WSJ/ Broadband Providers Find Formula To Lure Asian Surfers: Cheap Plans
By SUH KYUNG YOON
Staff Reporter of THE WALL STREET JOURNAL
Make it cheap and they will come. That has been the lesson for Asian broadband-access providers during what has been a period of phenomenal growth across the region.
As monthly fees dropped to as low as 198 Hong Kong dollars (US$25.38) a month at Pacific Century Cyberworks Ltd.'s Netvigator service, sign-ups jumped 75% last year, according to telecommunications research company Pyramid Research.
In Japan, once considered a broadband laggard, deregulation set off a pricing frenzy in early 2001. When phone monopoly Nippon Telegraph & Telephone Corp. was forced to unbundle its network in 2001, allowing competitors to use its infrastructure to provide high-speed services, more than 2,500 broadband Internet-service providers sprouted up.
Softbank Corp. CEO Masayoshi Son triggered a bitter price war last July by slashing fees in half, to less than 3,000 yen (US$23), for his Yahoo Broadband service. Now, more than 300,000 subscribers are coming on board in Japan every month.
In South Korea, long the broadband leader, prices stabilized two years ago at around 35,000 won (US$27) a month; today, 58% of the country's households are hooked into the high-speed network.
"Broadband will be, to a large extent, an Asian phenomenon," says Sean Maloney, vice president at Intel Corp. and head of the chip maker's communications-products group.
That sharp rise in subscribers has allowed a few broadband providers to finally inch toward profitability. Hong Kong cable-modem operator i-Cable Communications Ltd. turned an operating profit in the second half of 2001, and expects to record a net profit this year.
KT Corp., formerly Korea Telecom, the largest broadband ISP in the world with four million subscribers, posted a profit for the first time on its high-speed access service in the last quarter of 2001. Hanaro Telecom Inc., Korea's second-largest broadband provider with 2.2 million subscribers, expects to become profitable later this year.
Still, the falling prices have put broadband providers in a bind. While they can creep toward profitability, a revenue stream based mostly on subscribers will mean only slim earnings for quite some time. "Access providers are facing a problem," says Andrew Chetham, an analyst at Gartner Group in Hong Kong. "They now have lots of broadband subscribers. But what do you do next?"
Indeed, even as i-Cable announced a threefold jump in its broadband revenue last year, analysts were worrying about a fall in its average revenue per user, which has dropped to HK$224 from HK$227 early last year.
Content is one way for broadband providers to leverage their sizeable subscriber base and ramp up their revenue. "It'll be very challenging for them to make money just on access alone," says John Barrett, senior analyst at Pyramid. "Revenues lie in the content."
That is why KT is aggressively expanding into value-added services, for both consumers and companies that use its broadband service. It has developed a revenue-sharing platform with NCSoft Corp., maker of the popular online game Lineage, and is working with Microsoft Corp. to develop business applications as well.
In Japan, NTT is launching a pay service called Broba in April that will allow users to download PlayStation 2 games from Sony Computer Entertainment Inc. and educational applications from Sega Corp., for a charge.
I-Cable in Hong Kong is investing more on the content side as well. It is uploading news and traffic programs from its pay-TV division onto its portal. "We're focusing on access at the moment and will for the next few years," says Benjamin Tong, vice president in charge of i-Cable Communication's multimedia services. "But our future will be increasingly about content."
But the industry's track record with content has been abysmal so far. Two of the Korean ISPs that focused most heavily on developing broadband portals, Thrunet Co. and Dreamline Co., have lost the fight for market share and are struggling to stay afloat. Gartner's Mr. Chetham estimates that Thrunet, which generates the most money from its content business, turned over just US$4 million to US$5 million on its korea.com portal last year. Its access business, on the other hand, generated over US$335 million.
Despite those mixed results, operators can't afford to stop investing in content. "It's the holy grail. Everybody knows the end game, one big, thick pipe into the home delivering television, cable, Internet access, video on demand, with the access provider charging for content," Mr. Chetham says. "People are working towards that situation but they don't know how they'll get there yet."
Write to Suh-kyung Yoon at suh-kyung.yoon@feer.com1
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Updated March 18, 2002 5:34 p.m. EST
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