broadband network strategies

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Korea Information Society Development Institute Broadband Network Strategies Broadband Network Strategies June 4~5, 2002 Dr. Nae-Chan Lee [email protected] OECD Broadband Workshop 2000, OECD Broadband Workshop 2000, Hotel Lotte World, Seoul, Korea Hotel Lotte World, Seoul, Korea

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Korea Information Society Development Institute. Broadband Network Strategies. June 4~5, 2002 Dr. Nae-Chan Lee [email protected]. OECD Broadband Workshop 2000, Hotel Lotte World, Seoul, Korea. Contents. What is Broadband Internet Service ?. Impact of Network Investment. Patterns of Growth. - PowerPoint PPT Presentation

TRANSCRIPT

Page 1: Broadband Network Strategies

Korea Information Society Development Institute

Broadband Network Strategies Broadband Network Strategies

June 4~5, 2002

Dr. Nae-Chan [email protected]

OECD Broadband Workshop 2000,OECD Broadband Workshop 2000,

Hotel Lotte World, Seoul, Korea Hotel Lotte World, Seoul, Korea

Page 2: Broadband Network Strategies

Patterns of GrowthPatterns of Growth

Supply Side Supply Side

ContentsContents

Impact of Network Investment Impact of Network Investment

Demand Side Demand Side

What is Broadband Internet Service ? What is Broadband Internet Service ?

Network Strategies Network Strategies

Page 3: Broadband Network Strategies

Broadband service, interwoven by Broadband service, interwoven by various networks and functions various networks and functions

Internet Core Network

Control Office

Apartment complex

House

Building

• Contents Provider (CPs)

• Internet Service Providers (ISPs)

• Internet Access Providers (IAPs)

• In-building Service Providers

• User Interface

Network Network Contents Contents In-building & HomeIn-building & HomeAutomation Automation

• ADSL: optic

Pole

• Cable modems: HFC

Network Network Network Network

• ADSL: copper

Wire center

Page 4: Broadband Network Strategies

Transmission CapacityTransmission 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)

MetropolitanSeoul

-Taejon

Seoul-

Busan

Seoul -

Kwangju

Sould-

Taeku

Pusan -

Kwangju

Taejon

Busan

Taejon-

Taeku

Kaejon-

Kwnagju

Taeku-

Kwangju

Capacity(Gbps)

248.2 191.3 173.9 171.5 132.4 164 163.7 160.4 136.5

Page 5: Broadband Network Strategies

Investment as IT Booster Investment as IT Booster Total amount of investment by 2001: $ 4.04 billion Spillover effects: $ 7.07 ~ $ 9.46 billion Job creation: 4,900~8,300

1997 1998 1999 2000 2001 Total

FiberTrunks

93 42 75 120 143 473

FTTO 200 88 148 607 259 1,302

FTTC 2 13 189 618 248 1,069

ADSL 0 1 10 655 534 1,200

Total 295 144 421 2,000 1,183 4,044

Page 6: Broadband Network Strategies

SubscriptionSubscription

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

Number of Subscribers(Thousand people)

8,496

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

Jul-98

Oct-98

Jan-99

Apr-99

Jul-99

Oct-99

Jan-00

Apr-00

Jul-00

Oct-00

Jan-01

Apr-01

Jul-01

Oct-01

Jan-02

Apr-02

Page 7: Broadband Network Strategies

Phase I: Launch

- High cost and retail charges hinder the rollout of the marketHigh cost and retail charges hinder the rollout of the market- External subsidies and lowering users’ subscription barriers External subsidies and lowering users’ subscription barriers

may be necessary to reach critical massmay be necessary to reach critical mass• e.g., local charge, handset subsidies, subscription fee discount e.g., local charge, handset subsidies, subscription fee discount

Phase II: Takeoff - Temporary shortage in supply soon after passing critical massTemporary shortage in supply soon after passing critical mass- - Competition spurs market growth Competition spurs market growth

Phase III: Landing - Subscribers and revenues are being saturatedSubscribers and revenues are being saturated

As technology advances, new services substitute existing one

Pattern of GrowthPattern of Growth

Phase I Phase II Phase III

Time

Revenue

Subscriber

Phase 0

Page 8: Broadband Network Strategies

Evolution of Marketplace 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 gov’t (June 2001)

- 11 ~ 12 million households, purely market-driven (estimate)

Page 9: Broadband Network Strategies

D-1: Few in Phase I, increase after passing by critical mass

- Customers keep in mind the level of charge first and foremost!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 customer’s 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

Demand Side Demand Side

Page 10: Broadband Network Strategies

S-1: less traffic sensitive cost - Modem: subscriber sensitivesubscriber sensitive like mobile handset

- DSLAM and CMTS, of which capacity are lower than local switch

Lower degree of Economies of scaleLower degree of Economies of scale compared to voice services

through conditions D-4 and S-1

S-2: Flat-pricingFlat-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

Supply Side Supply Side

Page 11: Broadband Network Strategies

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 $ 462The price of modem has decreased 20 % in 2000 from $ 462 in 1999, while DSLAM 30 % from $ 36,000 during the in 1999, while DSLAM 30 % from $ 36,000 during the

same period same period

Best strategy is capturing as many customers as possibleBest strategy is capturing as many customers as possible- Revenue increases proportionately with the number of subscribersRevenue 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 ?

Capturing as many customers as possible Capturing as many customers as possible

Page 12: Broadband Network Strategies

First-mover or Follower 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

Page 13: Broadband Network Strategies

Make-or-Lease 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

Page 14: Broadband Network Strategies

Skipping over Technologies 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 ?

Page 15: Broadband Network Strategies

Network Extension or New Construction 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.

Page 16: Broadband Network Strategies

Thanks for Listening !Thanks for Listening !

For more details on Broadband Internet Service in KoreaFor more details on Broadband Internet Service in Korea

“ Broadband Internet Service in Korea (2002)” “ Broadband Internet Service in Korea (2002)”

For more details on Info and Telecom Services in KoreaFor more details on Info and Telecom Services in Korea

broadbandkorea.kisdi.re.krbroadbandkorea.kisdi.re.kr