JEE, Kyoung Yong Principal Researcher Network Economy Research Team/ ETRI

2004/06

JEE, Kyoung Yong

Principal ResearcherNetwork Economy Research Team/ ETRI

IP TelephonyIP Telephony in Korea in Korea - current status and future - current status and future

prospect –prospect –

•ATIE 2004, Singapore EXPO, Singapore, June 16, 2004.

ETRI ETRI 정보통신서비스연구단 2 ETRI Proprietary

2004/06

Jee, Kyoung Yong 2 / 47

AGENDA

PART I. Snapshot on Korean IT Industry

PART II. Overview on VoIP

PART III. Market Issue

PART IV. Market Players

PART V. Prospect of Korean VoIP

2004/06

PART I.PART I. Snapshot Snapshot On On Korean IT IndustryKorean IT Industry


2004/06


Economic indicator

2.8

4.5%

9.3%

3%

-6.7%

5%

10.9%

-8

-6

-4

-2

0

2

4

6

8

10

12

14

'97 '98 '99 '00 '01 '02 '03

(GDP Growth)

Source : Korea National Statistical Office


2004/06


AutomobileAutomobileAutomobileAutomobile

5th

ShipbuildingShipbuildingShipbuildingShipbuilding

1st

(Ranking in the World)(Korea National Statistical Office)

DRAMDRAMSemiconductorSemiconductor

DRAMDRAMSemiconductorSemiconductor

1st 1st

CDMACDMACDMACDMA

Korean Products in the World Market(2002)


2004/06

Jee, Kyoung Yong 6 / 47 Conten

ts gam

e

Conten

ts gam

e

Mobile pho

ne

Mobile pho

ne

Non-m

emory

Non-m

emory

Memory

Memory

Flat pa

nel

Flat pa

nel

S/WS/W

Color T

V

Color T

VCom

puter

Compu

ter50

100

150

200

($ B)

250

10%

20%

30%

40%

60%

50%

Intern

et eq

uipmen

t

Intern

et eq

uipmen

t

Global Market Share of Korean IT Products (2002)Global Market Share of Korean IT Products (2002)Global Market Share of Korean IT Products (2002)Global Market Share of Korean IT Products (2002)

Global market size

111.2111.2

673.4673.4

63.763.728.428.4 29.029.0

57.757.7

112.3112.3

187187

38.638.6

Market share

25%25%18%18%

42%42%

30%30%

3.5%3.5% 2%2%2.7%2.7%4%4%4%4%

Global Market Share of Korean IT


2004/06


IT Export

• 자 료 : Reed Electronics

Research(2002)

Source : Reed Electronics Research(2002). Figure of 2001-2002 wwre estimated

221,623(19.83%)

906,488(81.13%)

1,117,367(100%)

Korea

778,998(80.29%)

970,167(100%)

Japan 194,641 (20.06%)

32,740 (3.37%)

UK

USA 244,982(25.25%) USA

Taiwan 41,289 (4.26%) Taiwan

37,367 (3.85%) UK

China

247,636 (24.71%)

Japan 196,539 (19.61%)

IT Equipment Production Volume Worldwide

production($M)nation

2001

USA 313,993(28.10%)

Malaysia 30,557 (3.15%) Malaysia 31,584 (3.15%)

Gemany

805,057(80.32%)

France 32,874 (2.94%) France 29,191 (3.01%)

Gemany 33,261 (3.32%)

France 29,737 (2.97%)

Singapore 36,359 (3.75%) Singapore 37,875 (3.79%)

42,346 (4.22%)

Korea61,559 (6.35%)

84,192 (8.40%)70,293 (7.25%) China

63,949 (6.38%)

37,938 (3.78%)

world

Japan

Korea 69,611(6.22%)

China 58,620(5.24%)

Taiwan 48,669 (4.35%)

Singapore 45,054 (4.03%)

sum

UK 42,370 (3.79%)

Gemany 37,116 (3.32%)

Malaysia 36,558 (3.27%)

7

9

10

3

4

5

6

8

1,002,365(100%)

1

2

2000

nation

2002Rank

production($M) nation production($M)


2004/06


The Ratio of IT to Korean GDP▣ IT Industry/GDP(1)

( : $ billion, %)단위00-07

(CAGR)IT 121 125 156 192 238 274 305 342 16

growth rate 26 3 24 23 24 15 11 12 -11ratio to GDP 28 28 31 36 41 44 45 47 -IT Service 24 27 34 35 39 43 46 49 11

growth rate 32 14 24 2 12 9 8 7 -20ratio to GDP 5 6 7 6 7 7 7 7 -IT Equipment 88 85 105 138 175 202 226 255 16growth rate 22 -3 24 31 27 16 12 13 -7ratio to GDP 20 19 21 26 30 32 33 35 -

SW & IT related service 9 13 16 20 24 29 34 38 23growth rate 65 44 28 19 24 18 17 14 -20ratio to GDP 2 3 3 4 4 5 5 5 -

GDP 435 454 495 535 578 625 676 731 8

The Future Prospect of the Growth of IT Industry in Korea

20072002 2003 2004 2005연도 2000 2001 2006


2004/06


The Ratio of IT to Korean GDP▣ IT Industry/GDP(2)

434.9 454.0 494.9 535.0 578.3 625.1 675.8730.5

121.0 125.2 155.8 192.3 238.3 273.7 305.1 341.7

27.8 27.631.5

35.9

41.243.8 45.1 46.8

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

2000 2001 2002 2003 2004 2005 2006 2007

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

GDP IT ratio to GDP


2004/06


0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

48.4% 60%

70%

69%

46%of population

of population

of households

of population

of population

Unit: 1,000 Sub.

Wire line InternetUser

BroadbandSub.

WirelessSub.

CDMA-1X DTV

10%

of households

IT Services in General (2003)


2004/06


Unbelievable Success in Internet


2004/06



3.43.0

2.82.7

2.42.1

1.91.91.9

1.81.8

1.61.6

1.51.41.4

1.31.3

0.8

0 1 2 3 4

AustraliaKorea, Rep.

FinlandAustriaTaiwan

SwedenSingaporeHK, China

UKBelgium

NetherlandsDenmark

CanadaNorway

USANew Zealand

IcelandSwitzerland

Japan

Price of typical BB connection as a % of monthly household income (PPP), April 2003

While the monthly charge is important...

19.1313.90

10.337.94

7.277.18

6.555.13

4.423.062.86

2.192.17

1.701.271.09

0.290.18

0 5 10 15 20

FinlandDenmark

SwitzerlandAustria

SwedenIceland

UKNorway

NetherlandsAustraliaCanada

USASingapore

New ZealandTaiwan

HK, ChinaBelgium

Korea, Rep ofJapan

Price per 100 Kbps of data per month, US$, April 2003

… it's also the speed you get for it that counts.

Source : ITU, 2003


2004/06


Youngster-Driven Revolution

78.5

50.8

23.2

5.7

22.7

43.6

74.674.1

61.6

8.7

35.6

84.6

93.3

17.5

39.3

69.4

89.891.491.3 94.3

0

50

100

6~19ages 20ages 30ages 40ages 50ages~

2000. 122001. 122002. 122003. 06

The number of internet User by Age (Unit:Mil) KOREA

Source : KRNIC, 2003.06

8.63M 7.67M 6.85M 4.11M1.34M


2004/06


Broadband Subscribers (per 100). by GDP

USA

NOR

ISL

CHE

CAN

DNKBEL

AUTJPN

AUS

NLD

DEU

FIN

HKG

FRA

SWE

ITA

GBR

SGP

TWN

MAC

KOR

PRTEST

y = 0.0054e0.0002x

R2 = 0.7019

0

5

10

15

20

25

$0 $5'000 $10'000 $15'000 $20'000 $25'000 $30'000 $35'000 $40'000

Broadband Subsscribers 2002 by GDP (PPP), users per 100


BB users per 100 person

GDP

Source : ITU, 2003

2004/06

PART II: Overview on VoIPPART II: Overview on VoIP


2004/06


Challenges to Service Provider in Korea

Convergence

Competition

New ServiceOpportunities

Service Providers

Regulation

Changing Technology

New BusinessModels

Short life cycle of tech.Too short for cost recovery

Predatory pricing behaviorX-inefficiency

P2P & volume charging

Spectrum mgt.Dichotomy in provider calssification

Network convergenceService convergence

Portable InternetDMB


2004/06


Definition of VoIP ▣ “ the service enabling user to telecommunicate through Internet line by

converting the sound to data signal ”

▣ “ the service enabling user to telecommunicate by simultaneous use

through Internet and PSTN ”

◈Terminal

▶ (Phone+TA) Setting exclusive modem to existing telephone device

▶ (IP Phone) (or) exclusive Internet phone.

◈ Modem

▶Providing as an independent modem function by integrating with

ADSL modem.


2004/06


Background

Multi-networking, multi-functioned & mixed terminal equipment

e.g. NGcN, WLAN, portable internet and etc.

Future major convergence will be a multi-media service using VoIP technology

Multi-networking, multi-functioned & mixed terminal equipment

e.g. NGcN, WLAN, portable internet and etc.

Future major convergence will be a multi-media service using VoIP technology

Convergence in technologyConvergence in technologyConvergence in technologyConvergence in technology

Increased requirement on multi-media service including voice communication

through IP network

New demand of vendors and operators for the new numbering system for users

to receive VoIP call

Increased requirement on multi-media service including voice communication

through IP network

New demand of vendors and operators for the new numbering system for users

to receive VoIP call

Changes in user and provider sideChanges in user and provider side Changes in user and provider sideChanges in user and provider side


2004/06


Network Configuration

▣ VoIP network

▣ Components of VoIP network

◈ Clients : IP Phone, PC, Soft Phone, Analog Phones, Video, etc.

◈ Infrastructure : Switches, Routers, Gateways, etc.

◈ Call Control : Call Manager, Gatekeeper, etc.

◈ Applications : Voice Mail, UMS, etc.


2004/06


Classifi-cation

Customer equipment Desktop, Laptop PC or PDA

Internet access Modem dial-up or LAN function

Regulation PSTN access is not necessary

Customer equipment PC is needed for only one side

Internet access One side is accessible to Internet

Regulation One side id accessible to PSTN

Customer equipment General telephone telminal

Internet accessInternet access is not necessary because gateway provideswith network access

Regulationreselling is under regulation in case of highly-sensitivecountries

Broaddefinition

narrowdefinition

service type

Including PC to FAX, FAX to FAX and even UMS

PC to PC

PC to Phone(PC to PC)

Phone toPhone

Classification of Service


2004/06


▣ Organization of Global Standardization

◈ World widely 25 institutes such as ITU-T, ETSI, 3GPP, 3GPP2, MSF, I

MTC

◈ TTA

▣ Current status

◈ on the way of evolution into the NGN to provide with new service repla

cing simple voice exchanges(PSTN exchanges).

◈ And finally will move from existing telephone network into All IP netwo

rk.

◈NGcN

Technology

2004/06

PART III: Market IssuePART III: Market Issue


2004/06


Korean VoIP from Market Perspective▣ Strength : Low tariff structure

◈ In Korea, many of a type-II providers have price leadership by applying

VoIP into international call.

◈ Many companies replacing the telephone, between HQ and LO, to VoIP

for reducing the cost of telecommunication

◈ Many of a type-II providers provide with the service at relatively lower pri

ce.

▶∵ based on the IP technology sharing network infra.

▶Saerom Technology, Anyusernet, Samsung Networks

▶only 3.25 cents per 3 min.


2004/06


Korean VoIP from Market Perspective▣ Difficulties : service definition and classification

◈ Phone to Phone service using IP network is used for long-distance or international call.

▶Cf : IP Phone(PC) to Phone, IP Phone to IP Phone, PC to PC services could not be categorized as a telephone services group.

◈ Co-existence of complicated and similar words

▶ At present there is no united concept in Korea (IP Telephony, VoIP, Internet phone, etc.)


2004/06


Korean VoIP from Market Perspective▣ Weakness

◈ Numbering system▶ No unified numbering system to receive a call with a internet

terminal

Each providers are using their own numbering system.▶ Due to lack of receiving system, Internet phone is not easily

activated in Korean market. ◈ Interconnection & QoS

▶ Current interconnection rule doesn’t reflect peering or transit agreement.

▶ Providers get high burden of usage charge for Type-I carrier’s Internet backbone and access network.

▶ No quality control on QoS of Internet telephony.


2004/06


Current Market Status

▣ KT, Hanaro, Anyusernet, Saerom Technology, KI Telecom, etc.

◈ more than 90 companies

▣ Turnover for Internet phone : 31 M US$ (2003) .

◈Market share to PSTN(LCC+LDC+INC) : 0.001%

▣ Korea is just on the initial stage of Internet phone service in the view poin

t of market growth and market share.

Internet Telephony Market and Calls (unit: M US$, M minutes)

554394732580traffictraffic

31.022.316.310.3 TurnoverTurnover

2003200320022002200120012000(since April)2000(since April)YearYear


2004/06


Market Positioning

Three Competitive Services

factors Wired phone Mobile phone Internet phone (VoIP)

Mobility Indoor (fixed) In / outdoor(high) indoor at the moment

Service area constrained No constrained Not constrained

Major service Voice Voice+Data Voice+Data

Price Low High Lowest


2004/06


Traffic of Internet Telephony in Korea

▣ Reached the climax point of traffic with 110 M Minutes per month as of

June 2001.

◈And then, started to decrease due to service provider’s announcement

of charging plan.

▣ Since introduction of charged system, many of new services including

“mobile call transfer service” is launched.

◈ New services contributed to increase IP telephony traffic.

▣ Traffic share to PSTN (minutes):

◈VoIP traffic to LDC+INTC = 2.3 % (2003)


2004/06


Market Size & Traffic Volume (2003)

0.554

2

22

0 5 10 15 20 25

Internet telephony

int'l call(outbound)

LD call

0.554

2

22

0 5 10 15 20 25

Internet telephony

int'l call(outbound)

LD call

0.031

2.377

3.688

4.801

13.709

0.000 2.000 4.000 6.000 8.000 10.000 12.000 14.000 16.000

Internet telephony

LM call

BB Internet

LCC/LDC/ INC

Mobile phone

0.031

2.377

3.688

4.801

13.709

0.000 2.000 4.000 6.000 8.000 10.000 12.000 14.000 16.000

Internet telephony

LM call

BB Internet

LCC/LDC/ INC

Mobile phone

(unit : B $)

•( traffic : B minutes )


2004/06


Market Size & Traffic Volume ( Japan )

2.0

2.5

3.0

3.5

0

2

4

6

8

10

50

60

55

BB phone users :

3.5 M(03.12)

telphone subs.: 51.51M

M users

99.3 00.3 01.3 02.3 03.3 04.3

traffi c of fixed telephone users

traffic :B minutes

Japanese VoIP traffic volume is 15.5 times bigger than Korea


2004/06


Market Forecast ( 2000-2005 )

Section\ Year 2000 2001 2002 2003 2004 2005

Private users 31.0 36.4 44.9 67.5 97.4 138.9

Growth rate(%) - 17.4 23.4 50.5 44.3 42.5

Enterprise users

182.2 25.3 67.3 125.4 197.8 295.2

Growth rate(%) - 39.0 166.3 86.3 57.7 49.2

sum 49.2 61.7 112.2 193.0 295.3 434.1

Growth rate(%) - 25.4 82.0 72.0 53.0 47.0

Section\ Year 2000 2001 2002 2003 2004 2005CAGR(

%)’01-‘05

IP ports in use 79.7 170.2 295.8 437.8 595.5 756.2 45.2

Growth rate(%) 206.5 113.6 73.8 48.0 36.0 27.0 -

Resaled IP lines 589.7 1,634.13,135.

94,728.7 6,490.6 8,318.7 50.2

Growth rate(%) 327.9 177.1 91.9 50.8 37.3 28.2 -

Forescasts on Domestic on VoIP service (2000-2005), unit:M US$)

Forecast on Domestic VoIP Port (2000-2005, units: thousand

ports)


2004/06


Market Forecast ( 2002-2007 )▣ Outlook for development

◈ Turnover in domestic IP telephony service: 848

▣ Outlook on domestic market

27 36 74 168379

848

0

2500

5000

'02 '03 '04 '05 '06 ,07Subscriber(T) Sales( M$)

•Thousand•Subscriber

3,200


2004/06


Market Forecast (World)

Section\ Year

2001 2002 2003 2004 2005 2006 2007 CAGR(%)’02-‘07

Resale 1,699 4,016 7,492 12,700 19,461 27,549 35,458 54.6

Growth rate(%)

- 136.5 86.5 69.5 53.2 41.6 28.7

Wholesale 1,005 1,620 2,404 3,376 4,311 4,886 5,410 27.3

Growth rate(%)

- 61.1 48.4 40.4 27.7 13.4 10.7

Sum 2,704 5,636 9,896 16,076 23,772 32,436 40,868 48.6Growth

rate(%)- 108.4 75.6 62.4 47.9 36.4 26.0

Overseas market forecast on VoIP service (2001-2007, unit:M

US$)

2004/06

PART IV: Market PlayersPART IV: Market Players


2004/06


IP Telephony Providers Market

▣ Change of market leadership from Type-II carriers to Type-I carriers.

◈Initial stage : Type-II carriers had market leadership.

◈Present: most of telecom carriers (Type-I carriers) entered into the market.

▶ It is expected that Korean Gov. itself will adopt Internet phone for general administration. Hence the better and hotter market competition is inevitable.

▣ Type-II carriers

◈ Have contributed to the initial activation of Internet phone service.

▶ but they are experiencing difficulties in management due to hot competition.

◈ another Type-II carriers group supported by their holding company such as Samsung and etc.

▶ are enjoying more stable market share and revenue with the help of existing sales network and holding company’s internal demand.


2004/06


End User Market Player Wholesale Market Player

▣ End user market player

providers Service [ access code ]

KTInt’l Phone-to-phone service by KT’s Internet access servcie (0072

7)

Dacom Int’l mobile outbound call service (00300)

Onsei Telecom

Int’l Phone-to-phone service by Onsei’s Internet back bone (00365)

Thrunet e-c@ll service by Thrunet’s Internet access service

Hanaro ADSL+IP phone service source : Information and communication policy, Vol.14, 2002.09


2004/06


End User Market Player Wholesale Market Player▣ Wholesale market player

providers service

KT

• Started to deal with Inbound IP telephony call to Korea processed by Rapid Link (global IP telephony provider) since 1999.

• KT’ multimedia research lab. : developed new Internet Phone, and provided at a trial base

• Installed around 6 thousand lines of VoIP system in 7 regional nodes

Hanaro

• Wholesaling of VoIP network to Serom dial pad, Daum Internet, Hangul & Computer.

• Opened VoIP network, interworking between ATM and PSTN network, first in Korea.

Thrunet • Wholesaling of VoIP network to Truephone of Metaland

source : Information and communication policy, Vol.14, 2002.09


2004/06


KT▣ Service model

◈ Basic service▶provides voice & image exchange service with end-to-end

connection through signal processing◈ Value-added service

▶ Enhanced services utilizing the function for signal processing and basic service

Service name Service synopsis launch00727 Intl' Internet phone 1998.5

Xroshot UMS 2000.7

VoIP net service wholesale of VoIP net to type- II providers 2001.1

Search phone phone no. search and Direct connect to PC phone 2001.11

VoIP - enterprise private VoIP net for enterprise users 2002.1

Xroshot-Biz UMS for enterprise users 2002.2

Homepage phone Collect call PC phone 2002.3

1515 multiro multi-vocie conference using phone & web 2002.3

Nespot phone WLAN Internet phone 2002.5

KT messenger phone PC phone using MS messenger 2002.7


2004/06


KT

▣ Infrastructure for VOIP

◈between PSTN and internet

◈ Gatekeeper for signal processing Gateway with interworking function

◈ Proxy server, server farms for call charging, user authentication and ro

uting.


2004/06


KT

▣ Network Evolution in the future (KT-BcN)

◈ Objective

▶ to upgrade the quality of telecommunication service, enlarging the whole market size by transforming voice-centric service into multi-media service

◈ Strategy

▶ Stepwise migration strategy toward total multimedia service line-up in line with existing service line up.

to construct wired/ wireless integrated network providing multi-media based services on packet base with upgrading KT’s existing network.

to provision existing service by securing the network, which converts voice-centered service into multi-media service.

▶ Creation of new revenue source through reduction of cost & new service


2004/06


Hanaro

▣ Type of service

◈ VoIP service for household.

◈ VoIP service for enterprise users

◈ Premium service available for whole life (life-long number system)

General TypeGeneral Type Premium of life-long number Premium of life-long number

Enterprise typeEnterprise type IP telephone for companyIP telephone for company

Wholesale of VoIP network Wholesale of VoIP network

Household typeHousehold typeIP phone for home use (cable / adsl )IP phone for home use (cable / adsl )

* International IP telephone is separated


2004/06


Hanaro

▣ More details on VoIP service for household

◈ Launched VoIP service through HFC network

▶ Preparing triple play service integrated with broadcasting.

▶ Expected to expand into the other VoIP service based on BWLL an

d xDSL.

◈ Migrated from H.323 to MGCP

▶ Docsis 1.1 was introduced to existing HFC network for resolving th

e QoS problem.

▶ And next, planning to provide the clean voice quality, being equal t

o local telephone, by introducing DQoS(Dynamic QoS) technology.

2004/06

PART V: Prospect of Korean VoIPPART V: Prospect of Korean VoIP


2004/06


Anticipated Effect after VoIP Introduction

▣ Faster migration to All-IP based BCN by deployment of IP in PSTN.

◈ Could improve national welfare by expanding the user option and lowering usage rate.

▣ Promotion of competition in wired telephony market

◈ Could promote new service development by more intelligent telephone terminal.

▣ Promotion of active IT investment to introduce new services

◈ Could contribute to increase IT export and production such as VoIP equipment and etc.


2004/06


Key Enabler for Korean VoIP Business in the future

▣ Key Enabler of Korean VoIP Market Activation

◈ And these key enablers are dependent on the Type-I carrier’s long

term BCN plan & aggressive marketing of major VoIP providers.

Improvement of QoS

Improvement of QoS

Increase of user’s demand

Increase of user’s demand

network efficiencynetwork efficiency

Government’sdrive

Government’sdrive

• Up to similar quality to PSTN by developing of VoIP technology

• PSTN > Internet phone (VoIP) > mobile phone (cellular, PCS)

• Up to similar quality to PSTN by developing of VoIP technology

• PSTN > Internet phone (VoIP) > mobile phone (cellular, PCS)

• Requirement of a variety of value-added service and cost reduction

• seek for easy Internet access and convenience

• Requirement of a variety of value-added service and cost reduction

• seek for easy Internet access and convenience

• Integration of voice and data network

• Reduction of the investment cost due to the use of sharable Internet equip.

• easy operation & maintenance

• Integration of voice and data network

• Reduction of the investment cost due to the use of sharable Internet equip.

• easy operation & maintenance

• Introduction of new numbering system for VoIP• Introduction of new numbering system for VoIP


2004/06


Future Prospect of Korean VoIP Market

In 2007, the amount of turnover reduced in wired/ wireless market is expected about 596 M US$. To the contrary, Internet phone is expected to be increased up to 848 M US$.

- Therefore, overall voice market turnover is expected to be increased by 252 M US$.

IP network providers are expected to make more wholesale revenue with VoIP network.

Consumer’s surplus will be better from lowered usage rate of voice service.

InfluenceInfluence

Retail Market Wholesale Market

Market performance Consumer’s welfare

reduction of maintenance and operation due to integrated IP network with flexibility and cost advantage.

The costs of maintenance & up-grade are less than 50% in comparison to circuit network .


2004/06


Thank you for your attention

JEE, Kyoung Yong(Principal Researcher)

[email protected]

+82-42-860-5666 / +82-10-9744-5003

Documents

JEE, Kyoung Yong Principal Researcher Network Economy Research Team/ ETRI