By Sean Jackson

Arguably the most advanced mobile market in the world, South Korea is set for more groundbreaking changes in 2008.

South Korea is one of largest mobile markets in the Asia Pacific region, with 44 million mobile subscribers at the end of 2007, up from 40.6 million the previous year according to Informa Telecoms & Media. Penetration was approaching 90 per cent at the close of last year. With saturation not far off, the market has a rate of subscription rising by just under ten per cent; one of the slower growing markets in the region.

South Korea is a three-player market. With 22 million subscribers, SK Telecom (SKT) is the market leader, followed by Korea Telecom Freetel (KTF) and LG Telecom (LGT) with 14.1 million and 7.8 million subscribers respectively at the end of 2007.

While most Asia Pacific markets have accepted prepaid to differing degrees, neither operators nor subscribers in South Korea have embraced the low-end approach. With only 725,900 prepaid subscribers at the end of 2007, 98 per cent of the subscriber base was on postpaid contracts at end-2007. LG Telecom leads the prepaid market with 401,000 subscriptions, while KTF had 302,00 and SKT just 22,000. Nevertheless, even though South Korea’s market is not pushing prepaid, the majority of its net additions are coming from the low-end segment.

South Korea is a market in which CDMA technology has dominated. However, WCDMA services are set to significantly reduce its market share. SKT and KTF have both embarked on plans to migrate their combined CDMA subscriber base to HSPA within the next five years. Both firms say they’re eager to take on the ambitious task, because migrating their subscribers will ultimately enable them to offer cheaper wireless data services and handsets. At end-2007 there were 40.1 million CDMA subscribers compared to just 3.6 WCDMA subscribers, representing a small but increasing base.

Third-ranked operator LGT was denied an HSDPA licence by the regulator, in response to the operator’s decision to hand back its EV-DV 3G licence. Instead, LGT has announced plans to launch EV-DO Rev. A services, for which it has been given the green light by the regulator, but there is concern that the firm has been left without a WCDMA migration path, and that EV-DO services and handsets will be prohibitively expensive.

South Korea is, of course, famous for pioneering another alternative network technology; WiBro, which was launched back June 2006. Operators’ subscriber figures are a closely guarded secret but anecdotal evidence suggests that the home-grown wireless broadband technology has struggled to make an impact. The initial slow growth of WiBro can be attributed to limited network coverage and lack of dual-mode handsets, but, even after resolving these issues, the future of WiBro is likely to be affected by WCDMA/HSDPA. However, while the benefits of WCDMA/HSDPA loom in the mind of operators, both KTF and SKT have indicated they do not intend to give up on WiBro.

Surprisingly-for such a saturated and technologically advanced market-handset availability has been a serious issue in South Korea, thanks largely to the regulator placing a ban on handset subsidies back in 2002. The full ban expired in March 2006, and the Ministry of Information and Communication (MIC) relaxed regulations to allow subsidies for subscribers who have been using one operator for more than 18 months. According to estimates, about 63 per cent of all South Korea’s mobile subscribers will qualify for subsidies, prompting speculation that operators will shift from marketing strategies based on subscriber retention to strategies based on subscriber acquisition.

According to the LG Economic Institute, the partial lifting of the ban should help with the next wave of new technology, driving the market with subsidy-triggered demand for the replacement of HSDPA and DMB phones. The re-introduction of handset subsidies is also expected to help increase the overall size of South Korea’s handset market, particularly in the high-end sector.

As in other highly penetrated markets, South Korean operators have been looking at new ways of generating revenues. The mobile data market is well developed in South Korea with about 50 per cent of the total user base being described as ‘active’ mobile data users. It is still dominated by basic products such as ringtones, graphics, and gaming, with ringback tones being particularly popular.

SK Telecom has emerged as the clear leader in data traffic, with nearly 25 per cent of its revenue generated from data usage. Walled gardens are a thing of the past in South Korea. This-in conjunction with SKT and KTF pushing data usage further on their WCDMA/HSDPA networks during 2007-has helped encourage the uptake of internet browsing and advanced multimedia services.

The South Korean market has experienced significant growth for mobile music. Interestingly, rather than being driven by the absence of broadband, this market has been driven by the widespread availability of both high-speed mobile and broadband. The country’s operators have deployed business models whereby mobile music offerings are largely provisioned through dual-music packages (where the track can be accessed and/or downloaded via mobile and online).

SK Telecom has been offering the MelOn service (combining fixed line and mobile downloads) since November 2004 and has amassed eight million subscribers contributing revenues of KRW70bn ($75m) in 2006, making it the leading music site in Korea.

In June 2000, the company Widerthan.com was formed to drive innovation in partnership with SKT, and develop the ringback tone as a means to drive further growth in mobile music. SK Telecom now reaps the rewards of this partnership, gaining more revenue from ringback tones than ringtones. While both markets have developed in parallel, the complementary addition of full track mobile and online music services to SKT’s music offering is an example of how the two markets have followed quite disparate business models, consequently resulting in two different mobile music market dynamics.

Mobile gaming has also proved a big hit in South Korea. With a market worth $283.8m in 2007, it was the third largest single country market behind the US and Japan. Like Japan, South Korea is a maturing mobile games market with slowing growth. Informa forecasts that by the end of 2012, South Korea will have dropped to fourth place behind the US, Japan and China, its share of the global games market having dropped to 6.9 per cent, down from 8.8 per cent in 2007.

Mobile TV is another service that has found early traction in South Korea. Local carriers have been offering video streaming services over cellular networks since 2003. However, SKT found that having launched video streaming over 3G, it took less than a year before the network became congested with video traffic and started to cause problems. Furthermore, the cost of providing the service on a one-to-one basis proved expensive. This prompted SKT to launch the world’s first satellite DMB service with its affiliate TU Media in May 2005. SK Telecom has called the addition of mobile satellite broadcasting services its strategy for going ‘beyond 3G’. Both of the other mobile operators in South Korea have also now launched S-DMB services.

The South Korean government has approved the introduction of T-DMB broadcasts of TV programmes to mobile devices. While the mobile operator SKT is fully behind S-DMB through TU Media, terrestrial broadcasters-such KBS and SBS-are preparing to provide the T-DMB service, which will be free of charge with 48 channels. While TU Media struggles to obtain the rights to retransmit terrestrial broadcasts, broadcasters are likely to automatically provide their programmes to T-DMB customers. T-DMB was launched in Q107 on a national basis in South Korea, and there are currently around three million users in total (of which a third are mobile users) with a total of between 12 and 18 million users forecast by 2010.

Mobile social networks are also proving popular in South Korea. Cyworld is a form of community launched by ST Communications, a subsidiary of SKT in 2003, which links both fixed line and mobile internet services. The mobile version of the service was launched in March 2004, and by the end of 2005 had more than one million users.

Cyworld’s main feature is the mini homepage or ‘minihompy’, which combines a photo gallery, message board, guest book and bulletin board. The minihompy is built around a virtual room setting occupied by the user’s avatar. The core of the Cyworld service is the peer-to-peer relationships, which are initiated by users, where friends are invited to visit and exchange messages and contact information. Because the fixed and wireless audiences are able to access the same service, the potential audience is extended, and the appeal for advertisers increased.

As with Linden Lab’s virtual reality social networking game Second Life, Cyworld uses its own ‘currency’, known as dotori (acorns). These are priced at KRW100 ($0.10) and can be used to buy items to furnish the virtual room, and range of digital merchandise including music, decorations and pictures. It is estimated that around 25 million South Koreans have used the Cyworld service, and penetration of the 20-30 year old age group is above 90 per cent. Service revenues for Cyworld in 2005 were KRW50bn ($50m), covering both the fixed line and mobile business, and the service had 600,000 visitors per month. Sales of the acorn currency are reported to be even higher, putting the total revenue for the service at around $100m for 2005. As well as South Korea, Cyworld has so far launched in Japan, Taiwan and China and the US, and is on the verge of launching in Germany.

It should come as no surprise that-in a market often considered a few years ahead on the development curve-mobile advertising is generating healthy revenues in South Korea. In June 2005, SKT forged an alliance with WiderThan.com and mobile advertising subsidiary AirCross to launch an opt-in mobile advertising service using video content. The service is called Ad MoA and follows an advertising-funded model that operates on the idle screen. The video advertisements, which are between five and ten seconds in length, download onto the handset between 2am and 9am when the handset is considered to be switched off and run while the handset is either idle, when it is connecting to the mobile internet, or when it is switching on and off.

The advertising messages are targeted by demographic profile and time and WiderThan claims that it gets over a 10 per cent response rate, which is a higher response than it has received from advertising on other media. Moreover, the company claims that in the two years that it has been running SMS-based advertising campaigns, the response rates have not yet fallen.

The mobile advertising system requires a small piece of client software to be installed on to the handset, though only certain handsets from Samsung, Motorola and Curitel and LG have the software. To date more than 300,000 Ad MoA-enabled handsets have been sold. The video-on-demand service deployed by SK Telecom is a major revenue spinner for the operator, and generates between 60 per cent and 70 per cent of the data traffic on SK Telecom’s 3G network. Although the revenue splits for the video advertising service were not available, regulation advises a 70 per cent share of the content revenue is passed to the content provider, which makes this a profitable business model for content providers.

With music, gaming, TV, social networking and advertising all taking off in South Korea, the temptation for operators in other saturated markets to ape those services must be strong. However, it’s worth bearing in mind that success stories-such as i-mode at DoCoMo and push to talk over cellular at Nextel-don’t always transfer well. South Korea is a market characterised by a domineering regulator and all powerful network operators.