business.

With 20 million Internet users, more than 40 per cent of the country's population is now online, and South Korea has become the first country in the world where mobile phone subscribers outnumber fixed-line customers. South Korea also has the world's highest proportion of online stock trading: more than 60 per cent of trades on Korean stock exchanges are executed via the Net. Furthermore, South Korea is the fastest growing broadband access market in the world, with over 4 million ADSL users.

The completion of the national fiber optic backbone is the start of building a nation powered by knowledge and information, just as the opening of the Seoul-Pusan Highway was the start of the country's industrialization in the 1970s, according to South Korean President Kim Dae-Jung, who spoke at the recent completion of the backbone project.

In recognition of the fact that Internet commerce in South Korea may account for US$35 billion by 2004, the Economist magazine even held a conference last month called "e-Korea." The central and state government agencies are also giving e-government a big push, and in the educational sector the aim is to have all schools online by the end of the year. All universities and colleges, of course, are already online.

To tap into the learnings from Internet economies around the world, the Seoul-based Korean Association of Regional Information Societies recently held their second Annual International Summit on National IT Strategies, with speakers, attendees and exhibitors from Europe, the U.S., Australia and other parts of Asia.

"One of the lessons from our recent economic crisis is that we will be unable to adapt to the globalised economy and knowledge base without a sound IT strategy and Internet infrastructure," said Shang Hi Rhee, chairman of the Korean National Assembly's Committee on Science and Technology.

"Though we were late in launching large-scale industrialization, we have caught up fast and become a major global player. We have to do the same in the information age," urged Jin Hyun Kim, publisher of the Munhwa Daily newspaper.

In terms of number of national domain name registrations, the ".kr" domain ranks fourth in the world (after U.S., Canada, and U.K.), and South Korea is also in second position for registration of ".com" domains (after only the U.S.).

According to U.S.-based Network Solutions, Seoul registered the largest number of Internet domain names among cities outside the U.S. as of January 2001. Seoul is followed by London, Istanbul, Madrid, Tokyo, Kyonggi, Toronto, Paris and Hong Kong in this list.

"An effective IT strategy must be driven at federal, state, local and community levels," said Terry Wright, policy analyst with the state government of Victoria in Australia.

"We have no single strategy, but a diverse mix of complementary strategies," Wright said. The state's efforts have focused on building a learning society, growing IT industries, boosting skills, connecting local communities, and promoting e-governance.

Wright cited the OECD secretary general Donald Johnston, who said: "No single policy lever holds the key to the New Economy. Instead, a constellation of mutually reinforcing policies is needed that will allow entrepreneurs, firms and workers to react quickly and exploit new opportunities."

For instance, in the state of Victoria, over 1,700 schools have broadband Internet access. The Skillsnet initiative has trained 50,000 citizens so far. Libraries have been online since 1996, and a Multimedia Minister was also appointed that year. Under the Access@Schools scheme, Internet access in 146 schools is opened to the public after hours.

"We have over160 government services available online via a services portal (www.vic.gov.au/onlineservices); we also have online inter-departmental linkages and e-procurement," Wright said. E-purchasing can save upto 5 per cent on annual spending costs of $1.2 billion, he said.

In Korea, too, government initiatives are being launched at the centre as well as province levels.

"We have organized donations of used PCs to old people," said Won Jong Lee, governor of Chungbuk province (www.provin.chungbuk.kr). "We have made it mandatory for new apartment complexes to offer ADSL ports for Internet access," he added.

Chungbuk province also provides Net access in town halls, mobilizes volunteers for offering Internet training, has set up a 'hotline' to solve Internet-related problems, and is boosting local content in trade, tourism and agriculture.

"Regional governments must become local information catalysts," urged Pyung Dae Sim, governor of Chungnam province.

"Competitive governments must deal with uncertainty, become business-like, and continually learn from others. In the 21st century, speed is important, and networked societies can learn, cooperate, adapt and move fast," Sim said.

"We need network leadership and must leverage digital and people networks. We must move towards digital eQuality," he said.

Many province capitals in South Korea now have an officially designated Chief Information Office (CIO) whose role includes online publishing of public information as well as designing flexible organizational structure to coordinate information dissemination during natural disasters.

"The Internet Age is characterized by telecommuting, flattening of organizational structure, shortening of product cycles, rapid technological innovation, and interconnected world events," said professor Yoshikazu Sekiguchi of Soka University in Tokyo.

"In the post-information society, our focus must be on not just hardware but heartware," said Sekiguchi.

"Two out of three households have Internet access in Scandinavia, one out of three Internet users have shopped online," said Kim Viborg Andersen, researcher in IT policy at the Copenhagen Business School.

"The Weberian hierarchical organization is giving way to a Web-based virtual organization," he said. The Danish government expects to bring about 20 per cent savings via online procurement by 2002.

Some governments like the U.K. have set rather lofty Internet goals, said professor Chris Bellamy of Nottingham Trent University.

"The U.K.'s aims are to make it the best environment in the world for e-commerce, make the U.K. the European regional e-hub, and create a mass market for e-commerce. This includes near-universal access by 2005," Bellamy said.

The U.K. has some significant advantages here - early liberalization of the telecom sector, low cost Internet access, and early mover advantages in 3G mobile phones. There is also strong support for data privacy.

The government plans to launch 600 Online Centres for community Internet access by mid 2001. Government services will be available online in post offices, and 100 per cent of all U.K. government services are to be online by 2005.

The U.K. government also appointed an E-Minister and an E-Envoy in 1999, to act as government champions of Internet usage. A citizen portal has also been launched: www.ukonline.gov.uk

Other issues discussed at the IT Strategies Summit included designing of the citizen interface (eg. iconic kiosks, VoXML), involving citizen participation in e-services design, and creating low cost access channels like cybercafes or cheap devices based on freeware like Linux.

"At the international level, the Internet now seems to have acquired MFN status - Most Favoured Network," joked Daewon Choi, analyst at the UN's Economic Commission for Europe in Geneva.

But serious challenges arise at the multilateral level in devising digital trading systems for global e-commerce, covering data exchange, encryption, taxation, dispute resolution, domain names, patents, and contracting, he said.

Numerous Korean institutes are launching research and educational services in this regard, such as the National Computerisation Agency, Korean Institute of Electronic Commerce, and Korean Information Security Agency.

In addition to infrastructure, Internet activity is booming in other sectors in South Korea such as e-trading, gaming and travel. The site HanGame.com draws almost 17 million subscribers, or one in three Koreans; the site offers online versions of the card game hwatu which is very popular.

IT is a popular topic of coverage in local newspapers here, especially developments in Asia. A story about the growing IT competition between China and India featured prominently in recent editions.

The government wants to ensure that 95 per cent of all Korean households will have high-speed Internet access by 2005. Free Internet access is offered in some rural post offices.

"There also IT clubs in schools and a 'SilverNet' initiative for senior citizens, offering free training," according to Chan-mo Chung, research fellow at the Korean Information Society Development Institute (KISDI).

There are close to 15,000 "PC Plazas" or cybercafes in Korea, with 20 to 40 PCs each, offering Internet access at speeds of 256 Kbps to 2 Mbps (E1 lines). Thoroughly souped up for multimedia gaming, some of these PC Plazas can be almost as loud as a techno club on a Saturday night.

Flat rate ADSL access in South Korea costs US$25 per month for 1.5 Mbps, and premium ADSL access for 4 Mbps and above costs US$34 per month - well in the affordable range for most Koreans.

Free 256 Kbps access is available for schools, $25 per month extra gets them a 512 Kbps connection. Leased lines in general are available within a week of application

The local Web hosting market is extremely robust, and 80 per cent of traffic on the Internet here is local.

"South Korea's greatest assets in the Internet Age are widespread low-cost broadband access, increasing penetration of Net culture, a high level of education, high teledensity and cellphone penetration, and excellent production bases for delivering Internet devices to a global market," said Sun Phil Kwon, a policy analyst at Mokwon University.

Key challenges include meeting ADSL demand in rural areas, increasing local English language skills to tap into global markets, creating local content with global appeal, strengthening ties with the Korean diaspora, and extending Internet branding expertise to software, applications and media at a global level.

"We need to focus on creative and productive aspects of the Internet economy, not just consumptive aspects," Kwon said.

Korean academics have also wholeheartedly embraced the Net. "Most scientific journals are now online. Research initiatives have been launched for broadband applications in medicine and meteorology," said Kilnam Chon, professor at the Korean Advanced Insititute of Science and Technology (www.kaist.ac.kr).

Most Web content published in Korea is in the local script, Hangul. "Our keyboards have 26 characters, just as in English. There is one special key to switch between Hangul and the Roman alphabet. Our keyboard was standardized over 30 years ago," said Chon.

"You can type faster in Korean than in English - we have no distinction between upper and lower cases. In fact, NTT DoCoMo's wireless Internet service has become so popular probably because 60 per cent of DoCoMo users do not know how to use a PC keyboard," Chon joked.

Interestingly, Haansoft's Hangul word processor may be one of the very few in the world which has successfully survived competition from Microsoft Word. Hansoft has also moved into the Chinese and Japanese software markets.

"But we need to build our brain bank in countries like the U.S.," Chon added. Korea has an estimated diaspora population of 2 million, mostly in the U.S., China and Japan.

According to sources at Merrill Lynch, South Korea's Internet user base could increase to 36 million users in 2004 (or 73% of the population). In the same period, penetration of mobile phones is expected to increase to 64% of the population in 2004.

1 out of 6 Net users are already shopping online, thanks to high credit card diffusion and reliable logistics for delivery. Online ads accounted for 8 per cent of the overall ad pie, and will increase from $5 billion this year to an estimated $8.5 billion in 2004.

The leading portals are Daum, Yahoo Korea, and Lycos Korea, followed by Netian and Naver. California-based auction site eBay has acquired Korea's leading Web auctioneer Internet Auction Company, and the remaining two local e-auctioneers Sellpia and eSale have announced plans to merge. eBay currently operates in nine countries, including Britain, Germany, Austria, France, Italy, Canada, Australia and Japan.

At the same time, however, concern is rising over online gambling, illegal hacking, suicide sites, online sexual harassment, and violation of online privacy. Calls are rising for self-regulation and ethics in the Internet industry to address these concerns. A digital divide is also arising for rural areas and disabled people.

Online music is immensely popular here, and the court case against the Napster site in the U.S. has been watched very closely in Korea. But, according to the Korea Music Copyright Association (KOMCA), negotiations and fee-based alternatives are a better way of addressing the issue rather than outright closure of the service.

"We acknowledge the change in business in the era of the Internet. So we see no point in forcing Soribada to shut down,'' said a KOMCA representative in local reports.

Another growing IT market for South Korea is its immediate but estranged neighbour across the border: North Korea. An IT joint venture between South and North Korea is likely to be set up this year, and standardization of Korean fonts across the border and use of common Internet domain names is being discussed at local IT conferences.

According to the central Bank of Korea, the number of Internet banking users is 4.09 million. Internet banking services for balance checking, funds transfer and loan application are offered by 20 banks in Korea. South Koreans generally have a high disposable income, and change their cars and appliances every three years on average.

The number of wireless Internet subscribers in Korea has now reached 15.78 million, according to a release from the Ministry of Information and Communication. Key players here include SK Telecom, Korea Telecom Freetel, LG Telecom and Shinsegi Telecomm.

According to Web-based research service NetValue, the average Korean uses the Internet for 18.1 hours a month on average, more than any other nation in a recent 12-nation survey. Hong Kong residents follow with an average of 12.1 hours per month, Americans at 10.8 hours, and Singaporeans at 9.9 hours per month.

Despite some sobering down of the Internet sector after the Black Friday and Black Monday stockmarket bloodbaths of last April, Softbank Korea has reportedly announced plans to invest $500-600 million this year in 20-25 domestic start-ups focusing on eCRM, B2B applications, content syndication, optical fiber communications, and online gaming.

B2B e-commerce is expected to increase from US$80 billion last year to US$350 billion in 2003, according to the Korea Institute for Electronic Commerce. But challenges in e-manufacturing have still be overcome in bringing SMEs online and ensuring transparency and collaboration between the industrial conglomerates or chaebols.

A joint public-private sector initiative has been launched to help SMEs leverage the ASP model of software and services on tap. Local Linux firms Linux One, Linux International and Linux Korea have formed enterprise solutions alliances with Oracle and Intel.

The labour market has been become much more flexible and fluid in the wake of the economic crisis, and sites like Human Resource Korea (www.hrkorea.co.kr) pool together assets of headhunters and HR consultants.

B2B agreements have been signed with Japan and Australia, IT offices have been set up in China, IT education agreements are being firmed up with U.S universities, and an IT memorandum has been signed with India. Many Korean companies already have software development wings in India.

In sum, South Korea seems to be well set to solidify its position as a leading market in broadband and mobile Internet services. In terms of providing the benefits of widespread affordable Internet access to its urban and rural residents, South Korea is unparalleled in Asia.

And during the upcoming World Cup football series in Korea and Japan, it may finally get a chance to showcase its broadband Internet content prowess to a news-hungry global audience of football fans.

About the author

Dr. Madanmohan Rao is an Internet consultant and writer based in India. He was formerly the communications director at the United Nations Inter Press Service bureau in New York, and vice president at IndiaWorld Communications in Bombay. Madan graduated from the Indian Institute of Technology at Bombay and the University of Massachusetts at Amherst, with an M.S. in computer science and a Ph.D. in communications. He is a frequent speaker on the international conference circuit, and has given talks and lectures on Internet-related issues in about 35 countries. He has worked with online services in the U.S., Brazil, and India.

He is the editor of INOMY.com (a leading Webzine about the Internet economy in India), and is on the board of editors of the magazines Electronic Markets (www.electronicmarkets.org - published from Switzerland) and On The Internet (published by the Internet Society - www.isoc.org). Madan is also on the board of directors/advisors of yellow pages firm IndiaReference.com, steel portal SteelRX.com, investment bank CoolStartups.com, Web solutions company 4Cplus.com, content services provider FridayCorporation.com, and software development portal SoftwareDioxide.com.

The author can be reached at madan@inomy.com.

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