The Leading Lights of Telecoms - KG Telecom
First to market with general packet radio service (GPRS) in Taiwan, KG Telecom is confident that this will change its fortunes in terms of revenue. KG Telecom, which is owned by the Koos Group, currently tails Taiwan’s top full service operators such as Taiwan Cellular and Chunghwa Telecom. Its confidence stems from its wireless data services and partnership with Japan’s NTT DoCoMo, which claims a 20% stake in KG Telecom. Jimmy Yau, president and COO, KG Telecom, explains its strategy.
Industry observers do not think GPRS will take off in Taiwan soon because of handset, software and system problems, a lack of content, and consumer acceptance, while other local operators are delaying the launch of their GPRS services. Why did KG Telecom choose to launch GPRS first?
In Mar 1999, KG Telecom was the second cellular phone operator in the world to order GPRS handsets from Nokia. At that time, the other local operators thought KG Telecom was crazy to talk about wireless broadband and GPRS. But now that 2.5G is the trend worldwide, local operators like Chunghwa, Taiwan Cellular and FarEastone are all ordering GPRS systems and want to launch the service as soon as possible.
KG Telecom’s vision is to position itself as the leader in wireless broadband services. This vision is based on several reasons. We believe that the Internet will be the driving force for the future. Content, content personalisation, convenience, mobility, and wireless communications will all become very important in our daily lives. I have 100% confidence that GPRS will be successful throughout the world.
The bad memory of WAP service may leave some doubt about the success of GPRS. But WAP is different as it uses circuit switching. Also, WAP was introduced when the environment for wireless data services was not very mature. ICPs (Internet content providers) were not ready and operators did not have much experience. WAP phones had bugs. They were big, unattractive and not convenient to use. For GPRS or wireless data services to take off, three elements need to be present. The network infrastructure and the devices need to be ready. Phones must be attractive. Content must be rich. Operators should adopt HTML as a format to facilitate the content provider’s ability to pass content on to mobile phones. If users can quickly access content and Web sites they want via attractive phones, this service will be successful.
KG Telecom has these three elements ready. We have come through all the challenges and difficulties with our network over the last year. Our network is now mature enough and we have more than 200 content partners. And manufacturers will deliver more GPRS phones in Q3’01. In addition, DoCoMo has shown us how to work with ICPs.
Do you think content is mature in Taiwan? It seems to me there are not many ICPs in Taiwan?
The good ICPs have survived through the past 12 months. We have gone through the learning curve with the ICPs and have built up a mutual understanding. We are in a much better position than others because we have learned from DoCoMo how to manage content providers.
What is your estimated revenue percentage from GPRS services for this and next year?
It really depends on the handset suppliers. The handset manufacturers say they can deliver more GPRS handsets during July and August, but they cannot promise how many. I don’t want to tell you some figure which is now beyond my control, but our network is currently ready to accommodate 300,000 GPRS subscribers using content at the same time.
What are the most popular non-voice services in Taiwan right now? What kinds of non-voice services do you think have great potential? E-mail, financial services and entertainment such as games and jokes are very popular in Taiwan. Music also has great potential. Gigamedia, an Internet company also owned by the Koos Group, has formed a partnership with EMI. So KG Telecom subscribers will be able to download music from EMI in the future.
KG Telecom is behind Taiwan Cellular, Chunghwa, and FarEastone in terms of revenue, net margin and ARPU. What strategy does KG Telecom have to catch up?
Our starting points were not the same. KG Telecom received a regional licence when the Taiwan government liberalised the mobile phone market. Then we acquired another company that had a whole-area licence. But the two companies were using equipment from different vendors, so it took KG Telecom longer to lay out its infrastructure than other operators.
We missed the initial opportunity—there was a pent-up demand for mobile phone service when the market was liberalised, so other operators got their customers very easily. We came along a very rocky road. But today our GPRS network is ready. We are ready for 2.5G and will be ready for 3G.
With DoCoMo as our partner, we have the key to success in the wireless data market. Through DoCoMo’s alliance and our market penetration, I don’t think it is difficult for us to turn the situation around.
We have the best network for both data and voice services available today. What we need to do is to change consumers’ perception that our network is not very good. The whole world is moving onto wireless data services, 2.5G and 3G. And we are riding on the trend far ahead of the other operators.
So is KG Telecom going to focus on data services in the future?
If we have good data services, would subscribers use only our data services? No, they will also use our voice services.
Since Taiwan’s cellular phone penetration rate has reached over 80%, analysts predict operator growth will slow down. How does your company plan to maintain growth?
The growth of voice services is slowing down, but the market for data services has not yet taken off and the market for data services is very large. Consumers will come to KG Telecom for i-mode-like data services, and then they will also use our voice services. So our target is not just the 20% of people who do not yet have mobile phones, but also the subscribers of other operators.
But when subscribers in Taiwan change operators, they are not allowed to keep their cellular phone numbers. Don’t you think that will deter consumers from switching?
No, I don’t think that will be the case. Consumers will change their numbers for better content and service. They can always leave a message announcement on their original voice mail. Furthermore, number portability is the current trend and I believe Taiwan will follow.
Frost & Sullivan’s take on: KG Telecom
AS OF Mar 2001, KG Telecom is the third largest cellular operator in Taiwan with an estimated subscriber base of 3.8 million. The company is a subsidiary of the Koos Group, which also has investments in satellite, CATV and other telecoms companies in Taiwan. In addition, one of the key strengths of KG Telecom is its partnership with NTT Docomo which owns a 20% stake in the company.
In Jun 2001, the company became the world’s first telco to import the i-mode service. Under this agreement, NTT Docomo would license its technology and provide technical expertise to introduce the i-mode service over KG Telecom’s GPRS infrastructure. NTT Docomo would also provide consulting for a business plan feasibility study, server and terminal deployment, marketing, content development and customer service.
In Dec 1999, it launched M-Mode—a comprehensive data communications service integrating mobile Internet and mobile commerce. In Sep 2000, KG Telecom proved to be the leader in wireless broadband communications when it launched Asia’s first nationwide GPRS network. It was also the second cellular operator in the world to order GPRS handsets from Nokia.
The company is still unlisted and plans to raise about US$270 million from the equity market.
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