Broadband Network Strategies

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Broadband Network Strategies

• June 45, 2002
• Dr. Nae-Chan Lee
• nclee_at_kisdi.re.kr

OECD Broadband Workshop 2000,Hotel Lotte World,
Seoul, Korea
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Contents
What is Broadband Internet Service ?
Impact of Network Investment
Patterns of Growth
Demand Side
Supply Side
Network Strategies
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Broadband service, interwoven by various networks
and functions
Apartment complex

• ADSL optic

• ADSL copper

House
Internet
Core Network
Control Office
Wire center
Building

• Cable modems HFC

Pole

• Internet Service Providers (ISPs)

• Contents Provider (CPs)
  

• Internet Access Providers (IAPs)

• In-building Service Providers

• User Interface

In-building Home Automation
Network
Contents
Network
Network
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Transmission Capacity

• Metropolitan areas 250 130 Gbps through
  (Dense)-Wavelength Division Multiplex
• Small-and-medium cities and towns optical cables
  with maximum transmission rates of 2.5 Gbps
• Through KII-G connecting 144 calling zones with
  optic fibers and installing ATM switches (1995
  2000)

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Investment as IT Booster

• Total amount of investment by 2001 4.04
  billion
• Spillover effects 7.07 9.46 billion
• Job creation 4,9008,300

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Subscription

• 8. 5 million (as of April 2002), penetration rate
  of 50.4 percent 100 inhabitants, recording the
  highest in the world

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Pattern of Growth

• Phase I Launch
• High cost and retail charges hinder the rollout
  of the market
• External subsidies and lowering users
  subscription barriers may be necessary to reach
  critical mass
• e.g., local charge, handset subsidies,
  subscription fee discount
• Phase II Takeoff
• - Temporary shortage in supply soon after
  passing critical mass
• - Competition spurs market growth
• Phase III Landing
• - Subscribers and revenues are being saturated
• As technology advances, new services substitute
  existing one

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Evolution of Marketplace

• Phase 0 No broadband service market before July
  1998
• Phase I Broadband Internet service, initiated
  by Thrunet and followed by Hanaro and
  Korea Telecoms
• seven facilities-based providers (FSPs) by the
  mid of 2000
• Phase II Facilities-based competition,
  intensified moving up the last-one-mile
  deploying and upgrading access networks
• 8.5 million households as of April 2002
• Phase III 13.5 million households with 20 Mbps
  by the end of 2005, a target of the govt (June
  2001)
• 11 12 million households, purely market-driven
  (estimate)

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Demand Side

• D-1 Few in Phase I, increase after passing by
  critical mass
• Customers keep in mind the level of charge first
  and foremost!
• D-2 Customers subscription, influenced by
  word-of-mouth(50) and mass media(25)
• D-3 Customers, less inclined to churn(93)
• D-4 No network externality unlike voice services
• packet flows between each customers PC and web
  servers (no on-net calls between customers like
  local or mobile services)
• D-5 One-line with dynamic IP for residential
  use, Multi-line with fixed IP for
  small-and-medium sized business
• Conditions D-2 and D-3 and competition accelerate
  marketing costs(Ad, incentive payment), recording
  the highest portion among costs

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Supply Side

• S-1 less traffic sensitive cost
• Modem subscriber sensitive like mobile handset
• DSLAM and CMTS, of which capacity are lower than
  local switch
• Lower degree of Economies of scale compared to
  voice services through conditions D-4 and S-1
• S-2 Flat-pricing
• Because equipping with circuit or packet billing
  system, costly (cf. Packet pricing
  for Mobile Internet in Japan and Korea)
• An increase in packets does not match revenue

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Capturing as many customers as possible

• S-3 Procurement costs, initially high, but
  gradually declines as the economies of scale
  works in manufactures
• The price of modem has decreased 20 in 2000
  from 462 in 1999, while DSLAM 30 from
  36,000 during the same period
• Best strategy is capturing as many customers as
  possible
• Revenue increases proportionately with the number
  of subscribers
• Observation
• Rough guess of Korea Telecoms Revenue in 2002
  1.26 billion ( 30 ? 12 month ? 3.5
  million )
• Hanaro Telecom and Thrunet recorded the black on
  the EBIDTA basis in fiscal year 2001.
• Revenue increases proportionately with the number
  of subscribers
• What if alternative services such as wireless
  Internet, Power Line Communication and IP sharing
  come in on the scene too early ?

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First-mover or Follower

• Strategy I Be a first-mover
• less inclined to churn (D-3) ? preempting the
  market
• Procurement costs for related facilities is high
• High risk of trial and error
• Strategy II Be a follower
• Procurement costs may be low and risks may be
  hedged
• The market is preoccupied by the incumbent.
• Observation
• New entrants are first-movers in Korea and Japan
  in the form of fiber ADSL
• The incumbent, reluctant to be a first-mover,
  e.g., worrying about substitution between dial-up
  and broadband services

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Make-or-Lease

• Means of access indispensable
• ADSL copper local loop or fiber cable
• Cable Modem cable TV (HFC) networks
• Strategies Investment or Lease
• Which option to take depends on service providers
• But, if they take the latter option, whether to
  implement local loop unbundling or open access by
  regulatory authorities matters.
• Observation
• Most countries have adopted LLU, but not open
  access except e.g., Korea(voluntarily in the
  market), Canada

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Skipping over Technologies

• Advances in Technology and Speedy Migration
• Broadband Dial-up ? ISDN ? ADSL ? VDSL or xDSL
• Strategies
• Strategy I Taking the opportunity of grabbing
  the market now
• foregone sunk costs and burdens of new tech.
  investment in the future
• Strategy II Wait until tomorrow, skipping to new
  technology.
• Foregone present market opportunity
• Observation
• Korea Telecom has skipped over ISDN and jumped to
  ADSL, while Japan has devoted on ISDN. Japan,
  hopping onto VDSL ?

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Network Extension or New Construction

• Broadband
• Strategy I New facilities(modem, DSLAM) with
  existing local loop
• Strategy II Replacing it by optic fibers
• ? More or less dependent on Technology
• Mobile
• Advances in Technology
• IS-95A/B ? cdma2000-1x ? EV-DO ? EV-DV ? IMT-2000
• Strategy I Upgrade, using existing networks
• Strategy II Overlay, newly construct
• Investment cost may be saved in the form of
  overlay, but upgrade is necessary in some phases
  of migration.
• Observation
• Korea Telecom, although late comer, has caught up
  other service providers through network
  extension.

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Thanks for Listening !
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Korea Broadband Internet Service in Korea
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