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U.S. broadband dream is alive in Korea

With a hefty push from the government, South Korea's telecommunications providers have built the world's most comprehensive Internet network.

SEOUL, South Korea--As Cho Won Hee zips effortlessly from one Web site to another, his doting mother at his side, it is easy to understand why Silicon Valley views South Korea as the promised land of instant access to the Internet.

The Chos' high-speed digital line--100 times faster than the typical dial-up connection in the United States--is their zippy gateway to home entertainment, education and shopping, all for $32 a month. And despite the relatively recent arrival of such connections, the Chos, like many Koreans, are already as addicted to their broadband hookup as most Americans are to their television sets.

The Chos are at the cutting edge of South Korea's grand experiment with all things broadband, the catch-all name for high-speed digital connections. With a hefty push from the government, South Korea's telecommunications providers have built the world's most comprehensive Internet network, supplying affordable and reliable access that far surpasses what is available in the United States, even in those homes that have their own broadband setup.

And now that most of the nation is online at high speeds, South Koreans are shifting more of their analog lives to their computers, where they watch soap operas, attend virtual test preparation schools, sing karaoke and, most of all, play games.

By embracing broadband so heartily, Koreans have turned their country into a test case for the visionaries who, just a few years ago, imagined a future of nearly infinite digital possibilities. While those dreams have hit speed bumps in the United States and elsewhere, South Korea--with Japan not far behind--is racing ahead.

In the process, Koreans are offering a glimpse of what wired societies are supposed to look like, where fast Internet connections vastly increase access to information, help lift productivity and create new markets.

"The killer application of the Internet is speed," said Lee Yong Kyung, the chief executive of KT, formerly known as Korea Telecom, which controls nearly half of the country's broadband market. "The money is in the pipes."

But maybe not yet. Intense competition and overbuilding has made prying profits out of building those pipes difficult. And while some content providers have flourished, many others still exist on government subsidies. Broadband has also spawned worrying social trends, some say, raising concerns about children addicted to online games and a growing digital divide between the young and the old.

This is not unexpected, given the extraordinary pace of change. Since 1998, telecommunications companies here have installed nearly 11 million broadband lines, over 5 million of those in the last year alone. High-speed lines now reach significantly more than half of all homes with Internet access.

The numbers are startling, given that South Korea was among the nations hardest hit by the Asian financial crisis just half a decade ago. But rather than retrench, the country turned a disaster into an opportunity. Spending on broadband and other high-technology gear helped lead a transformation of the economy, pushing the overall information technology sector to about 13 percent of economic activity and making South Korea much less dependent on heavy industry.

"In Korea, there was a sense of crisis, and they needed to take aggressive action to keep up with globalization," said Izumi Aizu, who runs the Tokyo-based Asia Network Research. "In the U.S., the Internet has turned into a very conventional business."

By racing the fastest down the information highway, Korea has highlighted how far the United States has to go. Though broadband connections are increasingly common in America, service is comparatively expensive and coverage spotty.

Short-circuiting on cash
Telecommunications companies in the United States, from start-ups to long-established businesses, spent hundreds of billions of dollars to build fiber-optic networks, but many ran out of cash before they brought those lines the "last mile" to people's doors.

When it comes to high-speed penetration of the home, the United States lags well behind South Korea and Canada, and has slipped below Japan.

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America's uneven adoption of broadband has Silicon Valley executives looking at South Korea with envy. While often disdainful of government intervention, many high-technology leaders in the United States now argue that Korean policy makers got it right by actively promoting the technology. The Korean government built a nationwide fiber network to get students and others hooked on high-speed service. To keep prices low, it encouraged rivals to compete with the former state-run monopoly, KT, and it provided loans to software ventures.

By contrast, the effort to bring broadband to the American home is bogged down in the fight between the regional Bell companies and their rivals.

Fee-based online services are now blossoming in Korea. Once a novelty, home shopping now makes up 8.7 percent of all retail sales, a rate that is expected nearly to double by 2005, according to Accenture, the global consulting service.

For the Chos, their experience began, like so many Koreans, when Won Hee, now 20, visited one of Seoul's many PC bangs, or Internet cafes, while in high school. Soon he was studying for his college entrance exams online and shopping for music, videos, furniture and a vacuum for his mother.

Though he attends lectures at his college, he does most of his other school work online, including making presentations with his classmates. "The speed is the biggest difference," he said. "Because all my friends have broadband, we tend to use the Internet even more."

Though Korean parents often fawn over their sons, Cho's parents grew jealous of Won Hee's connection. Since he was always online at night, his father stayed late at his office, where he had his own broadband line. His mother wanted to study for a real estate broker's license online.

So the Chos leased a Wi-Fi base station from KT so their other computers could gain access to the high-speed connection. Cho's father started coming home earlier, and Cho's mother signed up for her course. Wi-Fi, also known as wireless fidelity, is a technology for providing wireless Internet access.

Including their home phone, three cell phones and cable television, the Chos spend about $200 a month on telecommunications fees, which is not atypical for wired families in Korea and a hefty expense in a country where the median annual household income is under $20,000, roughly half that in the United States. Despite the relatively low cost for high-speed Internet, that overall sum, most experts here agree, is close to the limit of what ordinary families will pay. So companies are now focusing on providing even faster connection speeds and new services without raising prices.

Like many American broadband users, the Chos started out with what is called ADSL, for asymmetric digital subscriber line, which is best at downloading data over broadband telephone networks. But they recently upgraded to a system that is even faster in both directions, making it easier to use interactive games and other two-way services. The lines, capable of speeds of up to 40 megabits per second, are much faster than anything commonly available in the United States, where 1-megabit to 3-megabit transmission rates are typical.

Cramming at higher speeds
High-speed digital access is creating businesses that were unworkable with ordinary dial-up connections. The Korean company Megastudy, for example, has built the country's biggest online test-preparation school for college entrance exams, while KT and rival Hanaro Telecom sell accounting services over the Web to small businesses.

But entertainment, as expected, is the big attraction, especially games and videos. In 2001, SBSi, the interactive division of the Seoul Broadcasting System, started charging 500 South Korean won (about 40 cents) a show to watch soap operas and other streaming video programs. The service has attracted 1.8 million registered users; 4,000 more sign up every day. The drama "All In," the true story of a Korean gambler who beat the odds in Las Vegas, drew 1.6 million viewers during its initial 24-episode run online; now 10,000 Koreans a day pay to see reruns on their computers.

"On the basis of this new infrastructure," said Hwang Eun Ju, a manager in SBSi's strategy division, "we could develop and benefit from new broadband content."

While content providers are taking advantage of Korea's broadband network, the companies that built it are besieged. Growth of new subscribers is leveling off and providers, locked in a price war, are cutting installation fees and giving away modems.

KT has the deepest pockets, but its continuing investment in the new superfast interactive technology is expected to keep its broadband division in the red for at least another year. The chief of the No. 2 player, Hanaro, resigned in March in response to the company's mounting losses. The third-largest provider, Korea Thrunet, filed for bankruptcy protection from creditors, also in March, after failing to find new investors.

"Turning a profit is not the issue; it's whether they can survive or not," said Song Sauk Hun, an analyst at Gartner Korea.

After encouraging rivals to enter the market, the government is now quietly endorsing consolidation. The United States has gone through a similar shakeout, except it happened before the broadband network was extensively built. The Telecommunications Act of 1996 set off a surge of expansion that collapsed when the Internet bubble burst, driving many of the broadband start-ups, such as Rhythms NetConnections and NorthPoint Communications, out of business. While fixed-line operators in Korea and Japan were cajoled into making DSL service available at low cost, analysts say that the Bells are reluctant to cut prices.

At around $50 a month, broadband costs about twice as much in the United States as in Korea and Japan. Worse, broadband in the United States is slower and less suited for interactive entertainment and other two-way uses because it relies on an asymmetric system that receives data much faster than it can send it.

The Bells say they are doing everything they can to promote broadband. But critics say the phone companies view broadband as more of a threat than an opportunity, so they have done little to rectify these problems.

The phone companies "are a very powerful industry that spends enormous amount on lobbying," said Charles H. Ferguson, a senior fellow at the Brookings Institution in Washington who is working on a book on broadband. "They've been able to retard progress and competition."

Even so, after a slow start, the United States is catching up, mostly because the cable industry has picked up the ball. At the end of 2002, about 16.4 million homes had broadband lines, up 52 percent from a year earlier. Cable companies, which provide more than half of all connections, will invest at least $10 billion this year in new infrastructure.

America's suburban expanse certainly adds to the expense of connecting every home, but until broadband costs less, supporters say, consumers will remain wary.

"If the prices for high-speed access were $25 or $27," said Joseph A. Crupi, vice president for broadband communication at Texas Instruments, "it would be a no-brainer."

But while few question the advantages of having the nation hooked to the Internet by high-speed services, many argue about whether the benefits are worth the cost. The Telecommunications Industry Association, which represents Intel, Cisco Systems and Lucent Technologies, among others, wants Washington to take a larger role in shaping a national broadband policy. A bill now before Congress would provide tax breaks of $2 billion over 10 years; it faces an uphill struggle at a time of budget deficits.

Having seen how South Korea has turned itself into an Internet powerhouse, broadband advocates say that the United States risks losing out by not moving faster.

"People must have access to high-speed Internet from home, as well as work," said Paul Saffo, a director of the Institute for the Future, a technology industry forecasting group in Menlo Park, Calif., "or we won't be full players in the global economy."

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