To All: More data from Korea.
10-14-98 After Year-Long Battle, KT Freetel Emerges as Winner
By Samuel Len Staff reporter
The dust has settled one year after the start of a bloody, three-way battle for customers between newcomers to the lucrative mobile communications
market in Korea, scaled at close to 6 trillion won by 2001.
In terms of customers, Korea Telecom Freetel Co., the mobile communications subsidiary of state-owned Korea Telecom, has emerged as the victor.
With 1.9 million subscribers, KT Freetel now possesses the largest number of customers among the nation's three providers of personal communications
services (PCS), which are less expensive than cellular phone services.
What is more surprising, however, is that 900,000 of KT Freetel's new subscribers have signed on since May of this year, in the midst of an
unprecedented economic recession in Korea.
''Everything is about brand name in the telecom industry,'' says Eric Kim, who analyzes the domestic communication and technology industry for Ernst
& Young Management Consulting Inc. ''Since Korea Telecom dominates the market in terms of technical expertise, the PCS industry was a great
extension for them.'' He adds that many Koreans, wary of spending during difficult economic times, turned to the most stable service provider in terms of
brand image.
Currently, KT Freetel's competitors are Hansol PCS and LG Telecom companies, which offer PCS services, and SK Telecom and Shinsegi Telecom
companies, offering cellular mobile phone services.
Also playing a major role in KT Freetel's rising number of subscribers was a marketing breakthrough that the company initiated a year ago for the first
time in the domestic industry.
''We were the first to eliminate the 200,000 won to 300,000 won deposit payment for new customers,'' says Lee Sun-joo, a spokesperson for KT
Freetel. ''This made it easy for anyone to subscribe to our services.''
The deposit payments, which were returned to customers after terminating their services, minimized possible losses for phone service providers.
However, such deposit payments added a big cost burden for individual customers, who already had to pay more than 400,000 won for a cellular phone
and an average of 50,000 won to 60,000 won each month for service charges.
The early move enabled KT Freetel to become the first PCS company to register one million subscribers in April of this year, just seven months after
launching its service.
The elimination of deposits was soon accompanied by a price-slashing campaign for mobile phone handsets by all three PCS companies. Consequently,
mobile phone prices fell to as low as 90,000 won per handset, while some PCS providers gave them away for free, while binding customers to a
mandatory two-year usage contract.
''Before the entry of PCS, cellular phones were a costly form of mobile communications available only to a select class of people,'' says Lee Sang-chul,
president of KT Freetel. But following the launch of PCS, ''mobile phones have become a popular form of communication offering low-cost calling
fees.''
As a result, approximately 11 million, or one out of every four Koreans, subscribe to mobile communications services, and 4.25 million of them are
PCS customers.
But the price-slashing of mobile phones led to a war of attrition among the three PCS companies. KT Freetel, Hansol PCS, and LG Telecom companies
paid out money equal to more than 100 percent of their sales as handset subsidies during the first half of this year, according to the Ministry of
Information & Communication.
Of the three PCS companies, only LG Telecom is part of a business group that makes its own handsets. Meanwhile, KT Freetel and Hansol have to
outsource to secure handsets for dispersal in hopes of boosting sales.
So for the time being, PCS companies are trying to secure as many customers as possible.
''If their long-term goal is to secure initial market share, they've done a pretty good job,'' says Kim at Ernst & Young.Analysts agree that cellular phone
services, which generally offers better sound quality and connection than PCS, are expected to maintain the current 50-percent control of the mobile
communications market for the next three to four years. But analysts say PCS quality is going to get as good as those of cellular services following the
set up of more transmitters.
''After that, it's going to be a free-for-all,'' says Kim.
To save costs while creating more transmitters, KT Freetel joined hands with Hansol PCS at the end of last month and began sharing 500 of Hansol's
base stations throughout Korea. The deal resulted in a total of 2,400 base stations for subscribers of both PCS companies.
Also in the works is a 100 billion won capital injection into KT Freetel by foreign telecom companies and overseas investment funds.
''The capital will enter Korea before the end of this year,'' says company president, Lee. ''As final investors, we plan to select two to three companies
or a consortium, after a series of investment talks with seven or eight foreign telecom firms and investment funds,'' Lee adds.
Meanwhile, the number of subscribers to mobile phone services in Korea is expected to increase to an estimated 15.8 million by the year 2000 from the
current 11 million, according to Jeff Kang, a telecom market analyst for ING Barings. And during this period, PCS users are expected to rise by another
two million, registering more than six million subscribers.
On this point, Kim voices the sentiment of many analysts.
''The mobile telecom market in Korea is expected to be one of the biggest money makers over the next several years.''
Copyright 1998 Korea Herald. All rights reserved.
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