From SSB,
OPINION:
1X SUBSCRIBER GROWTH CONTINUES TO IMPRESS....
The rise in prominence of Korea's wireless plays in recent months have
been indelibly linked to the rise of wireless data in Korea. Korea's
CDMA2000-1X subscriber growth has exceeded early expectations, surging to over 2.3 million subscribers at end-October (mostly migration
subscribers) from 400k at end-June 2001. In October alone, Korea added
nearly 700k 1X subscribers; we expect net monthly additions to approach
800k in November and December, ending the year with a flourish. The
strong 1X subscriber growth in 4Q01 is, in our opinio9n, a product of
intensified marketing of 1X services and the release of new lower-priced
(less than $315) 1X color handset models in the marketplace.
In terms of the contributors to Korea's surging 1X subscriber base, the
growth is now more evenly spread, with KT Freetel (KTF) coming in
strongly in October. KTF added nearly 190k net 1X subscribers in October
after a slow start. The lower-price hurdle for 1X color handsets has
been particularly beneficial for KTF given its more cost-conscious
subscriber base (compared with SKM's).
MONTHLY 1X SUBSCRIBERS BY COMPANY - JAN 2001 - OCT 2001 ('000)
--------------------------------------------------------------------------
Jan Feb Mar Apr May Jun Jul Aug Sep Oct
--------------------------------------------------------------------------
SKM 16 25 46 101 200 381 621 965 1,334 1,789
KTF 1 11 30 68 143 245 433
--------------------------------------------------------------------------
Source: Company sources
1X SUBSCRIBERS, FY01E-03E
--------------------------------------------------------------------------
2001E 2002E 2003E
--------------------------------------------------------------------------
SKM ('000) 2,416 5,931 10,554
KTF ('000) 733 2,147 4,605
--------------------------------------------------------------------------
Source: Salomon Smith Barney estimates
...BUT THE MARKET LOOKS AHEAD INTO THE WIRELESS DATA PRODUCT CYCLE
Although the strong 1X subscriber growth augurs well for Korea's wireless
data prospects, wireless data revenue generation remains in its infancy,
as attested by the 3Q01 numbers. For both companies, wireless data
revenues (including short-message service or SMS) accounted for 4%-5% of
total operating revenues in 3Q01. Excluding SMS, "pure" wireless data
revenues would have accounted for 2%-3% of 3Q01 operating revenues. More impressive has been the quarter-on-quarter growth for wireless data,
which ranged from 20% to 25% growth for Korea's wireless players.
With "pure" wireless data still only 2%-3% of operating revenue for these
companies, we believe the market remains unsure that wireless data is no
more than a novelty service with limited revenue generation potential.
(Note that wireless data also started out as more of a novelty attraction
in Japan as well.) In the immediate term (i.e. next three months), we
believe there is little to dissuade the market's uncertainty. While
surging 1X subscribers should assure strong share price support, we
believe a re-rating of Korea's wireless data stocks would require more
concrete evidence of wireless data proliferation. For this, we eagerly
await the launch of CDMA2000-1X EV-DO (Evolution Data-Optimized) service in late 1Q02E by SKM and 2Q02E by KTF. EV-DO is expected to open up a gamut of new contents and applications as well as improve existing ones.
We expect the market to closely monitor the launch and take-up of EV-DO
service before placing further bets on Korea's wireless players.
WIRELESS AS A % OF OPERATING REVENUE, 2001E-03E
--------------------------------------------------------------------------
2001E 2002E 2003E
--------------------------------------------------------------------------
SK Telecom (%) 2 5 10
KT Freetel (%) 3 6 9
--------------------------------------------------------------------------
Source: Salomon Smith Barney Inc. estimates
(continued....)
FAQ FOR CDMA2000-1X EV-DO
The next evolutionary step in CDMA2000-1X (also known as CDMA2000-1XRTT and CDMA-IS95C, but more simply referred to as 1X) is CDMA2000-1X EV-DO
(EV-DO refers to Evolution Data-Optimized). Here are a few frequently asked questions for 1X EV-DO:
1. WHAT IS IT? 1X EV-DO is an enhancement of 1X technology, which allows for data transfers (only data0 at speeds of up to 2.4Mbps in a standard bandwidth channel of 1.25Mhz.
2. HOW DOES IT WORK? Data and voice traffic are put on different channels to optimize transmission speeds and hence improve capacity. 1X
EV-DO network can overlay an existing 1X network (which will be the case
in Korea) or can work as a stand-along system.
3. HOW FAST ARE THE THROUGHPUT SPEEDS? According to technology developer Qualcomm, EV-DO will generate average throughput speeds of 700kpbs with a maximum throughput speed of 2.4Mbps. This means that downloading an MP3
file that took three to four minutes on 1X could be downloaded in less than 10-15 seconds in 1X EV-DO.
4. IS 1X EV-DO 2.5G OR 3G? 1X EV-DO has been given 3G status by the International Telecommunications Union (ITU) due to hits high
transmission speeds (up to 2.4Mbps) earlier this year. 1X itself us
considered a 2.5G technology, failing to meet the ITU's requirements for
3G. SKM and KTF have already stated their intent to pursue W-CDMA,
however, there is no technology requirement or obligation imbedded in the
3G licenses.
5. HOW MUCH WILL IT COST THE OPERATORS? For SKM, deploying 1X EV-DO in all major cities will cost an estimated $235 million (W300bn) as the
platform will utilize much of the existing 1X platform. This compares
with the $1.34 billion (W1.7trn) being spend on the 1X network (from 2000
to 2002).
6. WILL 1X EV-DO BE LIMITED TO DATA? While 1X EV-DO initially targeted the wireless laptop and wireless PDA market (data only), both Samsung Electronics and LG Electronics are in the process of developing a
wireless 1X handset with 1X EV-DO capabilities in time for SKM's EV-DO
launch in March 2002.
WIRELESS STOCK TRADING: POTENTIAL EMERGES WITH 1X EV-DO
Wireless stock trading could be the first major breakthrough revenue
generator for 1X EV-DO. Although Korea is the world leader in terms of
online stock trading (over 60% of daily trading volume done online), only
a miniscule portion of that is done through the wireless platform. in
June 2001, 67% of Korea's stock turnover (in value) was down through
online stock trading this compares with 58% for June 2000. Also, in June
2001, there were 4.2 million online stock trading accounts, compared with
3.2 million in June 2000.
Of the total online stock trading, only 0.4% was performed via a wireless
handset and 2.8% through other wireless devices (stock-trading wireless
PDS). Around 94.4% of online stock trading was performed via the
Internet. The low portion of online stock trading via a wireless handset
is mainly attributable to the small screen size and slow throughput
speeds. We believe a wireless PDS using 1X EV-DO technology will address both issues as well as add other benefits.
* Larger color screen size - three- to four-inch screens
* Throughput speeds up to 2.4Mbps (average speed of 700kbps)
* Mobility
* Privacy (i.e. trade while at the office, etc.)
* Multi-tasking capabilities (i.e. have several screens open at once).
Furthermore, we believe Korea's online stock-trading companies are likely
to subsidize such wireless PDAs to attract new online trading accounts.
Hence, we envision wireless online trading and, more importantly, access
to stock-related information to pick up rather rapidly in Korea. At
present, revenue-sharing arrangements for commission (between wireless
players and securities firms) are not in place. As such, we expect most
of the revenue from wireless online stock trading to arise from access to
stock-related information. |
