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Telecom Industries ofKorea and Japan

• Brian Toll

• Greg Zelenka

• Aaron Cowen

• Jennifer Barker

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Outline

• Telecom Overview

• Korean Competitors

• Japanese Competitors

• Regulatory in Korea

• Regulatory in Japan

• Discussion of Korea Telecom

• Questions for Korea Telecom

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Technology Primer• Land Line

– Dial-up– ISDN

• Broadband– DSL– Cable– LMDS

• Wireless– 1G, 2G, 2.5G, 3G

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Korean CompetitorsCOMPANY LINES OF

BUSINESS2000

REVENUENOTES

SK Telecom Wireless, ISP, broadband via CATV

$5 Bn (5,760 bn W), up 34% from 1999

Primarily wireless provider with 54% market share.

Korea Telecom (KT)

Wireline, wireless, broadband via DSL

$11 Bn (12,734 bn W), up 8% from 1999

Primary wireline, DSL provider. Leads broadband at 44% market share. KT Freetel, wireless subsidiary, is #2 with 31% market share.

Hanaro Broadband via DSL, LMDS, CATV

$260 MM (300 bn W), up 29% from 1999.

Second broadband market share at 27%.. Pursuing CDMA 2000 license for 3G.

LG Telecom Wireless $ 1.8 Bn (2,058 bn W)

Speculation that loss of 3G license will lead to exit of wireless business via sale to KT. Currently #3 wireless carrier with 15% market share. British Telecom contemplation sale of investment.

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Japanese CompetitorsCOMPANY LINES OF

BUSINESS2000

REVENUENOTES

NTT Wireline, wireless, broadband via DSL

$108 Bn NTT maintains wireline domestic monopoly.

Wireless division is called Docomo, with 59.1% market share, and is famous for I-mode service. NTT Docomo plans to be first company in world to launch 3G.

KDDI International LD, wireless

$30.2 Bn Original provider of inter-country long distance. Launched wireless venture called “au”.

Japan Telecom

Wireless only $14 Bn Called J-phone. Former AT&T investment, sold to Vodafone.

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Active Regulation - Korea• Multi-ministerial purview (FTC, MOFE,

MIC, KCC)– Potential regulatory conflict– Excessive regulation

• ‘Dominant player’ regulation– Regulators control rates– Caps on wireless handset subsidies

• Other players– File tariffs, but no rate controls– In January 2000, banned handset subsidies

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Ramifications of Regulation• Geographically

– 5 national players in wireless, no regional

• Technologically– CDMA standard nationally

• Competitively– For wireless, price competition is severe (over

33% drop in 3 years). – Similar technology, similar marketing

strategies, no handset subsidies.– 3G postponement announced by SK Telecom.

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Movement to Passive Regulation- Japan

• Ministry of Post and Telecom is single regulatory body in Japan.

• NTT Incumbent maintains wireline monopoly. Still very high new phone installation fees.

• Late 80’s deregulation with advent of wireless• Increased wireless phone use by removing user

deposit system and handset leasing fees (approx $2,700 per user)

• Since 1996, MPT exercises no pricing restrictions, which has increased price competition and caused wireless prices to decline by 56% in last 5 years.

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Ramifications of Regulation

• Geographically– NTT DoCoMo dominates, smaller players compete

regionally

• Technologically– Newer technologies cultivated, or;

– Multiple technological standards compete

• Competitively– Non-price differentiation based on technological

differences and service quality and coverage.

– NTT continues to dominate, but faces serious threats as competitors build infrastructure.

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Korea Telecom• Korean incumbent - $11Bn in revenue.

• Local, domestic and int’l long distance, business & data communication services, DSL, cellular service

• Virtual monopoly in local services, 85%+ share domestic LD and 60%+ share Int’l LD

• Leads broadband at 44% market share.

• KT Freetel, wireless subsidiary, is #2 with 31% market share.

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KT – Responding to Competition• Aggressive Restructuring

• Broadband in 92% Korean Households– KT developing new broadband services

Area of Restructuring Measures Taken

Employee Reduction Reduced by 12,500 to 52,500 employees

Disposal of Non-profitable Businesses

Sold 9 business

Reduction of Branch Offices Reduced to 91 from over 2600

Reduction of Subsidiaries Disposed of 3 subsidiaries and ICO investment

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Questions for Korea Telecom

• What are revenue drivers for 3G in Korea? How much will you spend on 3G and how will you recover this investment?

• What marketing techniques are used to attract customers and reduce churn?

• How will CLEC industry develop in Korea?• What are the three most important challenges

you face in the next 5 years?