Korea Gets It

What is it about the wireless Internet that brings out the worst in otherwise advanced economies? First there were the Internet phones in Europe that used wireless access protocol, or WAP. They flopped spectacularly. Then the spotlight turned to Japanese mobile operator DoCoMo's wireless Internet service, i-mode. DoCoMo dazzled at first, but average usage and revenue per subscriber are falling in Japan, as in Europe. The U.S. can barely deliver reliable voice service, much less wireless Internet, which would seem destined to be another techno-dud service.

Except in South Korea. Walk down almost any street in Seoul and you will see everyone from schoolchildren to business executives using advanced Internet phones to download video clips, check the news, e-mail, compile a personal karaoke collection or even join in multiplayer online games against opponents on personal computers or personal digital assistants. The wireless applications most popular here ring tones, messaging and games are no different from those in other countries.

But the mobile industry in South Korea may have finally found the right combination of technology, investment and marketing to turn wireless Internet services into a profitable business. "If other markets were developing in the same way as Korea, the carriers would be making their shareholders very rich within a short period of time," says John Strand, CEO of Strand Consult, an independent consultancy based in Copenhagen that focuses on the global mobile market.

Mobile operators such as the U.S.'s Verizon Wireless are getting the message. "We think the South Koreans are on target across the board," says Jim Straight, a Verizon vice president. "Much of what they are doing can be applied in the U.S. We are looking at what will fit with our culture and clientele."

Verizon Wireless is rolling out service in the U.S. based on Qualcomm's BREW virtual machine platform. The technology, already used by mobile operator Korea Telecom Freetel (KTF), allows software developers and carriers to provide a wide range of new mobile data applications and coordinate billing and payment. For the first time, American consumers will be able to use phones to download software in much the same way they now do on their PCs. One of the most popular applications is expected to be sophisticated games that users can play off-line. To promote the service, Verizon is selling Sharp's Z-800 full-color phone for $399 and this fall will introduce cheaper models made by Motorola and Korea's LG for around $250. A competing technology developed by Sun, called Java virtual machine, or JVM, is also starting to bubble. Although it is available on just a few phones such as those made by Siemens, Nokia and Motorola analysts predict that by 2003 one-quarter of the 660 million new mobile phones sold worldwide will be equipped with jvm.

The South Korean experience indicates that consumers are willing to pay for faster, easy-to-use phones. In South Korea the latest models, which cost around $300, use a technology called EV-DO and can access the Internet at a rate of up to 2.4 megabits per second. That is about four times as fast as the general packet radio service (GPRS) phones, the most sophisticated models currently sold in Europe, and 250 times speedier than Japan's i-mode service. Verizon is rolling out a service that is only about 2% as fast as EV-DO but is piloting technology already used in South Korea and hopes to match those speeds by the end of the year.

The South Korean operators certainly seem to know which marketing and service buttons to push. Unlike European operators Orange and Vodafone, which use one brand across different markets and customer groups, South Korean operators use sub-brands targeting different groups by age and gender. That is counterintuitive to the global-branding ideal that pervades advertising, as well as to the notion that the bigger the brand, the more efficient the marketing. The sub-branding is paying off, says Yoon Soo Kim, manager of KTF's Internet marketing team, with each subgroup reporting higher average revenue per user and lower churn rates than the standard KTF brand.

E-mail has been another key to South Korea's mobile-telecom success. About 80% of Korea's 47 million people will soon be connected to the Internet at home, with more than half using high-speed connections. A new service offered by Daum, a South Korean Web portal with 32 million users, allows users to forward the free e-mail they receive on their PCs to their mobile phones for the nominal fee of $1 a month and has become an instant hit.

South Korean operators have also chosen to differentiate download prices, charging one rate for text and another for multimedia content. On 2.5G networks, all the mobile operators take half a cent per packet (which represents 512 bytes) for text but only about one-quarter of a cent per packet for multimedia content. The reason? To make it more attractive for consumers to use the new traffic-intensive multimedia services such as video on demand. Otherwise, they might stick to less traffic-intensive text-based services like e-mail.