Government spent millions helping create the world's most advanced telecoms network, writes Karlin Lillington
The phrase was one of the most widely-chanted mantras of the dotcom era: "Build it and they will come." But it didn't seem to work after all, in the case of advanced telecommunications networks.
The world built them and, far from throwing open the doors to e-commerce, the excessive build-out is generally seen to have put stresses and strains on the global economy.
But South Korea has been doing a good job over the past few years of proving that maybe the mantra's right and that the rest of the world just went about things the wrong way.
The Korean government sank hundreds of millions of euros into helping create the world's most advanced telecommunications network. Then the telecoms operators began offering broadband internet connections at some of the cheapest prices in the world.
The result? South Korea, with a population of 48 million, now has a formidable position as the world's broadband internet leader, far outstripping the US and Europe.
A deregulated market and detailed government policy spurred broadband take-up, creating a healthy domestic market where 55 per cent of Koreans are online, according to Mr Jin-wook Son, managing director, Korea Telecom UK.
Ten million Koreans, or about 70 per cent of households, have home broadband connections supplying high-speed internet access. About 80 per cent of Korean broadband access is via DSL, and 20 per cent is through cable modem. Koreans spend an average of 16 hours on the internet weekly, four times the British rate, with housewives (who shop, trade shares, take classes and get information online) generating some 45 per cent of all internet traffic,
Korea also has more than 20,000 internet cafes, which the Koreans call "PC Baangs" (literally, PC Rooms), heavily used by online gamers.
Online share trading is also a favourite Korean pastime, with 75 per cent of all trades executed online. A fourth of the population use online banking services. And, whereas the online advertising market is in the doldrums internationally, in Korea it is proving to be "a new cash cow", he says.
"Broadband gives a very positive effect to native businesses, including new business opportunities," says Mr Son, who spoke to the Ireland Korea Business Club in Dublin last Monday.
The statement seems to be borne out by the figures: in Korea the value of business-to-business e-commerce was $84 billion (€83 billion) in 2001, business-to-consumer was worth $2 billion, while business-to-government transactions constituted a $5.4 billion market.
Consider, too, the breakdown of internet traffic. "Initially traffic went overseas, 98 per cent of it," says Mr Son. "There was no Korean content. But this changed completely. Domestic traffic is now about 85 per cent, and overseas 15 per cent. However, this does not mean that overseas traffic has decreased. Instead, domestic traffic has increased."
Yet he admits incumbent operator Korea Telecom (KT) initially felt there wasn't a sufficiently strong business model for offering broadband access to home users. The company carried out trials on digital subscriber line (DSL) broadband access with 1,500 users in 1999, but decided it would not get enough subscribers willing to pay the proposed $70 monthly fee. And anyway, what would all those subscribers do with all that capacity?
Only when the second-largest operator came in with DSL at $38 monthly in 1998 - quickly gaining 200,000 subscribers - did KT reconsider offering DSL "after a long, tough internal debate", said Mr Son.
"We were surprised at their results so we looked again at the market. We realised it was impossible to assess the market with our former approach to the broadband business."
Now, he says, it is clear that once people try an "always on", broadband connection, they do not return to a dial-up connection. KT decided to dive in with an aggressive, mass-market, low-cost approach to push market growth.
It launched its DSL service in 1999, and by September of 2000 had a million subscribers. By February 2001, the number had grown to two million, and by September of 2002, 4.5 million. KT is now the state's biggest broadband provider.
Most KT home subscribers get a DSL line with a data transfer speed of eight megabits per second for $33 a month. In addition, KT offers a wireless access service for $8.50 monthly, which lets customers use handheld devices or laptops to connect to wireless (WiFi) networks in places such as train stations, airports, hotels and public buildings.
Six competitors also offer DSL or cable modem broadband connections, and Koreans can turn to 81 internet service providers. The competition forced down prices and helped the market expand, says Mr Son.
KT is at break-even point now and he predicts it will start making money on DSL at the end of next year.
In the Republic, Eircom and Esat/BT offer connection speeds of up to one megabyte per second (one eighth of the Korean option) at between two and four times the Korean subscription cost.
Government policy and prominent support from Korea's president and government leaders "offered a vision for the transformation of Korea into a knowledge-based economy", said Mr Son.
The government has issued a number of wide-ranging policy documents in which it has clearly stated goals and the programmes it would use to achieve them. These included a scheme to give 10 million people the IT skills to use the internet, the construction of a high-capacity network, funding for low-income households to get PCs and a certification system for builders to get them to introduce broadband into apartment and office buildings, increasing their value.
The PC Baangs "created a base for a commercial market for games and content", says Mr Son. He notes that the operators were specially taxed to give funding to applications and content developers, so that they could bring new offerings to market. The commitment of the operators was essential, he says.
"I think the government role is very important to stimulate demand and supply for the broadband business. But if the government had decided to make a knowledge-based economy and the operators had not followed, it would have been useless."
The Republic could follow some elements of the Korean model to expand its broadband market, he says. However, he notes that the predominance of high-density housing in Korea meant broadband could be brought easily and quickly to large apartments buildings.
More than 50 per cent of Koreans live in apartments, and 93 per cent are within four kilometres of a local telecom exchange.
His advice to other countries pondering government-supported broadband roll-out? "Just do it!" He adds: "Instead, so many people are trying to see first what the 'killer application' will be for broadband. In our experience, broadband itself is the killer application."
klillington@irish-times.ie
