South Korea Ponders Its High-Speed Future

Transcription

1 Research Brief South Korea Ponders Its High-Speed Future Abstract: The South Korean government may detail a radical proposal to create a new integrated high-speed network covering most of South Korea in December By Hyun-Sook Lee, Andrew Chetham and Marcus Sigurdsson Recommendations All vendors should keep a close eye on the progress of the Broadband Convergence Network (BCN) proposal, because government support would quickly drive up carrier spending. If the government plan translates into financial assistance, South Korean vendors could emerge as powerful competitors in next-generation network (NGN) in the future. Governments interested in the role that broadband can play in helping economic growth should watch South Korea to see what the effects on its economy are if the project is approved. Publication Date:30 October 2003

2 2 South Korea Ponders Its High-Speed Future What's Up? Being the world's leading broadband nation, South Korea finds itself in a position to deal with development issues ahead of other countries. In August 2003, the Ministry of Communications (MIC) announced the BCN to bring the country's information network to the next level. At this stage, it is not yet a government policy. But the government's intention is to develop the plan, with more-detailed resources and objectives, as early as December (but this may not occur then because of political uncertainty). The MIC needs to address the following two issues in its next step: Carrier competition The BCN requires some specific infrastructure development and network sharing. Yet, why should competing carriers abide by this, and what is the benefit for the carriers and their stakeholders? Financial support What kind of financial commitment is the government ready to make to facilitate the transition to next-generation information infrastructure? South Korea's Next-Generation Concept The MIC initially came up with a concept that it termed the "Next Generation-Converged Network" (NGcN), a road map for South Korea's mobile and fixed-line operators to integrate their networks as they move to a next-generation packet-based architecture. Building on this, it recently announced another proposal that took this idea further into services creating a BCN capable of delivering seamless converged services of voice, data and video. The BCN at this stage remains a concept, not a plan. It relies on the idea that all carriers build complementary next-generation access networks capable of delivering up to 100 Mbps of bandwidth to the majority of South Korean households. Accompanying the BCN announcement, the MIC outlined the following ambitious goals for adding jobs and new services revenue for carriers: $135.8 billion in service market revenue 820,000 new jobs $35.8 billion in value for the equipment industry The MIC has yet to clarify how these objectives can be achieved, but the December announcement is expected to answer this question. The MIC also took the unusual step, for a government authority independent of the telecom industry, of defining what technology it believes is the most appropriate for delivering this network hybrid fiber coaxial (HFC). This is perhaps the most controversial part of this announcement, given that South Korea's biggest broadband carrier KT (formerly Korea Telecom) 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 30 October 2003

3 3 does not have an HFC network and uses primarily DSL and, more recently, very-high-bit-rate DSL (VDSL) to offer broadband. The Digital Home The BCN Timetable The MIC also announced in July the development of a "Digital Home" project. This brings together home appliance vendors, telecom equipment vendors and construction vendors service trials have been under way over the past few months. The MIC sees the BCN as an integral part of this project. It believes the move toward the digitally connected home and associated home-networked ecosystem help kick-start carriers to find new service revenue streams. The MIC has proposed the following timetable for the project: Stage 1, 2003 Establishment and finalization of basic plan Stage 2, 2004 through 2005 Establishment of BCN standard model and rollout of pilot network. Convergence of wireline and wireless, circuit and packet-switched networks. Stage 3, 2006 through 2007 Integration phase of telecom and broadcasting service. Target of 5 million households with 50-Mbps to 100-Mbps access. Final stage, 2008 through 2010 Full-scale building plan is under way. IP-based wire/wireless, telecom/broadcasting convergence network target of 10 million households with 50-Mbps to 100-Mbps access. How Does This Affect the Carriers? By trying to standardize on one access technology, the MIC appears to believe it needs to play a central role in helping to drive equipment economies of scale that will help the carriers cut the costs of moving to the new generation of access. In standardizing on a similar platform that would theoretically connect all carriers, the MIC believes it can help drive ubiquitous use of new service applications. Whether the government will back this up with money to help the carriers fund this is still one of the unknown elements of this proposal. KT has already planned for its migration to NGN, with a timetable outlined through The following are the steps it has outlined: Stage 1, 2003 through 2004 Introduction of softswitches in pre-ngn and Class 4 trunk gateways. Stage 2, 2005 through 2006 Toll and tandem switches will be packetized and voice-over-packet services will be introduced. Final stage, 2007 All established switching systems will be substituted and end-to-end packet-network-based quality of service will be implemented Gartner, Inc. and/or its Affiliates. All Rights Reserved. 30 October 2003

4 4 South Korea Ponders Its High-Speed Future The MIC's announcement that HFC was the preferred way to move forward has caused some consternation in KT, which is primarily a central-office-based DSL carrier. In July, KT began a pilot for HFC-based high-speed Internet service in the Sungnam area of Seoul. In addition, it has also signaled that it is seeking to acquire program providers to invest in cable system operators, and to build digital multimedia broadcast networks on a midterm and long-term basis. KT is also aggressively pushing its VDSL rollout, with more than 1 million customers signed up. To support this VDSL upgrade, KT has needed to build fiber much deeper into its network because VDSL only works over distances of 400 meters. By moving to VDSL, KT is effectively moving to a fiber-to-the-curb network an interim step before moving to full fiber-to-the-building. By investigating HFC opportunities and continuing with its VDSL program, KT is keeping its options open. However, it is unlikely KT will commit itself to any large new spending decisions in the near term, because the company has a commitment to the financial markets to reduce its capital spending. Hanaro Telecom, South Korea's second-largest broadband carrier, uses a mixture of HFC and DSL to provide its high-speed services. Hanaro doesn't own the HFC last-mile infrastructure but buys it from Powercomm, a wholesale subsidiary of Dacom, another competitive carrier. How Hanaro will participate is unclear its only initiative so far has been to form an alliance with Seoul Electronics and Yoonik Computer and Communication to codevelop equipment for wireless LAN and Voice over IP integrated cable services, to serve as a foundation for home networking services. Hanaro is still a loss-making company in need of new funding. Its early participation in a new capital-intensive project will surely need government funding. Dacom itself has not been a major participant in broadband access, but its purchase of Powercomm in 2002 puts it in a much-better position. Powercomm has an HFC network and a metro Ethernet network covering many of South Korea's most urbanized areas. Dacom has a plan to enter digital cable broadcasting service through Broadband Solutions Inc. (BSI). BSI was funded by Dacom and LG Electronics and is focused on securing service operators using Powercomm's HFC. The future likely roles envisage BSI controlling installation, procuring set-top boxes and supplying digital content, while Dacom will focus on telecom services and Powercomm will focus on supplying an HFC network. How Does This Affect the Vendors? If the BCN proposal gets the go-ahead from the government, it may help South Korea's vendors. Not only would there be a clear direction and a timetable, but government money may flow into R&D and into carrier spending Gartner, Inc. and/or its Affiliates. All Rights Reserved. 30 October 2003

5 5 Gartner Dataquest Perspective It has often been pointed out that as South Korea moved to become the most-broadband-penetrated country, foreign vendors provided most of the equipment. The BCN and the NGcN proposals are aimed at bringing domestic vendors and carriers together to create this high-speed industry. Although the ultimate aim may not be to exclude foreign vendors from the next stage of South Korea's network development, this is certainly one of the objectives. Government support could arm the domestic vendors with an early reliable market, which would also give a boost to the international prospects for the South Korean vendors in the NGN sector. But it's worth questioning if government support will be as beneficial as hoped by the South Korean government. There are limitations for how efficiently it can support domestic vendors without bluntly breaking the World Trade Organization agreement. It is also uncertain whether the government can create an effective supporting framework. Government intervention does not always create a positive environment that encourages corporations to be efficient, and it could cause companies to grow dependent on the government and become less competitive. South Korean domestic vendors Samsung and LG are already working on the following projects: Samsung AceMAP access gateway and Softswitch SSX5000. The AceMAP access gateway is aimed at providing a platform for the convergence of network services for voice, video and data. It was supplied to KT in a deal valued at $19 million last year, after the carrier's second benchmark test for its pre-ngn project. Samsung is also participating in 2.3GHz-portable Internet development project with the South Korean research organization, ETRi, named the "High-speed Portable Internet Project" (HPi). LG LG is focusing on softswitch. LG and KT have agreed to codevelop a softswitch for KT's NGN. The two companies aim to complete development by the second quarter of They are, in particular, focusing on developing a softswitch optimized for the established telecom service networks, using KT networks as a test bed. The much-hyped BCN is not yet government policy and remains a concept incubated by the MIC. The South Korean carriers are fully independent of the government, with many of the largest ones listed on stock exchanges home and overseas. The concept of a national agenda set by the MIC, going down to the level of what technologies should be used, appears to be a throwback to the days when the MIC had more direct control of the carriers. It will be an interesting test to see how far the South Korean telecommunications industry has moved away from the "centrally planned" approach of the past, and how the government brings the 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 30 October 2003

6 6 South Korea Ponders Its High-Speed Future carriers together to work on this. Part of the BCN plan appears to call for a big change in the way carriers view their core business. In encouraging them to work to form a common national high-speed infrastructure, they will lose their ability to differentiate themselves through network coverage and quality. Instead the MIC is signaling that it wants the carriers to focus on services and applications delivered over this network. One of the reasons for the poor health of many South Korean carriers is the large expenditure on building competing networks. That said, the BCN faces the following challenges: The BCN was defined as a convergence telecommunications-broadcasting and fixed-mobile network. However, it is not clear whether the MIC came to this definition on its own or after consulting with other parts of the government especially the broadcasting committee. As a result, it is hard to gauge whether there is real political will in the central government to go ahead with this. Money from the government will be needed because South Korea's carriers other than KT, the former incumbent are not in good financial shape. Any new investment will invariably rely on soft loans from the government. No financial commitments have yet been announced and will not be decided on until December. Key Issue What is the most likely next-generation "network vision" scenario? This document has been published to the following Marketplace codes: TELC-WW-DP-0616 For More Information... In North America and Latin America: In Europe, the Middle East and Africa: In Asia/Pacific: In Japan: Worldwide via gartner.com: Entire contents 2003 Gartner, Inc. and/or its Affiliates. All rights reserved. Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice