South Korea leads the way

special report Washington can learn some valuable lessons about broadband from Seoul.

Broadband: South Korea leads the way

July 28, 2004, 4:00 AM PDT

SEOUL, South Korea--Matt Renck is spoiled.

Ever since moving here to teach English two years ago, Renck has had a high-speed Internet connection of 8 megabits per second--only about average for a South Korean apartment, but nearly eight times the typical broadband speed in U.S. households. He watches TV shows over this connection, creates multimedia projects for his class, and regularly updates a Weblog.

None of what he does is revolutionary; it just happens far faster than it would in America. And that's a little revolutionary all by itself.

"I didn't realize how much the Web had to offer until I got to Korea," said Renck, a programmer by training. "I couldn't appreciate it until I got here and saw what true high-speed access does to change your perception of how fast information truly moves."

For Americans, almost none of whom have access to speeds that Renck and many South Koreans take for granted, this difference is jarring. The United States considers itself the center of technological innovation, yet South Korea has gone considerably further in making a mainstream reality out of the futuristic promises of bygone dot-com days.

Many U.S. executives and policy makers are quick to dismiss the disparity, noting correctly that South Korea's densely populated areas have made it easier for telecommunications companies to offer extremely fast service to large numbers of people. But even with such geographic and demographic differences, the United States can learn some valuable lessons from South Korea's experience in jump-starting a broadband powerhouse.

"I think there are a quite a few lessons," said Taylor Reynolds, an International Telecommunications Union analyst who recently completed a survey of Internet and mobile services in South Korea. "Most of the growth is tied to effective competition, which you don't see in a lot of places in the United States."

PC baang

Kids play games at PC baang in Seoul.
Kids typically spend a couple of hours a day playing games at this PC baang in Seoul.
Photo by Sue Shim
Playing by numbers
  • In 2002, PC baangs accounted for $1.2 billion in revenue--43 percent of the country's overall revenue from gaming.
  • 40 percent of visitors were in their twenties, while 38 percent were teenagers.
  • The world's most popular online game is "Lineage," a Korean role-playing game.
  • Online games have about three times the market share of either PC or platform games in South Korea.
  • The Korean games market is expected to reach $4.3 billion in 2005.
Game power

Internet gaming has been a key component in driving demand for broadband in South Korea over the past half decade. The country has TV stations dedicated to gaming. A book series teaches English through the game "StarCraft." And the country's president has served as honorary chairman of the World Cyber Games organization.

At the heart of this boom has been the "PC baang" ("baang" is roughly a synonym for "room"). Students flock to these Internet cafes to play, socialize and even date. As home broadband has spread, online gaming has shifted more into bedrooms, but the PC baang remains a fixture on city streets.

Big baang

Number of Internet cafes in South Korea

(chart)Source: Korean Game Development Institute

The Seoul government's clearly articulated vision for modernizing the country's infrastructure stands in stark contrast to the regulatory morass that has stunted development in U.S. telecommunications for several decades. South Korea's policy--the cornerstone of a national technology initiative to help revive a devastated economy--has created true broadband competition, which in turn has helped prices fall and speeds rise.

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Although its economy is still struggling, South Korea has made significant progress with many forms of digital technology. Citizens can get "video on demand" online, often even with high-definition video, for less than Americans pay to rent a DVD. Low-income students use high-speed Net connections to take free tutorials for the national aptitude test, an SAT-like exam that can determine college admissions and future job paths.

Online gaming is a massive cultural phenomenon, with three TV channels dedicated to the subject and good players attaining the fame of American sports stars. In addition, South Koreans spent more than $1.6 billion shopping online in the first quarter of 2004, or about twice as much per capita as U.S. residents .

"The vision of a broadband society is already here in Korea," said Eric Kim, executive vice president of global marketing operations at Samsung Electronics. "We are two to three years ahead in wireless broadband, and people are using it, too."

The country's achievements are even more impressive considering its starting point in technology. In 1995, fewer than 1 percent of South Korean residents used the Internet, though a larger number subscribed to proprietary Korean-language networks that were somewhat like the closed CompuServe and America Online networks of the late 1980s. By 2004, more than 71 percent of South Korean households subscribed to broadband Net services, according to local estimates.

The decision to focus on broadband began in the mid-1990s and intensified after South Korea's economy was crippled by the collapse of the Asian financial markets in 1997, when policy makers targeted technology as a key sector for restoring the country's economic health.

Korean regulators set out a clear path for the network industry with well-publicized national goals. All big office and apartment buildings would be given a fiber connection by 1997. By 2000, 30 percent of households would have broadband access through DSL or cable lines. By 2005, more than 80 percent of households would have access to fast connections of 20mbps or more--about the rate needed for high-definition television.

David Young Had it not been for the government leadership, they would not be where they are today. --David Young director of technology policy, Verizon

The government also spent $24 billion building a national high-speed backbone network linking government facilities and public institutions.

Even skeptics in the United States say that the South Korean government's advocacy role and intense focus can serve as a model for other countries looking to modernize their infrastructure.

"Had it not been for the government leadership, they would not be where they are today," said David Young, the director of technology policy for Verizon Communications. "There is a lesson to be taken there in setting a goal and providing support to achieve it."

A cursory look at the financial numbers shows why. During construction of the network, about 13.5 percent of South Korea's gross national product came from businesses selling equipment and services, Sang-kyoo Choi, the director of the IT Industry Cooperation Division, International Cooperation Bureau of the Ministry of Information and Communication (MIC), said in an interview.

Between 1995 and 2003, the market for IT servers increased by more than four times, and the network equipment market also quadrupled in size, according to the MIC. Start-ups such as PolyPix, a maker of Internet telephony software, have appeared. Japanese venture investor Softbank has a stake in PolyPix, which is one of the software providers for Yahoo's Japanese broadband services.


Please roll over the map above to get more information about broadband reach in that region.

Homes with broadband: 75.2%
Density: 16,978 people per sq. km
Homes with broadband: 58.5%
Density: 4,912 people per sq. km
Homes with broadband: 63.2%
Density: 2,868 people per sq. km
Homes with broadband: 76.5%
Density: 2,632 people per sq. km
Homes with broadband: 56.9%
Density: 2,795 people per sq. km
Homes with broadband: 64.5%
Density: 2,640 people per sq. km
Homes with broadband: 82.9%
Density: 1,013.2 people per sq. km

Cumulative revenue from online content has similarly exploded. Companies that provide online games and services like the Cyworld blogging site have penetrated all segments of society and become a national obsession. Corporate executives chronicle their daily lives through blogs.

The daily pervasiveness of broadband in South Korea is one of the primary reasons that Intel created a new lab dedicated to the digital home in Seoul. The company is studying how Koreans use the Internet, from shopping to gaming, to understand how the technology can be developed for other countries.

"The usage model is critical," said M.C. Kim, general manager for Intel Korea. "Online gaming is one of the killer apps."

In many ways, the most important question answered in the country's grand broadband experiment has been one of demand. Broadband progress has long been delayed in the United States and other countries as a result of uncertainty about how much interest consumers would have in paying for the expensive infrastructure needed for high-bandwidth services.

As a result, entire industries have been paralyzed for years by a classic Catch-22, as content companies and network carriers waited for one another to make the first move before investing in broadband products. Telecommunications start-ups tried to break that stalemate in the 1990s by investing large sums to offer rival high-speed connections to customers, only to be gutted in the dot-com bust.

What South Korea showed is that, if you build it, they will definitely come.

"The crazy fans are really crazy," said Guilliame Patry, a Canadian national who moved to Seoul in 1999 after he became the world champion in "StarCraft," a real-time strategy game. He's now a well-known figure in South Korea, where as many as 30,000 people typically attend game tournaments.

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Such cultural phenomena can be traced directly to the government's emphasis on the importance of broadband for the advancement of society in South Korea, as well as for its economic health. Part of that campaign involved Internet training for the portion of the population deemed likely to be left behind in the digital age.

About 10 million people fell into this category in the first round of the government's initiative, including stay-at-home wives, military personnel, disabled citizens, and even prison inmates. That program was ultimately expanded to practically anyone who wanted it.

Consumers began switching over quickly from their dial-up Internet access after 1999, prodded in part by better rates. Dial-up accounts were often charged by the minute, while broadband services were offered for a flat monthly rate.

Yet consumer demand was only one element in the broadband equation; the networks still needed to be built, and their services had to be affordable for most citizens. For this to occur, South Korea's government worked closely with providers, encouraging investment and coming up with a development strategy that was collective but still included a deep reliance on competition.

"The government made a decision to be very focused on this issue and set some very aggressive goals," said Laura Ipsen, Cisco's vice president of worldwide government affairs. "They worked with service providers to decide what the infrastructure would look like. Part of the plan included how the government and the private sector could help improve take-up rates."

Most of the country's consumers were already served by the dominant carrier Korea Telecom, but the government encouraged competitors with a low-interest loan program for companies that built their own broadband facilities. The program offered $77 million in two years alone, with a particular focus on rural areas.

The government offered other incentives for Korea Telecom. Once a state-owned monopoly, the company began the transition to private hands in 1993. But the government, which retained some shares until 2002, allowed the process to become final only on the condition that Korea Telecom bring broadband--defined as connections of 1mbps--to all the villages in the country.

As was the case with established U.S. telephone companies, Korea Telecom was initially reluctant to cannibalize its profitable dial-up ISDN business. The company eventually plunged headlong into high-speed service over DSL and fiber-optic lines, but only after rivals got an early jump on the broadband market, beginning to offer widespread services in 1999.

One of these was a well-financed newcomer called Hanaro Telecom, which is now the second-largest provider of service in the country. In some cases, Hanaro offers services over Korea Telecom's telephone or cable lines. But it also has built many of its own fiber lines, so that many apartment buildings have two separate fiber strands in their basement, giving consumers a choice between services.

Taylor Reynolds They can't keep selling on speed...the competition is so cutthroat that they are moving to great customer service. --Taylor Reynolds analyst, International Telecommunication Union

The competition has driven down prices and boosted access speeds quickly. Having reached the limit on those approaches, they're now competing on customer service. Hanaro recently offered a PC help service that diagnoses computer glitches remotely over a broadband connection, and it promises to send a technician out to help if the problem can't be fixed that way.

"Once they hit about 20mpbs, they're not in as big a rush to put out faster and faster speeds," ITU's Reynolds said. "Now they're working on more services that come along with the access. They can't keep selling on speed, but the competition is so cut-throat that they are moving to great customer service."

So successful has South Korea's experiment been that it is even exporting its expertise. Several companies are marketing consulting services and equipment to Russia and Southeast Asia.

Whether that advice will make its way to the United States remains an open question. Both President Bush and likely Democratic challenger John Kerry have called for ubiquitous broadband access, but neither has expressed goals anywhere near as ambitious as South Korea's.

Nevertheless, natural market forces seem to be pushing the U.S. industry in a similar direction. Competition between cable modems and DSL, even as muted as it is in many places, has helped drive down DSL prices and boost speeds offered by cable companies. A first generation of rivals that used the DSL lines have largely vanished, but new competition could be offered in a few years by wireless, power line and satellite broadband companies.

"The presence of those competing technologies will drive things forward," said Floyd Kvamme, the Silicon Valley venture capitalist who co-chairs the President's Council of Advisors on Science and Technology. "If (broadband) is worthwhile, competition will drive it into anyone's home who really wants it." End

CNET's Michael Kanellos reported from Seoul and John Borland from San Francisco.

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