Korea achieved the impossible within 20 years
By Choi In-hyuk
No one would dispute Korea is one of global leaders in information and communication technology. Korea has chalked up a mobile communication penetration rate of 100 percent, meaning one mobile phone for every citizen.’' The country, led by the world’s second and third-largest handset makers, accounts for 40 percent of global demand. Its broadband Internet access is seen as an unprecedented success and an example, trailed by European and American firms. These are testimonies to show Korea's position in information-communication technology. Moreover, all of these have been achieved within less than 20 years, doing something from scratch ― an impressive achievement which Koreans have every right to be proud of.
A latecomer to industrialization has finally become a forerunner of informatization in a very short time. It is a well known fact that the export-driven Korean economy grew spectacularly on the back of heavy industry in the ‘70s and ‘80s. However, this march of high-speed development also faced the limits of a late industrializing nation. For the Korean economy to grow, it was critical to import technology and machinery from already-industrialized countries that were anxious to hold potential competitors in check. IT emerged as the country’s next growth engine, effecting a shift toward a third growth paradigm.
On December 18, 1990, at a meeting to discuss the promotion of science and technology attended by the heads of relevant ministries, then Minister of Science and Technology Kim Jin-hyun announced an ambitious plan to “turn Korea into one of the world's top seven science and technology powers by 2000.”
The plan called for, among other things, to create a 1 trillion won Science and Technology Promotion Fund by 1996. It was planned to come from general accounts, dividends from government-owned institutions and revenue from sales of science and technology lotteries among others. The plan, dubbed the "G7 Project," then urged the development of 14 key technologies including semiconductors, HDTV and ISDN from 1991. Other programs included increasing admissions to KAIST to 1,000 undergraduates by 1996 and bolstering science education.
Among the 14 key technologies, the government selected seven "product technologies" and seven "basic technologies" to be developed, based on a survey of 439 business leaders, academics, and researchers. The seven product technologies were ultra high-density integrated circuits, a broadband integrated services digital network (ISDN), high-definition TV (HDTV), electric cars, AI computers, new drugs and pesticides, and high-tech manufacturing systems. The seven basic technologies were cutting-edge materials for information/electronics/energy industries, environmental engineering, biomaterials, next-generation transportation equipment and parts, next-generation nuclear reactors, new energy sources, and sensibility ergonomics.
Given the gigantic budget requirement, however, the project was bound to stir controversy. Indeed a torrent of conflicting views and protests burst forth from every corner of the scientific community, generating an argument that carried over into the next government.
Minister of Science and Technology Kim Shi-joong, the successor to Minister Kim Jin-hyun reduced the number of target technologies to 11. They included ultra high-density IT, broadband ISDN, HDTV, new drugs and pesticides, high-tech manufacturing systems, cutting-edge materials for information/electronics/energy industries, next-generation automobile technology, biomaterials, environmental engineering, new energy sources, and next generation nuclear reactor technology.
What was notable about listing was developing IT. Although the AI computer and sensibility ergonomics did not make the list, ultra high-density IT, broadband ISDN, and HDTV all did, and most of the other target technologies were closely related to IT.
Emphasis on IT led to the creation, in December 23, 1994, of the Ministry of Information and Communication. The Government Organization Act passed by the National Assembly charged the new ministry with more tasks.
Boosted by such strong backing, the Korean IT industry developed by leaps and bounds. In particular, progress made in the field of semiconductors was remarkable. A prototype for the 16M DRAM chip was developed in March 1991; by November 1992, Korea achieved parity with the U.S. and Japan by developing a 64M DRAM.
In parallel with the progress in semiconductor technology, telecommunication technology began to boom, astonishing the rest of the world ― Code Division Multiple Access, or CDMA in short is a wireless communication technology that allows multiple users to share the same bandwidth of different frequencies by using spread-spectrum techniques. In 1992, the government designated CDMA as the national standard for 2G mobile communications. Given the state of the country's mobile communication sector at the time, the decision was nothing short of astounding: Korea's competence in even the analog, 1G wireless communication technology was shaky at best, while no country in the world had thus far succeeded in commercializing CDMA.
In moving on the 2G wireless communication standard, Korea was facing a choice between GSM and CDMA. GSM (Global System for Mobile communication), the standard based on CDMA's rival technology TDMA (time division multiple access), was the one chosen by the European Telecommunication Standards Institute (ETSI) and was a proven technology either already in use or reserved for future adoption in Europe and most other countries.
Under such circumstances, the Korean Electronics and Telecommunications Research Institute (ETRI) was said to have initially favored the TDMA-based European standard of GSM over CDMA. The government eventually chose CDMA for a variety of reasons.
Many European and American operators at the time already possessed TDMA technology, meaning Korea would have to play catch-up as well as run the risk of becoming technologically dependent if it followed the TDMA road. CDMA, on the other hand, had the advantage that it could accommodate more subscribers with relatively low network investment, and moreover, no other company in the world had ownership of the technology except Qualcomm ― giving Korea a better chance to narrow the technological gap with developed countries. This was the reasoning behind the government's choice of CDMA over the safer TDMA. It was a high-stakes gamble, for CDMA involved a more complex system structure and a greater challenge in engineering and optimizing base stations.
Developing a core technology entails tremendous risk. Skeptics at home and abroad continued to question or ridicule the idea of realizing CDMA in a country considered a backwater of mobile communication. Meanwhile, engineers working on CDMA devoted themselves to the quest for developing technology.
Such effort bore fruit in November 1994, in the form of the first ever successful trial-run of a CDMA-type system. This was merely the beginning. Optimization had to be conducted through cooperative efforts by researchers and workers. The world’s first commercial CDMA service was launched at last in Incheon and Bucheon in January 1, 1996. It was the day that signaled Korea’'s rise as a global leader in telecommunications.
Subsequently, new systems have been developed capitalizing on the existing CDMA system: a PCS system was developed and commercialized on the 1.8 GHz band; from 1997 onward, multiple standards for mobile telecommunication were been introduced, including the North American-style synchronous standard (CDMA-2000) and the European and Japanese-led asynchronous standard (W-CDMA), as part of a phased process of developing the IMT-2000 system using the 2.3 GHz band.
In December 2000 KT iCom and SK IMT were selected as the W-CDMA operators, and in July 2001, the LG Telecom Consortium as the CDMA-2000 operator.
Through this process, Korea’s competence in operating CDMA mobile services became world-class, and Korea became a mobile communication power that spread CDMA to other countries.
Broadband Internet is another booster making Korea an Internet powerhouse. The Internet user base in Korea expanded rapidly since the launch of the first commercial service in 1994, and by the early 2000s, the penetration rate was nearly twice the average for developed countries.
The widespread use of broadband Internet marked an important development in its own right, but it also contributed to the early establishment of an information and communication infrastructure which, in the 2000s, provided a powerful boost to productivity. Back in the 1980s, the Seoul-Busan highway served as the main artery for the development of heavy industry, allowing the fast traffic of materials and finished goods. In the same way, the broadband Internet served as an information superhighway enabling companies to work faster and become more competitive. Broadband has also laid the foundation for the explosive growth of other services industries such as the online gaming industry.
What other factors contributed to the exceptional growth of the Korean IT industry, aside from the bold government initiatives mentioned above? The answer lies, on the one hand, in the character of Korean consumers that is conducive to the development of IT, and on the other hand, in the effort made by telecom operators and Internet service providers (ISPs).
As Korean consumers see, the first thing that can be noted is their high demand for information and communication devices. Already in the early 2000s, over 70 percent of households owned personal computers. Whereas foreign consumers use newly purchased handsets for an average period of three years, Korean consumers switch their handsets in half that time, in just 20 months.
The impatience of the Korean people, shaped by a history of compressed development and captured in the phrase “ppalli ppalli” (hurry, hurry) also had a significant impact. Korea is 10 times faster than the U.S. in Internet downloading. In many developed countries including Britain, there are lots of 'white spots' in densely built-up areas and no signal coverage on subway trains.
ISPs, for their part, introduced new services and new marketing initiatives in order to compete with rivals. Combined with the high level of consumer receptivity, this created a virtuous cycle which led to an explosion in the IT market. Korean mobile operators were the first to pioneer and then export the customer-specific sub-brand system and the ring back tone, for example.
Another key factor was that subscription fees have remained relatively low thanks to competition. The monthly bill for a broadband connection, around $50 in the U.S. and Europe, has been in the $30 range in Korea since the beginning _ quality services provided at a competitive price.
Last but not least, there was the proactive role played by the government through appropriate means. The government granted licenses to multiple operators despite criticism of overinvestment. It also instituted asymmetric regulations. Finally, it was also the government that promoted the expansion of the IT infrastructure by making it mandatory for every school to install personal computers.
In recent times, the telecommunication industry has seen a deepening trend toward convergence between landline, wireless and other devices on the one hand, and dwindling growth on the other. These developments pose new challenges for the Korean IT industry, but it realized the impossible.
CDMA commercialization developed handset industry
What Korea earned from its first commercialization of CDMA amounted to hundreds of billions of dollars. Another benefit has been the dramatically smaller scale of investment needed for the building of a mobile communication network, thanks to CDMA’s expanded cell coverage and lower installation and maintenance cost per station vis-à-vis GSM. Commercial CDMA services also helped to drive down handset prices: unlike GSM, handsets and services are bundled together as a single product under CDMA, facilitating the provision of handset subsidies by mobile carriers. The greatest benefit resulting from CDMA commercialization, however, was the status of global leader accorded to Korea in the global market for telecommunication equipment and handsets. The success of CDMA in Korea subsequently encouraged other countries such as the U.S., China, Japan, Thailand, Hong Kong, Taiwan, Canada, Australia, New Zealand, Mexico, Peru, and Indonesia to adopt CDMA as well. This gave an enormous advantage to Korean handset makers such as Samsung and LG, whose accumulated technological expertise in CDMA-based handsets enabled them to carve out and retain the biggest share of the CDMA handset market from the outset.
The fact that Korean players have overtaken Nokia (the world's long-time number one manufacturer of GSM handsets) in the U.S. ― the biggest CDMA market in the world _ has also been a significant advantage. Thus the Korean handset industry now accounts for around 40 percent of global demand.
Remember car phones?
The first wireless communication service commercialized in Korea was the car phone. In other words, the Korean mobile communication industry began with the launching of a car phone service by the Korea Mobile Communication Service Inc. (the forerunner of SK Telecom) in 1984, four years before the commercialization of PCS phones. Even though early car phone users had to pay a registration fee of 4 million won, the service was extremely popular. Because the number of subscribers was limited by network capacity, people had to apply for subscription rights in the same way they would apply for apartments. Allegations that the price of subscription rights would keep going up gave added boost to the hiking popularity of car phones ― indeed, the subscription premium even surpassed 10 million won at one point. Such popularity was driven in part by the practical needs of businessmen and journalists, among others, but also significantly by the desire to flaunt one's wealth and social status. Some even believed owning a car phone would let them get away with mild traffic violations, since police officers would think they were VIPs to be treated with respect. The utility of car phones as a status symbol was reflected, from 1985 onward, in the increased visibility of the car phone antenna on the exterior of the vehicle ― either through the increased length of the antenna or through the use of double antennae. It was known that police requested relevant authorities to ban vehicle-mounted double antennae on the grounds that they looked confusingly similar to those on police vehicles. The request must have been denied, for there continued to be plenty of cars running around with double antennae even without phones. All of this seems a distant memory in a country where even elementary school students now tote mobile phones. It is still worth remembering the extraordinary receptivity of Korean people to such novelties as car phones, for it was that same receptivity which helped Korea become the IT powerhouse it is today.
Who is Choi In-hyuk?
The writer is a partner and managing director of the Boston Consulting Group in Korea. The Whaton School MBA of the University of Pennsylvania joined the BCG's Seoul office in 1998. He has been a core member of the technology, media and telecommunication and strategy practice areas. He had also worked for a major systems integration company as a systems analyst and led various operation efficiency improvement projects.