Telcos in Showdown Over Internet Telephony

By Kim Tong-hyung
Staff Reporter

Internet telephony, or voice over Internet protocol (VoIP), might be destined to reshape telecommunications and telephone operators are feared about ending up on the wrong side of fate.

After enduring a 40-day business suspension for unlawful marketing activities, Hanarotelecom, the country’s second-largest fixed-line telephony and broadband Internet provider, will resume gathering customers Friday.

And tapping an emerging market for Internet telephony would play a big part in the company’s game plan.

Optimists believe that the Korean market for VoIP could explode in the coming months, with the government expecting to adopt number portability for Internet phones as early as next month. The policy will allow telephone subscribers to switch to cheaper VoIP services without changing their numbers and offer new possibilities for companies like Hanarotelecom, which has been struggling to strengthen its share in the saturated fixed-line market.

``During the suspension, we have laid out directions in business and marketing, which we expect to give us a foundation for next year,” said a Hanarotelecom spokesman.

``VoIP is a big part of those plans,” he said.

Koreans are already showing strong acceptance of VoIP, despite the current dialing prefix of 070 being a cause of inconvenience with phone users on the receiving end ignoring calls, believing they are telemarketing pitches.

LG Dacom controls just 1.1 percent of the fixed-line telephony market, but has gathered more than 800,000 customers for its ``myLG070” Internet telephony services, a ten-fold growth from its 80,000 customers last year.

Hanarotelecom, which has 8.8 percent of the fixed-line market, wants to sink its teeth into the VoIP pie too.

Although the company hasn’t decided on call rates for Internet phones, they are expected to be around 38 won to 39 won per three minutes, similar to LG Dacom.

Hanarotelecom will also be helped by the presence of SK Telecom, the country’s No. 1 wireless carrier that acquired the fixed-line runner-up in February.

Hanarotelecom expects to package its fixed-line telephony, broadband Internet, ``Hana TV” Internet television services and VoIP offerings with SK Telecom’s mobile-phone services, tapping the wireless carrier’s 22 million-plus customers.

The package will allow a monthly discount of up to 50% for broadband Internet and mobile-phone rates for subscribers, the company said.

Rival groups such as fixed-line giant KT, partnering with its mobile affiliate KTF, and the telecommunication arms of the LG Group ― LG Dacom, LG Powercomm and LG Telecom ― are also expected to bundle offerings.

Although Internet protocol television (IPTV), an interactive television service provided on broadband networks, is getting more hype, some analysts believe that VoIP offerings could make more of a difference in the competition between bundled services.

The local VoIP market was valued at about 255.2 billion won (about $251 million) last year, according to an estimate by IDC Korea, but forecasted to show an annual growth of about 53 percent for the next five years.

Threat to Fixed-Line Giant KT?

Due to their limited presence in the fixed-line telephony market, Hanarotelecom and LG Dacom could afford to be aggressive in pushing VoIP. However, KT, which owns more than 90 percent of the fixed-line market, is worried that Internet telephony services may cannibalize its main customer pool.

Cheaper rates, especially on long-distance calls, are a strong selling point for VoIP and KT is concerned that increased bargain hunting among customers could hurt profits.

Last month, KT warned that it may not achieve its guidance of 12 trillion won in sales and an operating profit of 1.5 trillion for fiscal 2008 and stated the rise of VoIP customers as one of the reasons. The company revised forecast projects sales of 11.9 trillion won and an operating profit of 1.2 trillion won.

KT also successfully pressured the Korean Communications Commission (KCC) to delay its adoption of number portability, originally expected to be implemented this month, arguing that VoIP providers have yet to complete data tracking systems to provide direction on emergency calls.

This has given KT more time to push its own version of VoIP, dubbed ``SoIP (service over IP),” which provides video calls and data transfer atop of voice, to prevent its customers from migrating to other carriers.

KT released a phone last week that provides video calls at a rate that is just one-third of those on third-generation (3G) mobile handsets and also provides interactive features such as online banking services.

However, KT’s commitment to VoIP is not yet full-fledged, with the company struggling to decide how to balance its customer pool for Internet telephony and public switched telephone network (PSTN).

And it’s questionable if video calls will prove to be a killer application for Internet telephony when nobody seems to be using them on mobile phones. Other applications, such as online banking, aren’t expected to make much of a difference when they are already easily accessible on computers.

Unlike other carriers providing VoIP, KT is not planning to allow free calls between its Internet phone subscribers, fearing a massive drop in average revenue per user (ARPU).

thkim@koreatimes.co.kr