KOREA: Future is now for Korean info-tech

South Korea's current rise in information technology is making an impact on social and economic development

The Korea Herald
Tuesday, June 14, 2005

By Kim Dong-hyung

Seoul -- Dense is the word that might come first to mind when describing Seoul, the overdeveloped capital of Korea where 13 million of the country's 48 million citizens call home. And as if the busy streets of this northeast Asian metropolis aren't crowded enough, it's a common experience to bump into someone with eyes glued to a LCD-equipped mobile phone - surfing the Internet, checking stock information, and more recently, watching television.

"A lot of people often uses the phrase 'ubiquitous connectivity' to describe how information technology is expected to change the way people live. However, it could be said the Koreans are actually living through the future that others have been talking about and demonstrating the true potential of the new technologies," said Suh Sam-young, president of the state-run National Computerization Agency.

Korea first turned its attention to wireless communications and broadband Internet access in the early 1990s, attempting to expand electronic communications and add life to the nation's slowing economy. Since then, the country has emerged as one of the most connected nations on earth in both the wired and wireless realms.

After first passing fixed-line telephone users in 1999, Korea's number of mobile subscribers now reaches 37 million, accounting for a penetration rate of about 75 percent. The country has also one of the world's most advanced broadband infrastructures, with more than 70 percent of households having high-speed Internet access.

The fast adoption of new technologies provided the foundation for digital phenomena that could be called uniquely Korean, such as online gaming and Internet communities, and push forward the country as a global test-bed and trendsetter for futuristic services such as mobile television, home-networking and portable Internet.

"The advancement of information technology will have a fundamental impact on the way people live and do business. It would be an understatement to say that no industry segment or technology in the past, whether it's the introduction of electricity, automobiles and electronic goods, ever had a greater influence on society or the course of history the way information technology is doing now," said Chin Dae-je, the minister of information and communication.

"We are now approaching an environment where people can stay connected anytime, anywhere and on any device. The boundaries between industries are becoming irreverent and this trend of digital convergence is generating new markets and products," he said.

The information and communication technology sector plays an important part in the nation's export-driven economy. Exports of digital electronic products and components reached $74.7 billion in 2004, up 29 percent from 2003, driven by increasing sales of mobile phones and semiconductors. Added-value generated by info-tech products and services accounted for 37 percent of gross domestic product in 2003, up from 12.1 percent in 1994.

"The development of a series of innovative technologies from TDX in the 1980s to CDMA and broadband Internet since the 1990s has established Korea as a global IT powerhouse. As a result the IT industry has emerged as a key driving force of the Korean economy," said Chin.

The local embrace of technology along with successful policies and export-driven local industries combined to put Korea at the forefront of the digital revolution. The high-tech revolution is also having profound effects beyond the information-technology industry and commerce, changing the way people live and do business, and also expanding methods of sharing information and politicizing ideas.

Korea's recent surge in cutting-edge technology and branded products could be credited to the rebuilding process conducted by policymakers and businesses after the Asian financial crisis of 1997. Amid the economic chaos, Korean electronics manufacturers were also forced with increased competition from companies in China and other developing countries that were providing cheaper products. Diversifying product line-ups to target the faster growing areas in consumer electronics and export markets became a must.

Through the years, companies such as Samsung Electronics Co. and LG Electronics Inc. transformed themselves from being component suppliers and contract manufacturers to name-brand companies in consumer electronics. Emerging companies such as Pantech Co. and ReignCom Ltd. are also quickly establishing themselves in international markets.

However, with the telephone and Internet penetration among the highest in Asia, the Korean information-technology sector is now facing the challenge of keeping growth alive in a marketplace approaching saturation.

Despite the government efforts to renew competition in the marketplace, such as adopting number portability in the telephone market and adding new licenses for the Internet service sector, Korea's major telecom companies - including fixed-line giant KT Corp. and top wireless operator SK Telecom Co. - reported reduced profit in 2004 after enjoying years of high revenue growth.

After reaching a record high of $74.3 billion last year, Korea's exports of information technology-related products are also starting to slow down, with domestic companies struggling to diversify their markets and adapt to the strengthening won.

During May, Korea's info-tech exports fell 2.1 percent year-on-year at $6.37 billion. It represented the first monthly drop since February 2002, according to ministry officials.

Over the past year, the won has gained nearly 15 percent against the U.S. dollar, making Korean products more expensive overseas. The export growth rate during the January-May period was just 3.6 percent, after growing 29 percent year-on-year during 2004.

"The second-quarter is a low-demand season for high-tech products and we don't expect the momentum to significantly pickup until the later half of the year," said Koh Nak-jun from the ministry's strategic planning office.

"The strengthening won is proving to be a bigger factor than we had expected. Companies are now forced to ship more products to China and Europe while cutting shipments to the United States, a traditionally large market for Korean high-tech companies," he said.

To sustain its level of high growth over the past years in a quickly maturing market place, the government since 2003 has been pushing a new national info-tech strategy, dubbed IT839, outlining ambitious goals for eight services, three infrastructure technologies and nine product categories.

Under the IT839 initiative, the Ministry of Information and Communication will encourage private investment in the identified specific technologies by funding research and offering business incentives.

The government hopes the new growth engines will lead the economy for the next decade, adding strength to the national drive toward achieving $20,000 per capita income from the current level of around $11,000.

The eight new services are portable Internet (WiBro), mobile television (DMB), home networking, vehicle-based information systems (telematics), radio-frequency identification (RFID) technology, W-CDMA mobile telephony, digital television broadcasting and voice-over Internet protocol (VoIP) services.

To provide the backbone network for the new services, the government and industry will develop three advanced infrastructures including the broadband convergence network (BcN), a massive Internet protocol providing connections speeds between 50 mbps to 100 mbps, sensor-based computing networks and the next-generation Internet platform Internet protocol version 6 (IPv6).

By enhancing the aforementioned technologies and network infrastructure, the government hopes to foster production in nine manufacturing sectors comprising mobile handsets, digital televisions and broadcast devices, home network equipment, system-on-chip products, next-generation personal computers, embedded software, digital content and solutions, vehicle-based information equipment and intelligent robot products.

"The domestic industry's advancing from being manufacturing based to being focused on delivering high-end products and new added-value services, will be the driving force of Korea's economy into the next decade," said Chin, saying that having a world-class info-tech industry and infrastructure will help make Asia's third-largest economy an ideal test-bed market and increase foreign technology investment.

"We're trying to roll out broadcasting and technology services earlier than other countries so we can accelerate and stimulate development in technologies and the industries," he said.

Companies are also rushing to develop and roll out new services to attract new revenue. In May, TU Media Corp., 30 percent owned by SK Telecom, launched the country's first mobile television service, allowing subscribers to watch television on their mobile devices while on the move.

TU Media said it attracted more than 50,000 customers one month after starting commercial services. The company is targeting 600,000 to 700,000 customers by the end of this year and expects to break even when it gathers about 5.5 million customers, which it expects to be four to five years from now.

Mobile television services, dubbed by Korean officials as digital multimedia broadcasting, are designed to beam digital television, audio and data to handheld devices via satellite or land-based television airwaves.

TU Media received a license for the satellite-based services last year. In March, the government allocated six licenses for the land-based services, including three spots to the country's major television stations - KBS, MBC and SBS.

The Korean Society for Journalism and Communication Studies estimates the satellite DMB will generate around $7.8 billion in industrial production by 2012.

If earlier experiences are an indicator, satellite-based mobile television in Korea could succeed. In 2003, when SK Telecom launched "June," a video-on-demand services over its third-generation cdma2000 1x EV-DO network, the service attracted so many customers that the network buckled under the load. This forced the company to increase fees.

Such experience could explain why Korean companies and policymakers are pushing to roll out higher-data-rate wireless broadband technologies to generate new revenue. The government is planning to deploy a next-generation portable Internet technology, dubbed WiBro for wireless broadband, designed to provide wider coverage than wireless LAN services and faster connections than third-generation mobile telephony. WiBro would offer a peak rate of 1 Mbps on devices moving at speeds of about 70 kilometers per hour. The government aims for commercial services in 2006 and expects 10 million customers by 2008.

In January, the Ministry of Information and Communication allocated three licenses for portable Internet services to fixed-line operators KT Corp., Hanarotelecom Inc. and SK Telecom. The ministry had earlier allocated the 2.3Ghz band for portable Internet operations and approved the IEEE 802.16 standard as WiBro's base technology last year.

The state-run Korea Information Strategy Development Institute predicts the portable Internet sector to generate 12.9 trillion won by 2010 and have more than 9.45 million customers by 2016.