Pioneering untapped market

KT looks for post-iPhone growth engine in global apps network

By Kim Yoo-chul

Apple, more specifically its iPhone, has changed the game both in name and substance.

Now, all-in-one smartphones are the norm. Samsung Electronics and other handset makers are competing with Apple for a bigger piece of the action.

It more than ever requires the rapid data transmission in large quantities at a reasonable price.

Data means contents that can be provided on smartphones serving as the mother of all mediums.

For Korea, it means an opening for the long-saturated mobile market.

KT, Korea’s second-biggest mobile carrier, is taking advantage of that opening, with, ironically, its idling Wi-Fi network, powering KT’s iPhone marketing.

At the top of endeavors by KT, long enervated by the legacy of its status as a government-controlled enterprise, is its Chairman Lee Suk-chae.

Helping Lee’s KT revolution is Pyo Hyun-myung, president of KT’s Mobile Business Group.

“The ability to provide faster networks and applications is the deciding factor in the new landscape, though pricing and the number of handsets are also important,” Pyo said in a recent interview with The Korea Times.

Pyo is a veteran in the telecom industry with over 28 years of experience.

Pyo is putting more focus on the so-called “3W network” — WiBro, Wi-Fi and WCDMA — along with long-term evolution (LTE) to keep pace with the explosion in mobile data usage.

Citing its competitive edge in fixed-line networks, Pyo said KT has a strong advantage over its rivals — SK Telecom and LG Uplus — in the fight over LTE.

KT is the first local telecom firm which released an Andriod smartphone that runs on its 4G WiBro network.

“We have 4G-enabled handsets and networks and that means KT is better positioned than its rivals for expanded coverage,” Pyo said.

Given the surge in data traffic demand because of the increase in the number of smartphones in use, Korean mobile operators are making heavy investments for deploying advanced mobile network services of LTE with SK Telecom and LG Uplus launching LTE networks in July, according to the companies.

But the service coverage will be limited to only around metropolitan areas due to investment costs and the lack of products that support LTE.

“Then there are technology applications. While we will adopt LTE for transmitting wireless data to our smartphone customers, we will stick to the current 3G-based technology for voice-oriented services. The dual strategy does make a lot of sense,” said Pyo.

With such a strong belief over the networks, the executive is pinning high hopes on a rapid expansion of KT’s cloud communications center (CCC) based on its LTE technology.

CCC enables a general server and modem to act as a base station to prepare for the rapidly-growing volume of data traffic while cutting operational costs.

“KT will incorporate the CCC technology in our upcoming LTE services. That’s more about cloud computing. Samsung and Ericsson of Sweden approached us about the system because they are eager to sell systems and not just pieces of hardware,” emphasized Pyo, adding Softbank Chairman Masayoshi Son held a three-hour meeting with Japanese Prime Minister Naoto Kan to secure a green-light to set up a data center in South Korea.

Common application platform

The executive said he is concentrating on the support platform “Econovation” for application developers that will help spur the smartphone era.

Pyo stressed a strategic alliance between the nation’s three carriers to create a pool of mobile applications outside existing app stores has been under way.

Referring to the local carriers’ efforts to get on the Wholesale Applications Community (WAC) track, the executive said a so-called K-WAC — the Korean version of WAC — will generate visible results soon.

"The key point in the new telecom era is the creation of distinguished eco-systems.”

WAC is an organization that has 68 member companies around the world, including major operators and manufacturers such as Sony-Ericsson, Vodafone, France Telecom, AT&T and Qualcomm.

The alliance was created in an attempt to carve out a competitive ground amid the current dominance of application marketplaces centered around operating systems such as the Android Market and Apple’s App Store.

Still, the WAC platform is not ready to go head-to-head with market leaders in attracting content developers.

“The key to Apple’s success is its policy of giving big incentives to content developers. That’s why WAC could generate sizable revenues. KT is leading the way as we have closer relationships with China Mobile,” said the executive, adding that China Mobile has 600 million customers.

He expects Samsung’s own mobile platform — Bada, which means ocean in Korean — to face difficulties in winning greater attention because there are doubts over its marketability.

Back to WAC, the telecom expert said the WAC 2.0 version, which supports HTML 5, will be commercially available soon.

“What WAC has to its advantage is that it is addressing fragmentation in terms of distribution as well as the runtime environment itself,” he said.

“As a developer you can publish to a ‘warehouse’ and then an operator can dip into that and take the applications that it needs. The developer, with WAC, doesn’t have to be delivering applications at an operator-by-operator level,” according to him.

Uncertain over telecom policies

In the local telecom industry, the issue of cutting mobile service charges is the top concern for telecom companies as the government’s push to cut prices to help ease inflation may lead to the firms curtailing investment and eventually hurting profitability.

Although the decision by the nation’s top telecom regulator of the Korea Communications Commission (KCC) is controversial, KT is planning to introduce an initiative to lower its mobile charges, the executive said.

“Yes, we will introduce a new pricing plan for our customers.

But the government should help us invest more to secure more advanced networks and other services to provide better values,” said him.

The market leader SK Telecom will shave 1,000 won off the monthly fee for its customers from September and offer 50 free text messages a month. The plan could cost some $700 million annually for SK, which is sizable by any measure.

The KCC insisted that household spending on telecommunications began picking up from the fourth quarter of 2009 with the introduction of smartphones.

The number of smartphone customers is expected to increase to 20 million at the end of this year from 1.03 million in January of 2010.

KT, with a market share of 30.3 percent, had 11.08 trillion won in wireless business sales last year.

“The government should be consistent in telecom policies. We are concerned that ‘populism’ will hurt our financial soundness,” said Pyo.

The executive also slammed the government’s decision to exclude KT’s participation in an auction for frequency bands.

SK Telecom and KT were excluded from bidding for the most attractive 2.1 GHz frequency band as the government wants a fair competition. ,

“That doesn’t make any sense. It’s against principles of free competition,” Pyo stressed.

He also pointed out that KT is having difficulties in making an effective transition to 4G-based LTE networks as the regulator is still passive on giving out detailed guidelines for ending 2G services.

“The number of KT’s 2G phone customers is below 500,000. The government needs to provide a clear guideline to help accelerate carriers’ transition to next-generation telecom technologies,” he said.

Apple effect

The president said KT is consistently asking Apple to respond to complaints filed by South Korean iPhone customers although there has been some improvements in customer policies.

KT was the first operator to introduce iPhones in the Korean market in November 2009. The move resulted in souring ties with Samsung Electronics.

But Pyo said the alliance between Samsung is “quite solid.” Along with SK Telecom, KT is the avenue for putting Samsung’s strategic Galaxy S-branded smartphones on local shelves.

“When we talk about Apple, I can say Korean customers are sophisticated. As an authorized Apple seller, we are doing more to Apple products under customer-friendly policies.” said the executive, adding Apple has adopted KT’s plea to adopt better Wi-Fi capabilities.

With the exception of Apple, foreign companies have been struggling here because Korean customers demand high standards in after-sales services.

Pyo said his division fared well in terms of revenue and profits during the first half of this year. But he expects tougher market conditions in the second half due to a possible cut in mobile rates and more investments in LTE.

When asked about the timing of the arrival of iPhone 5, he said,, “We will introduce the new product within this year.” Pyo didn’t present sales targets for iPhone 4 and iPhone 5 as the company is eyeing “customer growth” over “revenue growth.”