On 29 December 2003 SK Telecom launched trial W-CDMA services in Seoul and KTF launched trial W-CDMA services in eight cities in the Gyeonggi province including Sungnam, Buchun and Anyang. By April 2004, however, there were only 700 registered subscribers for KTF's W-CDMA services and 490 for SK Telecom's W-CDMA service. In an attempt to speed up subscriber migration from CDMA2000 1X to W-CDMA, the government has thus decided to allow subsidies for W-CDMA handsets of up to 40% with effect from 16 April 2004 despite continuing to ban subsidies for all other handsets in Korea.
W-CDMA and the licensing process
W-CDMA licences were awarded in December 2000 and W-CDMA was meant to be commercially launched by the time of the football World Cup in June 2002. The Korean government was keen to promote W-CDMA because it wanted Korea to offer telecoms services over a universal standard. South Korea is unique in that it is a country with purely CDMA subscribers with no GSM (or TDMA or PDC) networks. As GSM dominates the world's mobile market and the GSM migratory roadmap is to W-CDMA, it was felt that South Korea, by offering CDMA alone, was isolated. The issuing of two W-CDMA licences was thus a political decision rather one based on cost economics.
Delays to W-CDMA's commercial launch
KTF's and SK Telecom's commercial W-CDMA launches have been constantly delayed because of technical difficulties with handsets and problems with stabilising their networks. Their plans for W-CDMA were also delayed because of initial delays by the regulator in allocating spectrum (spectrum was eventually allocated in December 2001) and the protracted process of choosing the infrastructure providers to supply the W-CDMA networks. (KTF's W-CDMA network is being provided by LG Electronics and SK Telecom's network is being provided jointly by LG Electronics and Samsung.)
At the time of the licence awards the telecoms sector was in a much better financial position than it is now and KTF and SK Telecom have become wary of the huge investment involved in maintaining a CDMA2000 1xEV-DO network as well as a W-CDMA network. A CDMA2000 1xEV-DO network is upgradeable from a CDMA2000 1X network whereas a W-CDMA network cannot be upgraded from CDMA2000 1X. Therefore it is much more cost effective for KTF and SK Telecom to fully upgrade their CDMA2000 1X networks to CDMA2000 1xEV-DO using their existing licences. While CDMA uses spectrum more efficiently than rival technologies such as GSM, at some stage in the future KTF and SK Telecom will nonetheless exhaust their spectrum in the 1700MHz and 800MHz bands respectively, however, and would thus have needed the additional spectrum afforded them by their W-CDMA licences in the 1.9/2.1GHz spectrum. It is most likely that they would have chosen to deploy CDMA2000 in this spectrum had they not been compelled by the licence conditions to roll out W-CDMA networks.
The W-CDMA licences, although cheap compared with those sold in Germany and the UK, still required a heavy investment of KRW 1,500 billion (USD 1.08 billion) on the part of the operators. Despite the substantial further investment needed, KTF and SK Telecom have already invested a great amount in W-CDMA and despite the delays will, therefore, go through with the launch of W-CDMA services since not doing so would mean that the W-CDMA licence investment would be wasted. Furthermore, were they not to launch they would incur the wrath of the regulator, the Ministry of Communications, which is a powerful body and not frightened to reprimand Korean operators with fines and the imposition of suspension periods, as it has done in the past .
W-CDMA tariffs and handset prices
Since December 2003 the Korean operators have been offering incentives to subscribers to sign up to W-CDMA. KTF offered an activation fee of KRW 30,000 (USD 25.9) with a basic monthly fee of KRW 14,000 (USD 12.1) and calls charged at KRW 18 per 10 seconds. SK Telecom offered an activation fee of KRW 50,000, a basic monthly fee of KRW 14,000 and call charges of KRW 20 per 10 seconds. Activation fees are waived, however, for existing SK Telecom CDMA customers who switch to SK Telecom's W-CDMA service. In order to speed up subscriber migration the operators are offering promotional deals. KTF is offering a 30% discount in its monthly fee taking it down to KRW 9,800 until September 2004 with 30 minutes of free video calls between couples and unlimited internet usage for KRW 20,000 per month.
The Ministry of Information and Communication (MIC) in an attempt to tackle the widespread complaints over expensive W-CDMA handsets decided to allow subsidies for W-CDMA handsets of up to 40% and this came into effect on 16 April 2004. The W-CDMA handsets are provided by LG Electronics and Samsung Electronics (the LG-KW2000 and Samsung's SCH-W110 ). The handsets have initially been made available on a lease programme with lease payments ranging from KRW 30,000 for SK Telecom to KRW 80,000 for KTF. The lease payment for KTF has been reduced to KRW 50,000 with the application of the subsidies. The handsets will be later available for purchase but with the limited handset inventory this is currently not an option. In January 2004 it was reported that SK Telecom had an inventory of 700 units and KTF had an inventory of 1,000 units.
W-CDMA fails to appeal to subscribers
As far as data functionality is concerned, W-CDMA offers no significant advantage over CDMA2000 1xEV-DO and so there is no incentive for subscribers to adopt W-CDMA, except in the case of those who wish to be able to roam with other W-CDMA networks. There are success stories for W-CDMA, such as the strong recent growth in NTT DoCoMo's network which has seen its W-CDMA subscriber base rise from 1.00 million as of 30 September 2003 to 3.05 million as of 31 March 2004. Nevertheless, NTT DoCoMo's other network is PDC, the voice and data functionality over which (such as the clarity of the sound) is inferior to that over CDMA. There is thus a much stronger case for an NTT DoCoMo subscriber to upgrade from PDC to W-CDMA than for a Korean subscriber to upgrade from CDMA2000 1X to W-CDMA. CDMA2000 1xEV-DO offers a wide range of services such as music on demand and video on demand and there is currently no service on W-CDMA that could not be offered on CDMA2000 1xEV-DO. As of 31 March 2004, CDMA2000 1xEV-DO accounted for 24% of both KTF's and SK Telecom's subscriber bases. This shows that the demand for these data-rich services is there but few of the subscribers using these services appear to want to switch to W-CDMA.
Number of CDMA2000 1xEV-DO subscribers as of 31 March 2004
| Operator |
CDMA2000 1xEV-DO subscriber base |
Overall subscriber base |
% of overall subscriber base |
| KTF |
4,484,000 |
18,439,000 |
24.3 |
| SK Telecom |
1,719,000 |
7,139,000 |
24.1 |
| Source: KTF, SK Telecom |
W-CDMA: its future in Korea
According to KTF and SK Telecom, it is technical difficulties with W-CDMA handsets rather than their high cost that has been the major cause for complaint among consumers. Many users have complained of issues such as poor reception, overheating and the bulkiness of the handset. Analysts believe that it will not be until after July 2004 that local handset manufacturers will develop handsets that can operate over both W-CDMA and CDMA2000 1xEV-DO. It is unlikely that KTF and SK Telecom will push for subscriber migration to W-CDMA before these handsets are available. The Korean government had initially planned for W-CDMA services to become fully commercial at the start of March 2004 but September 2004 is a much more realistic date in line with the projected launch of W-CDMA and CDMA2000 1xEV-DO dual-mode handsets. Some critics have commented that KTF and SK Telecom are reluctant to invest further in W-CDMA because they are not convinced of its market potential. Both operators are planning to achieve nationwide W-CDMA coverage by 2006 but their doubts about the technology's prospects appear to be well founded. At the moment it is uncertain how successful W-CDMA will be in Korea but the initial signs are certainly not good.
EMC's latest Insight report published this week examines trends in the handset market. For further information contact Jo Cura: jcura@emc-database.com.
