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.

Until now, the Korean telecommunication industry sole client base had been individual customers.  They were naturally the target customers, since people were the ones who needed telecom services for their mobile phones, home phones, and office phones. However, the telecommunication service  industry had been facing market saturation with its 47.9 million users, which accounted for almost the entire Korean population. Hence, it had been difficult to go beyond the fierce zero-sum battle over the fixed pie amongst the three major telecom players: SKT, KT and LGT.

Nevertheless, the three telecom service moguls overcame recent stagnant growth and have made a breakthrough with the B2B market. They had found a convergence model where they can create value and services by providing software solutions to a carefully selected range of core businesses of such as logistics, finance, education, healthcare, manufacture, transportation and SME (small medium enterprises).

This opened new windows for the telecommunication sector, and also created synergy value between businesses and optimized services for end consumers. Hence, the three telecom services launched their innovative projects; SKT introduced its IPE (Industry Productivity Enhancement), KT with its S.M.ART (Save cost Maximize profit Art), and lastly LGT began its ‘Taltongshin’(beyond telecom) project.

On this issue, I am going to first introduce SK Telecom’s IPE, with KT and LGT on the upcoming issues.

SK Telecom

IPE, Industry Productivity Enhancement was built as SKTelecom’s goal of becoming a ‘Global ICT(Information & Communication technologies) leader’, and also to evade stagnation in the industry. SKT’s qualified TF(task force) has selected upon eight core businesses in  logistics, finance, retail, education, healthcare, manufacturing(automobiles), housing construction, and SME(small medium enterprises). I will introduce POSCO and the automobile industry’s MIV as two of SKT’s IPE systems.

To establish a firm IPE in manufacture, SKT has collaborated with POSCO (world’s top producing Korean steelmaker) to construct a “Smart Factory,” which is based on the concept of the smartphone ‘Mobile Office’(operational management service which includes name card, electronic payment, schedule, bulletin, staff check etc) SKT had provided the previous year.  Hence within the next 4 years, POSCO is planning to replace all in-house cable phones to wireless phones, and establish a ‘(fixed wireless) broadband convergence network’ using the WCDMA(3G mobile) network. These ‘smart’ fixes are expected to bring positive effects on logistics, equipment, safety, and energy savings to POSCO.

SKT is also establishing an IPE for the automobile industry called MIV (Mobile In Vehicle). MIV is a diagnostic remote control system that provides services such as anti-theft, emergency rescue, AV integration system, meter check, etc , which is also anticipated to enhance productivity.

President of SK Manwon Jeong has stated the four mission statements of accomplishing SKTelcom’s vision of becoming a global leader in ICT, which are procuring a patriotic leadership in technology, developing of new markets, propelling globalization with its synergy effects, and increasing consumer welfare.
And, they are expecting to do so, however, not solely in their captive marekt, but by creating new market space many diverse industries.

“App Store” is a buzzword for many mobile operator and Korean companies are no exception. We covered previously the launch by LG this summer and its now who SK launched yesterday its own version : www.tstore.co.kr . Tstore should go global in 2011. LG  will follow in October.

The KT proposes not only applications but also game, phone decoration, games, music, movie , education materials and funny features. Being based on the WIPI, a south-Korean middleware enabling interoperability to run application, it aims to be largely open regardless of the phone you use. The platform can be reach by visiting the website with your phone or your computer or by installing a management software. At the end of the year, Tstore should be available whatever is your telecommunication provider.

A strong developpers community is the key of a vigorous appstore and Tstore seems to be friendly towards them.  SK will propose freely to developers to use SKT DRMs, upgrade infrastructure or organize contests. The review and approval process will not be necessary for developers who already have recognition from professional organizations. Developers will pay a registration fee each year, starting next year. SK will take a 30% commission on sales revenues of applications.SK may invest in venture companies to secure contents.