Networking & Communications

South Korea: What will a 'forced' fourth telco mean?

With a tech and mobile savvy population of over 50 million, South Korea is one of the most connected countries in the world. It was one of the first markets to make public Wi-Fi ubiquitous and to trial rich communication services (RCS) and Voice over LTE (VoLTE) so it has always been ahead of the curve. Despite this high mobile use and its rapid internet speeds, the country has only three providers – SK Telecom, KT and LG Uplus.

Otherwise known as the “Big three”, these telecoms have a firm grip on business and users but that may begin to change within the next 12 months as the Ministry of Science, ICT and Future Planning is to pick a fourth telecom to enter the market.

The ministry has found that having only three operators in the country does not create enough competition nor does it lower prices for customers. The new player in the industry will get government priority in the allocation of frequency, says the ministry, and it will be permitted to develop its infrastructure stage by stage instead of nationwide in one leap.

The effects may not be instant and Korean mobile subscribers might not necessarily see lower prices in the immediate future but rather in the long term. At least that is the hope.

“I think there is considerable frustration on behalf of the government bodies and users in that it’s a pretty cosy set-up in South Korea. They don’t have the kind of competition that you see in Europe,” says Beau Beck, VP of business development at cloud-based mobile service ItsOn.

Significant challenges ahead

However, many experts feel that the buzzing South Korean market could be just too hard for a newcomer to crack. Eric Handa is the CEO of AP Telecom and spent ten years doing business in Asia, which included an assignment in South Korea. Having been immersed in the Asian telecoms and mobile landscape, he believes a fourth operator in South Korea would struggle to get a foothold in the country

“As a guy who did business in Asia, I struggle to see the economic return for a fourth operator, maybe I’m being a little pessimistic,” says Handa. “Korea’s a good market but a fourth operator for a place that is already highly wired from a density perspective, for fixed as well as cellular access, I think it would be a stretch.”

There are lot of high barriers to entry – largely cultural barriers such as in recruitment – and the fact that South Korea already has a long line of indigenous corporations that have made a huge global impact (Samsung, Hyundai, LG, Daewoo) that the barriers and red tape for international firms can be a major hurdle. However, the South Korean government promises to give the new operator preference in frequency allocation along with phased network building and a shared roaming service with existing carriers, which may give the new player a slight leg up but if that will be enough remains to be seen.

Whoever the fourth operator will be, it’s unlikely that it will be a major international carrier like Vodafone or Verizon, says Handa. You needn’t look too far back for examples of European or US companies facing obstacles in setting up shop in South Korea. Uber is contending with a nationwide ban on private taxis while CEO Travis Kalanick was charged by Korean authorities in March for operating an illegal business.

“Again, I think the barriers to entry are very high from a cultural perspective and I would question the return that someone could generate in a market that is really competitive but very saturated. We see ARPU [average revenue per user] rates are really declining in a market like South Korea.”

Even a South Korean telecom will feel the pinch in getting set up in their own country, explains Jeong Lee of US MVNO DataXoom and a South Korean native. A potential operator like Woori is planning to invest [link in Korean] over $1.5 billion in network capacity between 2016 and 2021 as part of its proposal, ultimately hoping to land six million customers. “The amount seems to be impractical if you look at the real cost of building [a] network in Korea. The cost of developing LTE network capacity for the ‘Big three’ carriers just in 2012 totalled $5 billion,” says Lee.

Korea Mobile Internet, KMI, previously bid for a carrier license in 2014 but failed and it had proposed an estimated $5.6 billion investment over seven years. “These numbers might be capable for ‘Big threes’ that have the established network around the nation, but it’s beyond capacity for new coming carriers,” says Jeong.

“Strong carriers in other nations might be capable of entering due to Korean carriers’ inability to cover the high cost,” adds Jeong. “However, the cultural disposition of South Korean government won’t let a foreign carrier take over the spot.”

Standing out from the pack

For a carrier to really shake up South Korea’s mobile business, the new entrant will have to go to extra lengths to differentiate themselves. New carriers need to be “nimble and flexible”, according to Beau Beck. This isn’t just true of South Korea but any carrier trying to make inroads in a new market. “Offering the same old thing is not a great recipe for doing that.”

South Korea’s fourth player needs to be one of the first next generation operators that can be very flexible with plans in terms of hours instead of months, says Beck.

While the hope for the South Korean government is to lower prices for consumers in the long run, simply undercutting the established companies may not make the grade. “If they do the same [thing] and just charge less, maybe they’ll get some consumers but not establish a new company that way,” says Beck.

Many agree that lowering prices and increasing competition is a laudable task for the government but price drops may not be too significant for the consumer. However, Jeong Lee points out that too much support for a “newbie” carrier may lead to a drop in network investments too.

“What might really happen is that instead of job creation, job movement will occur within the industry due to high competition, ultimately leading to restructuring of the carriers,” he says.

“In fact, this happened in France when FreeMobile entered as the fourth carrier causing Orange and Bouygues to restructure 7% and 15% of their labour force respectively.”


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Jonathan Keane

Jonathan Keane is a freelance journalist, living in Ireland, covering business and technology

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