Korea embraces W-CMDA and readies for FMC

08 Sep 2008

The Korean mobile market is fast becoming unrecognizable from the one that existed just 18 months ago with brutal competition between operators being one of the few surviving characteristics.

The seemingly impossible has happened: CDMA is increasingly being relegated to the sidelines as SKT and KTF engage in a fierce new battle to attract W-CDMA subs. In addition, the takeover of long languishing Hanaro has been finalized by SKT, which has led to the launch of bundled FMC offerings and even talk of KT and KTF merging.

There is also a strong prospect that Apple's iPhone may be introduced in the Korean market in early 2009 as the government comes under pressure to lift the requirement for all new domestic handsets to have the homegrown WIPI interface.

Until last spring the operators that had pioneered the commercialization of CDMA ten years previously were studiously avoiding the government's requests to roll out nationwide W-CDMA networks. It made much more financial sense for the two carriers with W-CDMA licenses to offer token coverage of the major cities and roam on their CDMA networks by means of dual-mode handsets.

But KTF was not satisfied with the status quo. It spotted a chance to steal a march and made a bold play with the rapid roll out of a nationwide HSDPA-focused network as it sought to transform itself into a W-CDMA operator and hoped that SKT wouldn't follow suit. That move has been a great success in many respects: within 14 months of launch in March 2007, KTF had acquired five million subs (as of end of July it had 6.76 million) - the fastest for any HSDPA operator worldwide at the time. Its new W-CDMA subscribers have tended to buy more expensive handsets and 1Q 2008 ARPU was 28% higher for W-CDMA compared with CDMA users.

Market shift

Unfortunately for KTF, SKT moved quickly to cover its flank and is now set to overtake KTF in W-CDMA subs soon. This led to increased marketing costs for both companies, and KTF in particular has seen profits declining. Overall, W-CDMA has moved from a few hundred thousand or around 1% of the total market to around 15 million or 30%.

The fierceness of the competition has pushed SKT and KTF into the early launch of FMC services. KTF and its parent company KT are starting to offer its SHOW services bundling.

'FMC is still in its early stages. It will need time,' says In-Q Han, senior analyst at IDC Korea.
One reason for that is SKT's and Hanaro's FMC plans have been hit by a 40-day ban on Hanaro's sales activities for marketing regulation violations. A similar ban is likely for KT and LG Poweredcomm, Korea's third fixed-line and broadband carrier, in the near future.

LG Telecom - now the only Korean carrier focusing on CDMA - can now differentiate itself from its rivals and might be able to exploit its role as the custodian of legacy CDMA. But recent figures show subs are falling as the country chooses to follow KTF and SKT.

Meanwhile, the government's plan to introduce VoIP number portability in the near future is likely to make the FMC wars more intense as rivals will sniff an opportunity to crack KT's monopoly.

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