Post on 30-Jan-2016
description
Korea Information Society Development Institute
Broadband Network Strategies Broadband Network Strategies
June 4~5, 2002
Dr. Nae-Chan Leenclee@kisdi.re.kr
OECD Broadband Workshop 2000,OECD Broadband Workshop 2000,
Hotel Lotte World, Seoul, Korea Hotel Lotte World, Seoul, Korea
Patterns of GrowthPatterns of Growth
Supply Side Supply Side
ContentsContents
Impact of Network Investment Impact of Network Investment
Demand Side Demand Side
What is Broadband Internet Service ? What is Broadband Internet Service ?
Network Strategies Network Strategies
Broadband service, interwoven by Broadband service, interwoven by various networks and functions various networks and functions
Internet Core Network
Control Office
Apartment complex
House
Building
• Contents Provider (CPs)
• Internet Service Providers (ISPs)
• Internet Access Providers (IAPs)
• In-building Service Providers
• User Interface
Network Network Contents Contents In-building & HomeIn-building & HomeAutomation Automation
• ADSL: optic
Pole
• Cable modems: HFC
Network Network Network Network
• ADSL: copper
Wire center
Transmission CapacityTransmission Capacity
Metropolitan areas: 250 ~ 130 Gbps through (Dense)-Wavelength Division Multiplex
- Small-and-medium cities and towns: optical cables with maximum transmission rates of 2.5 Gbps
Through KII-G connecting 144 calling zones with optic fibers and installing ATM switches (1995 ~ 2000)
MetropolitanSeoul
-Taejon
Seoul-
Busan
Seoul -
Kwangju
Sould-
Taeku
Pusan -
Kwangju
Taejon
Busan
Taejon-
Taeku
Kaejon-
Kwnagju
Taeku-
Kwangju
Capacity(Gbps)
248.2 191.3 173.9 171.5 132.4 164 163.7 160.4 136.5
Investment as IT Booster Investment as IT Booster Total amount of investment by 2001: $ 4.04 billion Spillover effects: $ 7.07 ~ $ 9.46 billion Job creation: 4,900~8,300
1997 1998 1999 2000 2001 Total
FiberTrunks
93 42 75 120 143 473
FTTO 200 88 148 607 259 1,302
FTTC 2 13 189 618 248 1,069
ADSL 0 1 10 655 534 1,200
Total 295 144 421 2,000 1,183 4,044
SubscriptionSubscription
8. 5 million (as of April 2002), penetration rate of 50.4 percent 100 inhabitants, recording the highest in the world
Number of Subscribers(Thousand people)
8,496
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
Jul-98
Oct-98
Jan-99
Apr-99
Jul-99
Oct-99
Jan-00
Apr-00
Jul-00
Oct-00
Jan-01
Apr-01
Jul-01
Oct-01
Jan-02
Apr-02
Phase I: Launch
- High cost and retail charges hinder the rollout of the marketHigh cost and retail charges hinder the rollout of the market- External subsidies and lowering users’ subscription barriers External subsidies and lowering users’ subscription barriers
may be necessary to reach critical massmay be necessary to reach critical mass• e.g., local charge, handset subsidies, subscription fee discount e.g., local charge, handset subsidies, subscription fee discount
Phase II: Takeoff - Temporary shortage in supply soon after passing critical massTemporary shortage in supply soon after passing critical mass- - Competition spurs market growth Competition spurs market growth
Phase III: Landing - Subscribers and revenues are being saturatedSubscribers and revenues are being saturated
As technology advances, new services substitute existing one
Pattern of GrowthPattern of Growth
Phase I Phase II Phase III
Time
Revenue
Subscriber
Phase 0
Evolution of Marketplace Evolution of Marketplace
Phase 0: No broadband service market before July 1998
Phase I: Broadband Internet service, initiated by Thrunet and followed by Hanaro and Korea Telecoms
- seven facilities-based providers (FSPs) by the mid of 2000
Phase II: Facilities-based competition, intensified moving up the ‘last-one-mile’ deploying and upgrading access networks
- 8.5 million households as of April 2002
Phase III: 13.5 million households with 20 Mbps by the end of 2005, a target of the gov’t (June 2001)
- 11 ~ 12 million households, purely market-driven (estimate)
D-1: Few in Phase I, increase after passing by critical mass
- Customers keep in mind the level of charge first and foremost!Customers keep in mind the level of charge first and foremost!
D-2: Customers’ subscription, influenced by word-of-mouth(50%)
and mass media(25%)
D-3: Customers, less inclined to churn(93%)
D-4: No network externality unlike voice services- packet flows between each customer’s PC and web servers (no on-net calls
between customers like local or mobile services)
D-5: One-line with dynamic IP for residential use, Multi-line with fixed IP
for small-and-medium sized business
Conditions D-2 and D-3 and competition accelerate marketing
costs(Ad, incentive payment), recording the highest portion among
costs
Demand Side Demand Side
S-1: less traffic sensitive cost - Modem: subscriber sensitivesubscriber sensitive like mobile handset
- DSLAM and CMTS, of which capacity are lower than local switch
Lower degree of Economies of scaleLower degree of Economies of scale compared to voice services
through conditions D-4 and S-1
S-2: Flat-pricingFlat-pricing
- Because equipping with circuit or packet billing system, costly
(cf. Packet pricing for Mobile Internet in Japan and Korea)
- An increase in packets does not match revenue
Supply Side Supply Side
S-3: Procurement costs, initially high, but gradually declines as the economies of scale works in
manufactures
- The price of modem has decreased 20 % in 2000 from $ 462The price of modem has decreased 20 % in 2000 from $ 462 in 1999, while DSLAM 30 % from $ 36,000 during the in 1999, while DSLAM 30 % from $ 36,000 during the
same period same period
Best strategy is capturing as many customers as possibleBest strategy is capturing as many customers as possible- Revenue increases proportionately with the number of subscribersRevenue increases proportionately with the number of subscribers
Observation - Rough guess of Korea Telecoms Revenue in 2002:$ 1.26 billion = ($ 30 12 month 3.5 million )- Hanaro Telecom and Thrunet recorded the black on the EBIDTA basis in fiscal year 2001.
- Revenue increases proportionately with the number of subscribers
What if alternative services such as wireless Internet, Power Line Communication and IP sharing come in on the scene too early ?
Capturing as many customers as possible Capturing as many customers as possible
First-mover or Follower First-mover or Follower
Strategy I: Be a first-mover less inclined to churn (D-3) preempting the market
Procurement costs for related facilities is high
High risk of trial and error
Strategy II: Be a follower Procurement costs may be low and risks may be hedged
The market is preoccupied by the incumbent.
Observation New entrants are first-movers in Korea and Japan in the form of fiber
ADSL
The incumbent, reluctant to be a first-mover, e.g., worrying about substitution between dial-up and broadband services
Make-or-Lease Make-or-Lease
Means of access indispensable ADSL: copper local loop or fiber cable
Cable Modem: cable TV (HFC) networks
Strategies: Investment or Lease Which option to take depends on service providers
But, if they take the latter option, whether to implement local loop unbundling or open access by regulatory authorities matters.
Observation Most countries have adopted LLU, but not open access except e.g.,
Korea(voluntarily in the market), Canada
Skipping over Technologies Skipping over Technologies
Advances in Technology and Speedy Migration Broadband: Dial-up ISDN ADSL VDSL or xDSL
Strategies Strategy I: Taking the opportunity of grabbing the market now
- foregone sunk costs and burdens of new tech. investment in the future
Strategy II: Wait until tomorrow, skipping to new technology. - Foregone present market opportunity
Observation Korea Telecom has skipped over ISDN and jumped to ADSL, while
Japan has devoted on ISDN. Japan, hopping onto VDSL ?
Network Extension or New Construction Network Extension or New Construction
Broadband Strategy I: New facilities(modem, DSLAM) with existing local loop Strategy II: Replacing it by optic fibers More or less dependent on Technology
Mobile Advances in Technology
- IS-95A/B cdma2000-1x EV-DO EV-DV IMT-2000
Strategy I : Upgrade, using existing networks Strategy II: Overlay, newly construct
- Investment cost may be saved in the form of overlay, but upgrade is necessary in some phases of migration.
Observation Korea Telecom, although late comer, has caught up other service
providers through network extension.
Thanks for Listening !Thanks for Listening !
For more details on Broadband Internet Service in KoreaFor more details on Broadband Internet Service in Korea
“ Broadband Internet Service in Korea (2002)” “ Broadband Internet Service in Korea (2002)”
For more details on Info and Telecom Services in KoreaFor more details on Info and Telecom Services in Korea
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