Korea Telecom announced yesterday that it is opening up its network to MVNOs (Mobile Virtual Network Operators) and launching MVNO services for the first time in Korea. KT has partnered with “Entaz” (http://www.entaz.com), a mobile contents provider, and with “Free Telecom” and “Evergreen Mobile,” both of which are prepaid service providers. KT will open its mobile network to these selected MVNOs so that they can utilize KT’s network infrastructure to offer inexpensive data and voice services, especially to consumers within a niche market.

(source: JoongAng Daily)

Entaz, Free Telecom, and Evergreen Mobile

Entaz has a mobile portal service called “Free Mobile Town” that provides various contents including mobile game, cartoon, photobook, and ebook services. As Entaz will be taking advantage of KT’s low wholesale rates for data service, consumers will be able to access “Free Mobile Town” contents with no charge for mobile data service itself. While Entaz is utilizing KT’s network for data usage service, the other two are using the network for a prepaid voice call service; “Free Telecom” and “Ever Green Mobile” are targeting foreigners or short-term users, to whom they will offer their services at a low rate thanks to KT’s MVNO policies that aim to create a mobile ecosystem.

The first MVNO service in Korea?

It is only recently (March, 2010) that the Korean government passed a bill allowing the leasing of mobile networks, or MVNO business in the country. Previously, MVNOs were not allowed, and the Korean telecom market was fully dominated by the three MNOs, creating a huge market barrier for new entrants. The advent of MVNO companies is expected to work for the benefit of consumers by driving accelerated price competition into the market. By September 23rd, KCC (Korea Communications Commission) will prepare a complete set of guidelines and regulations for MVNO services. Once the guidelines are out, many changes are bound to take place as SKT, currently holding over a half of the market share, will be legally obliged to open its network, and as other companies, such as Onse Telecom and KCT (Korea Cable Telecom: a consortium of seven cable operators providing VoIP services throughout Korea) have demonstrated their willingness to start a MVNO business.

A fourth MNO in Korea

With KT launching its first MVNO services, which are not yet complete MNOs themselves in that they only offer either data usage service or voice call service, the idea of a fourth MNO in Korea seems to be gradually turning into reality. Soon, mobile phone users in Korea will have more options to choose from, compared to when they had only three choices: SK Telecom, KT, or LG U+. In addition, the advent of KMI (Korea Mobile Internet), a MNO that will be based on mobile WiMAX network and one that will generate many other MVNOS there forth, is imminent as well. (more about KMI at an upcoming entry) It will be interesting to see how such factors will play out in Korea’s telecom market. Meanwhile, let’s wait to see a myriad number of MVNOs rolling out starting from next year.

In Korea, there are three MNOs; SKT, KT, LGT. They respectively possess 50.67%, 31.42%, and 17.91% of the telecom market (April, 2010) according to KCC (Korea Communications Commission). In this series of feature posts dealing with Korea’s three MNOs, I will provide an overview of SKT, KT, and LGT’s survival strategies in approaching Korea’s highly saturated telecom market, and how they seek to go beyond just providing telecommunication service.

LG Telecom’s Taltongsin initiative, “beyond telecommunication”

LG Telecom’s new growth initiative is called Taltongsin, meaning “Beyond Telecommunications.” This strategy aims to strengthen LGT’s core capability as a Telco and at the same time to increase the market pie by collaborating with other industries where LGT’s communication technologies will be able to offer value. It is different from a market expansion strategy in which LGT will enter into other markets to make profit and end up intensifying the market competition. LGT expects to create a new service genre by applying their ICT to the businesses of corporations and SMEs. LGT hopes to contribute to the welfare of Korean citizens through new services and technologies such as Smart Grid and u-City. Overall, LGT’s Taltongsin hopes to vitalize the ecosystem of the IT industry.

LGT’s survival strategy against SKT and KT

LG Group is Korea’s one of the biggest conglomerates operating their business mainly in electronics, telecom, chemical etc. LG Group used to have three different Telcos in its group, which were LGT, LG Dacom and LG Powercom. LGT is ranks 3rd amongst Korea’s three MNOs. LG Dacom provides local and international telephony services, while LG Powercom provides broadband services. These three Telcos in LG group were merged into one entity in January 2010 and began the new era of integrated LGT.

This month, integrated LGT changed its corporate name into LG U+. “U” means creating a new world where customers can enjoy communication technologies and services ubiquitously. “+” means offering more than the traditional telecom services to customers through its enhanced ubiquitous technology. Such a change in name also reveals LGT’s strong intention to stretch their customer base further onto enterprises such as ICT solution providers.

Korea’s telecommunication market, which had been segmented into fixed and mobile, was integrated into one in 2009. For example, KT acquired its mobile arm KTF. SKT acquired Hanaro Telecom and founded SK Broadband. LGT’s merge with LG Dacom and LG Powercom was just another follow up strategy against its bigger competitors. (LGT, as the smallest player, had always followed the market rules set by its bigger competitors.) Since last year, the B2B sector has risen as a new target market among the bigger Telcos, and thus LGT had to respond accordingly to this market change. External market environment, such as the saturated B2C market, was another factor that urged this B2B initiative, as in the other two Telco’s cases as well.

How LGT plans to carry out its Taltongsin initiative

Mr. Lee Sang-Chul, a former minister of Korea’s Ministry of Information Communications, was appointed as new CEO of the integrated LGT in January 2010. His first initiative had been “Taltongsin.” However, it has been moving on rather slowly for the last five months.

In May 2010, LGT announced its plan to raise Taltongsin funds which amounts to 15 billion KRW per year. This fund will let LGT invest in new technologies and acquire companies with high potential. Based on this, LGT will be able to maximize synergy in Taltongsin business areas. The main areas of interests include media, advertising, education, utility, healthcare, and etc.

LGT will select the target to invest in but the operation will be trusted to VC or LG Future Fund – LG group’s R&D fund. To do so, LGT established a dedicated team for this work and made an investment committee in the strategy group. They are in charge of the investment appraisal, execution and management.

What are the prospects for LGT’s Taltongsin initiative?

There are three phases in developing a B2B business; preparing, piloting, and penetrating. I believe LGT is still in the preparation stage while KT and SKT have moved further on to the penetrating and piloting stages. As described in the above, LGT’s Taltongsin initiative is yet to be fully developed. There are neither apparent trials nor achievements other than its funds.

However, the market’s expectation towards LGT’s Taltongsin initiative is quite high. LGT, as the smallest player, has often come up with very clever strategies for its survival. The company is talented at designing unique values that target specific segments of customers. With such strategies, LGT has always managed to go beyond the market order. Some examples of the company’s successful strategies include an FMS (Fixed-Mobile Substitute) service called Givun Zone, which was a strategy against KT’s fixed voice, a full browsing service with a very cheap price plan that made an impact on Korea’s mobile data services. Likewise, industry experts are expecting another surprise from LGT with its new Taltongsin strategy.

In Korea, there are three MNOs; SKT, KT, LGT. They respectively possess 50.67%, 31.42%, and 17.91% of the telecom market (April, 2010) according to KCC (Korea Communications Commission). In this series of feature posts dealing with Korea’s three MNOs, I will provide an overview of SKT, KT, and LGT’s survival strategies in approaching Korea’s highly saturated telecom market, and how they seek to go beyond just providing telecommunication service.

SK Telecom’s IPE Initiative

“SKT’s breakthrough strategy for highly saturated telecom market is IPE (Industrial Productivity Enhancement). We hope to be a ‘Global ICT Leader” by achieving 20 Trillion KRW of IPE sales by 2020, at least 50% of which will be from global business” said Mr. Chung Man-Won, the CEO of SKT, at a Press Conference in Oct. 2009

As the name itself suggests, SKT’s brand-new IPE strategy aims to enhance the productivity of companies in other industries by utilizing SKT’s advanced ICT solutions. SKT’s new growth strategy IPE is crossing its telecom market boundaries. Yet, this does not necessarily mean that SKT will actually penetrate into other markets and compete with their incumbent players. Instead, SKT will enter into other markets and help incumbent players to run their business better. It is totally different dimension of initiative from SKT’s former convergence strategy that aimed at providing services such as mobile TV, mobile banking and mobile music.

Since the inauguration of Mr. Chung Man-Won in January 2009, he has been fully committed to pursuing IPE.

IPE – SKT’s survival strategy

IPE is SKT’s B2B market strategy targeting various enterprise customers in Korea. SKT is Korea’s oldest and largest MNO with more than half of the market share. SKT is a major subsidiary of the SK group, one of the biggest conglomerates in Korea (such as Samsung, LG, etc). By acquiring Hanaro Telecom, Korea’s once 2nd ranked broadband player, in January 2008, SKT became Korea’s leading integrated fixed/mobile network operator.

In the strategic context of IPE, SKT serves customers from various enterprises. IPE’s core target sectors include Retail, Logistics, Financial, Education, Healthcare, Manufacturing, Construction and SME. SKT is cooperating with POSCO(Steel Manufacturing), Chungdam Learning (English Education), Dongbu Group (Finance, Construction, Logistics, etc) and so on.

SKT is a highly profitable company with a 34.8% EBITA margin as of 2009. SKT also leads Korea’s wireless market with more than half of its market share. SKT’s ARPU has also reached 42,698 KRW as of 2009 4Q, which is approximately 37% higher than its follow up competitor, KT. However, SKT needs to grow continuously and it is difficult to achieve such a target by simply repeating their past strategies for the following reasons. First of all, Korea’s wireless market as a whole is highly saturated since the penetration rate already exceeds 100% as of 2009 4Q. In addition, SKT could not increase its market share in wireless due to government regulations. Keeping in mind the fact that SKT has focused only on B2C market so far, SKT opts for B2B market as its next target with its IPE strategy.

Number of subscribers/Penetration Rate

For who?

In December 2009, SKT signed a MoU(Memorandum of Understanding) with Chungdam Learning, Korea’s leader in English education services. SKT aims to provide SLS (Smart Learning Service) by developing a u-Learning Platform, Learning Management System and customized hand devices. Its first output called ‘English Bean’ (www.englishbean.co.kr) was launched in January 2010, which focuses on practicing verbal English through mobile and online study platforms.

In addition, SKT will collaborate with POSCO (Korea’s global leader in steel manufacturing) to construct a Smart Factory. In the next 4 years, current landline phones will be replaced by wireless and the smartphone based ‘Mobile Office’ which includes e-mail, name card, e-signature, schedule, bulletin, etc., enabling workers to work at multiple locations ubiquitously. The smart factory solution is expected to bring positive effects on the overall efficiency in logistics, equipment, safety, and energy savings for POSCO.

The Task Force team for IPE was formed in mid-2009 and executed an in-depth analysis of the market including about 300 interviews with experts from a range of industries. The IPE business group was formed this year to diversify its business models.

What will be the future of IPE strategies by SKT?

A few days ago, SKT signed a MoU with Telkom in Indonesia to establish a JV (Joint Venture) for building DCEH (Digital Contents Exchange Hub). DCEH is the hub for diverse digital contents such as music, game, and video for customers, music contents providers, and network operators. SKT will be in charge of the platform building, service operation, and contents sourcing. Overall, SKT’s IPE in Indonesia will focus on automotive, healthcare, and education.

SKT’s IPE plan aims to grow together with its enterprise customers in other industries by providing them SKT’s advanced ICT solutions. While enterprise customers themselves will benefit from improved productivity, SKT will also acquire great advantages for their global business. As a matter of fact, SKT has barely achieved success in their global business so far. It was mainly due to failure in understanding the local customers. While B2C market customers are more complex and difficult to understand due to cultural and emotional factors, B2B market customers are rather straightforward and their needs are more standardized. In addition, SKT will have greater opportunities to accumulate strong track records by providing their solutions to Korea’s manufacturers, many of who are global leaders in their fields, such as POSCO, Hyundai Motors, and so on.