South Korea ICT Infrastructure and Its Implications

1

South Korea: A World Leader in ICT Infrastructure and Its

Implications

Rovarovaivalu Vesikula

ECON 295 Political Economy of North Korea

Fall 2013

2

TABLE OF CONTENTS

Introduction…………………………………………………………………………………………………………………………….3

Section 1: South Korea’s Broadband History……………………………………………………………………………4

1.1 The Development of the Information Technology and Communication Sector (ICT)

1.2 Cyber Korea: The Economic Remedy

1.3 Bolstering National Internet Usage and the Broadband Convergence Network (BcN)

1.4 Summary of the Contributing Factors

Section 2: ICT significance in the South Korean Economy…………………………………………………………10

Section 3: Implications of the ICT growth and internet usage…………………………………………………12

Section 4: Plans for the Future………………………………………………………………………………………………..19

Conclusion………………………………………………………………………………………………………………………………19

Bibliography…………………………………………………………………………………………………………………………..21

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Introduction

South Korea has the most advanced Information Communication and Technology (ICT)

infrastructure in the world which has allowed it, among other things, to achieve the highest

broadband penetration per capita in the world at 97%1. Currently, of the total population,

about 81% are active internet users. Of this amount, about 40% own smartphones and 100%

own mobile phones which are all able to access the internet2. Currently, South Korea boasts

having the fastest internet connection speed which averages around 14 Mbps (megabits per

second) as well as the cheapest with connection prices averaging US $25 a month3.

Furthermore, it is the first country where more than 55% of its households are using FTTH/B

(Fiber to the House/Building) connections, which has larger advantages over other connecting

cables such as VDSL (Vector Digital Subscriber Line) cables, in terms of having faster

transmissions over longer distances and less signal interferences. The advancement in internet

technology within the ICT sector over the years has brought on several implications which are

of political, economic and socio-cultural significance. These implications reflect the ever

changing behavior of internet users whose lifestyles have been greatly influenced by an over-

reliance on internet technology. In fact, a recent survey revealed how South Koreans are not

only heavily dependent on the advanced internet system but also consider it a necessity4. As

the South Korean government and broadband companies invest in advancing internet

1 Hub Korea , Swiss Business . "South Korea Information and Communication Industry ." Business Network

Switzerland 3, no. 14 (2011): 1-9. 2 Kim, Sung-Young. "The Politics of Technological Upgrading in South Korea: How Government and Business

Challenged the Might of Qualcomm." New Political Economy 10 (2011): 300-360 3 Forbes. "The Fastest Web on Earth." Forbes.

4 Sutter, John. "Why Internet Connections are fastest South Korea." CNN Tech.

4

technology in the nation, they will have to take into consideration the negative externalities

that will arise as a result.

Section 1 – South Korea’s Broadband history

1.1 The Development of the Information Technology and Communication Sector (ICT)

In the wake of the 1997 Asian financial crisis, South Korea looked at the Information and

Communications Technology sector, or ICT as the most effective way to achieve economic

recovery5. Since the 1970's and 1980's, South Korea's economy was heavily based on light and

heavy industries like the export of automobiles and apparel goods. As the global competition

became more intense, and with China becoming a more powerful export country, South Korea

was forced to look into other options6. In 1996, the answer was found in knowledge based

business which saw the production and exportation of new products such as communication

tools, precision goods and semiconductors. This in turn led to an expansion of the Korean

workforce thus creating more jobs and providing Korean workers with a new skill focusing in

information technology (IT). As a result, continued support from the government and

investments made by young graduate students in ICT-projects led to the ICT becoming the

primary industry of the nation and the basis for future economic strategies7. Today, the Korean

ICT infrastructure is the most advanced in the world and it owes a lot of its success to the

constant inflow of foreign funds and its highly skilled and motivated workforce.

5 Glassman, James K.. "South Korea: a leader in broadband connectivity and Internet restrictions." Tech Policy

Daily. 6 Kim, Sung-Young. "The Politics of Technological Upgrading in South Korea: How Government and Business

Challenged the Might of Qualcomm." New Political Economy 10 (2011): 300-360 7 Lee, Youngeum, Kilnam Chon, Hyunje Park, and Kyungran Kang. "A Brief History of the Internet in Korea." A

Brief History of the Internet in Korea 8, no. 4 (2011): 333-350

5

1.2 Cyber Korea: The Economic Remedy

It is without a doubt that the success and strength of the ICT sector was due to the

immense government spending carried out by the South Korean government beginning in the

mid-1990’s and continuing on until 2005. In March 1999, the South Korean government

established the Korean Information Infrastructure (KII) whose sole purpose was to advance the

nation’s IT infrastructure8. Following soon after was another policy implemented by the

government called the Framework Act on Infrastructure Promotion which was to improve the

quality of life for the nation and to contribute to the development of the national economy,

thereby promoting the informatization and laying the foundation for the information and

communications industry and achieving the advanced information and communications

industry infrastructure9. Soon after these came into effect, the 1997 Asian financial crisis

ensued which forced the South Korean government to implement measures in sectors that

would re-bolster the economy. Of the targeted sectors was the ICT sector which the

government targeted with its economic reforms.

In 1999, two years after the financial crisis, the South Korean government implemented

Cyber Korea 21 which was intended to accelerate IT development. In addition, it provided US

$77 million in loans and preferential rates to facilities service providers (FSP) that would allow

for them to provide better quality services, hire more skilled labor and increase the range of its

8 Lee, Youngeum, Kilnam Chon, Hyunje Park, and Kyungran Kang. "A Brief History of the Internet in Korea." A

Brief History of the Internet in Korea 8, no. 4 (2011): 333-350 9 Menon, Siddhartha . "Policy Agendas for South Koreaâ€™s Broadband Convergence Network Infrastructure

Project." Review of Policy Research 28, no. 4 (2011): 347-364.

6

services to areas not previously assisted10. In terms of ensuring telecommunications services

was ubiquitous in South Korea, the government provided another US $77 million in loans for

suburban areas, small towns and cities and regional industrial areas to be “wired up” or

connected. Finally, for the next 5 years ending in 2005, the South Korean government poured

US $926 million to supply rural areas with broadband connections.

1.3 Bolstering National Internet Usage and the Broadband Convergence Network (BcN)

In an effort to bolster the demand for the growing broadband product and services

sector, the South Korean government had to ensure that the right infrastructure was in place

and that its citizens were educated on how to utilize the facilities that came with it. These

efforts were all a part of the government’s plan to transform South Korea into a “knowledge

base society”. By the year 2000, the government has provided funding for the establishment of

“internet literacy” institutions that would educate the social sector not previously well versed

with the internet and its uses. This social sector included homemakers, the elderly, military

personnel and farmers. In that very same year, the government implemented the “Ten Million

People Internet Education” project with its goal of providing “internet literacy” education to

about ten million South Korean citizens11. Not only would this create the “knowledge base

society” the government was focusing on but it would also ensure there was a stable demand

for internet services provided. In this way, broadband and telecommunications companies

would always have a pool of consumers to rely on and would be constant contributors to the

10

Kelly, Tim. "Broadband Korea: Internet Case Study." Lecture, International Telecommunication Union from

International Telecommunication Union, London, March 3, 2003.

11

Glassman, James K.. "South Korea: a leader in broadband connectivity and Internet restrictions." Tech Policy

Daily.

7

South Korean economy through employing a skilled workforce and increases in consumer

spending brought on by the expanded use of the internet for purposes such as e-commerce12.

As of October 2002, the success of the “Ten Million People Internet Education” began to

bear fruit as broadband subscribers in that year numbered 10 million. In addition, 70% of 14.3

million households were connected to broadband at speeds over 2Mbps. To meet this growing

demand, the South Korean government has allowed for six broadband operators to provide

their services. Three of these providers, namely Korean Telecom (KT), Hanaro Telecom and

Thrunet, dominate much of the local market. Finally, by 2011, given the advances in internet

technology, about 10.1 million users or 20% of the total South Korean population were using

Voice over Internet Protocol (VoIP) which enables the transmission of voice and multimedia

messages over the internet, such as Skype13.

Finally, in 2004, a broadband infrastructure project started by a consortium which

included the Ministry of Information and Communication (MIC) and private sector

telecommunication and cable firms - KT, Hanaro Telecommunications and others – was

undertaken. It was called the Broadband Convergence Network (BcN) and was aimed at

achieving media convergence, ubiquitous connectivity or access and coordination among

network stakeholders14. Since the objectives of this project were three-fold, the consortium

12

Lee, Heejin, Bob Oâ€™Keefe, and Kyounglim Yun. "The Growth of Broadband Internet Connections in South

Korea: Contributing Factors." e-Everything: e-Commerce, e-Government, e-Household, e-Democracy 8,

no. 2 (2001): 432-445.

13

Lee, Youngeum, Kilnam Chon, Hyunje Park, and Kyungran Kang. "A Brief History of the Internet in Korea." A

Brief History of the Internet in Korea 8, no. 4 (2011): 333-350

8

decided to execute in three phases with the first extending from 2004 to 2005, the second from

2006 to 2007 and third from 2008 to 2010.

1.4 Summary of Contributing Factors

To summarize, the development of the ICT sector can be attributed to three

contributing factors: Government-driven, Private Sector-driven and Social Background15.

Government-driven factors ensure the ICT sector was strengthened so as to gain a

competitive edge against South Korea’s trading partners in that same industry. A sound ICT

infrastructure was needed for internet users to overcome the “last mile” problem, which is the

last segment that internet data needs to travel before reaching a user’s PC and is usually the

portion of data transmission that is the slowest because of internet traffic. Through

deregulation and internet promotion, the growth of broadband connections, higher internet

speeds and broadband penetration was achieved. The South Korean government together with

broadband companies worked to replace Dial-up connections with ADSL (Asymmetric Digital

Subscriber Line) connections which are reportedly much faster. There was a clear need for

faster internet connections due as well to the e-commerce sector. As of now, South Korea also

leads the world in terms of online business due to its realizing early the importance of a sound

ICT infrastructure on e-commerce. Therefore switching from Dial-Up connections to ADSL and

14

Menon, Siddhartha . "Policy Agendas for South Koreaâ€™s Broadband Convergence Network Infrastructure

Project." Review of Policy Research 28, no. 4 (2011): 347-364.

15



no. 2 (2001): 432-445.

9

evolving from there to VDSL and FTTH/B was a step to ensure the South Korean economy would

be up to speed with its economic transactions online16.

Private Sector-driven factors involved both Broadband Internet Service Provision by

broadband companies such as KT and Hanaro Telecom, and the rise of the PC Bangs age (PC

Cafes). Seeing as that KT and Hanaro Telecom were rivals in the local cable and

telecommunications market, this helped the growth of innovation and provision of quality

internet services in the country. For instance, Hanaro Telecom, in an effort to outcompete the

dominant KT, started offering high speed internet services using ADSL connections at a monthly

rate of $40. After being able to meet a satisfactory amount of demand, Hanaro Telecom

decided to push down prices to $25 per month. As a result, many internet users were switching

from KT services to theirs. KT in response to this switched to ADSL connections and was able to

drive their service fee down further, due to their accumulated wealth, and regain majority

market share. As a result, high speed internet was not only introduced and adopted by the

major telecommunication and cable companies, but was also being offered at very cheap

monthly flat fee rates.

The Social Background of South Korean society assisted in the rise in internet usage as

well as widespread broadband penetration due to three factors: Economic timing, Housing

patterns and Cultural Characteristics. In the wake of the 1997 financial crisis, there were

unprecedented amounts of unemployment and bankruptcies. In order to for the South Korean

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no. 2 (2001): 432-445.

10

to restructure itself it looked to internet venture business as a solution. In 1998 alone, about

7,700 new companies started up which was only possible through the government offering tax

benefits and low rate loans. Since the telecommunications infrastructure was already laid

down, the new internet companies were able to utilize this to advance internet development as

well as usage. In terms of Housing patterns, broadband penetration was achieved much faster

due to the fact that there were a large number of apartment housing which were ideal for ADSL

internet connections17. Since the apartment housing comprised of 49% of total housing, this

allowed for higher internet speeds in the urban areas and encouraged more people to migrate

to them thus increasing usage further. Finally, Cultural characteristics played a significant role in

the demand for broadband due to the South Korean’s strong emphasis on education and

academic performance. Together with social pressures to conform to a more homogenous

society, the demand for broadband spiked which led to more broadband penetration per

household.

Section 2 ICT significance in the Korean Economy

Today, knowledge and information products and services play an important and

increasing role in the Korean economy. The ICT sector is divided into three segments –

Telecommunication Services, Information Communication Equipment and Software. Of this, the

ICT equipment sector is the most significant in terms of production, accounting for more than

two thirds of the industry. South Korea has established itself as a global ICT powerhouse by

leading the development of the ICT-based society18. According to the Bank of Korea, about 30

17

Pfanner, Eric . "Why internet is different in South Korea." The Economic Times. 18

A, Milad. "An Overview of the South Korean Economy Since the '50s." Yahoo Contributor Network.

11

to 40% of Korea’s total GDP growth is contributed by the ICT industry which is the highest

among OECD countries. Indeed, ICT has been a major pillar of Korean economy and has helped

elevate the country as one of the leading countries in today’s global economy since the 1990’s.

In addition to direct benefits that the ICT provides to people and companies are the

indirect benefits to South Korea’s overall economic wealth and employment. The ICT sector

employs close to 2 million workers and is expected to rise as the ICT market expands. ICT

equipment forms the biggest market segment with 74% of which 41% constituted exports19.

Overall, ICT products account for a third of South Korea’s total exports. With its large

equipment industry and export orientation system, it is understandable why the South Koreans

are constantly quick to exploit new ICT technologies. These ICT Technologies contribute to the

growth of newer domestic markets that are aimed at strengthening the local economy by

reducing over-reliance on imported software and hardware, increasing exports and creating

more jobs.

New domestic markets formed in the ICT sector allow for an increase in demand for

telecommunications equipment to be produced by local manufacturers thus reducing the

overall reliance on those products being imported. In addition, as these local manufacturers

perfect their craft over time through the provision of quality telecommunications products to

the local economy they soon gain the much needed experience to compete with overseas

brands and therefore export their trade. In this sense, the ICT sector allows for local

manufacturers of telecommunications products and services to gain a strategic edge in high

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Brief History of the Internet in Korea 8, no. 4 (2011): 333-350.

12

technology exports. It is evident that South Korea’s economy is heavily dependent on the ICT

sector for much of its skill labor as well as export earnings, however, in terms of Software

production, it has no clear comparative advantage as countries like Japan and China have long

dominated the world market in that.

South Korea’s software industry within the ICT sector provides the weakest link as it

accounts for only 1.3% of the global software market and runs a large trade deficit in this

area20. This is certainly true since South Korea is more focused on Hardware production. The

reason for this disparity arises from a couple of factors, one of which is the Korean language.

Since South Korea produces most of its software in the Korean language is has a clear

disadvantage in the world market and would not expect to perform as well as countries like

India who use the universal language of English in their software and whose software products

are therefore more useful by global consumers. However, despite the apparent disadvantages,

the software market is slowly increasing and this is due to the rise and success of “niche

markets” such as the online gaming industry. To date, South Korea exports its online games to

about 4 countries and should be expected to increase to 6 in the next two years.

Section 3 – Implications of the ICT growth and internet usage

South Korea’s ICT infrastructure is definitely the most advanced in the world and the

government is already carrying out plans to rewire every household with FTTH/B cables capable

of transmitting data at 1 Gbps speeds. However, the South Korean government in all its efforts

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in building a strong ICT infrastructure cannot deny the many implications that have risen out of

internet usage. These implications are of socioeconomic and political significance and illustrate

how far reaching the internet is in terms of its influence on South Koreans’ internet behavior

and ultimately the way they carry out their activities on a daily basis. The main implications

include the technology practicality of South Koreans as a result of their exposure to newer

forms of ICT technology, the increase in internet usage rates as a result of the internet’s

academic value, rise in online gaming addiction and cyber bulling, rise in e-government

initiatives, rise in piracy across the internet, a newfound trust in internet information as a

credible source and finally government regulations.

3.1 Technology Savvy and Academically focused South Koreans

Broadband internet has become ubiquitous and the ICT infrastructure technology that

supports it has also become so widespread that it is virtually impossible for any South Korean to

not be exposed to it; Even the least exposure to technology still places a South Korean as

technologically better off than anyone else living in the world, with the exception of people

living in Japan who are known for their technology practicality as well. The ICT sector which

employs around 2 million people have provided its workforce with technology skills, as a result

these workers become very tech-savvy21. Normal internet users also become tech-savvy

through learning how to use the internet to carry out their daily activities such as making travel

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no. 2 (2001): 432-445.

14

arrangements, buying groceries or merchandise online22. Online gamers as well are pretty tech

savvy due to their over exposure to games and the fact that they can adapt to different gaming

patterns and even learn to cheat their way through games. As a result, some online gamers

develop knowledge on software hacking and cracking and become employed at software

companies where they harness and use their skillset to create strong firewalls and embedded

codes that would be non-hack-able. Other tech savvy South Koreans are students, who from a

young age are encouraged by their parents to utilize the internet in order to get ahead

academically.

The ubiquitous broadband connection has fueled and been fueled by internet users. In

South Korea’s broadband history, the internet was initially only available to academics and

scholars at research and development departments of universities and government ministries.

It was not until the late 1980’s did this technology become available to business firms and

individuals for their usage. School students have realized that the internet, especially the faster

FTTH/B internet connections, provide many benefits towards their academics such as problem

solving and cognitive skills software programs.

3.2 Gamer Addiction, PC Bangs and the Real-Name net law

Online gaming addiction has grown hand in hand with the increase in PC Bangs (Internet

Cafes) which are located all over South Korea. This is due to the fact that when PC Bangs were

first established in the downtown districts of Seoul, the first groups of people to frequent them

were computer gamers. Computing gaming technology has evolved very much since the early

22

Glassman, James K.. "South Korea: a leader in broadband connectivity and Internet restrictions." Tech Policy

Daily.

15

2000’s. Gamers can now play their games online against other local gamers or overseas based

gamers23. This has changed the gaming culture so much to the degree that South Korean’s

involved in it spend countless hours getting better so as to compete in Cyber tournaments

which are competitions for gamers. Winning these competitions becomes a main focus for

these gamers whose intentions are to become professional. At the professional level, gamers

are given six figure salary contracts and are treated like A-list celebrities. The glamour of being a

gamer celebrity combined with the sheer love of online gaming and the desire for a temporary

escape from reality all are cause for the gaming addiction epidemic that has been faced in the

nation for the last 5 years. As a result of online gaming addiction, certain tragic events took

place which has forced the government to revisit internet policy to find ways to curb the

addiction. The tragic events which involved on separate occasions people violently harming

others or neglecting their parental responsibilities as a result of Gaming addiction or “Gaming

schizophrenia” is a negative externality of South Korea’s ubiquitous broadband connection and

speed. To curb this growing gaming addiction, the government has implemented the

“Cinderella Act” which requires that children under the age of 16 not play computer games

from their PC or handheld device from midnight to 6am. Those found in violation of this will be

given a two year prison sentence or a fine of US $10,00024.

Following the gaming addiction trend, was the rise in cyber-bullying in the same period

that led to the suicides of a few South Korean citizens. To curb cyber bullying, the South Korean

23

Ahn, Jungmihm Jamie. "Broadband Policy in South Korea: The Effect of Government Regulation on Internet."

Lecture, Pacific Telecommunications Council from Hallym University, South Korea, March 25, 2011.

24

A, Milad. "An Overview of the South Korean Economy Since the '50s." Yahoo Contributor Network.

16

government enacted a Real-Name net law in 2007 which required that all internet users use

their real names when surfing the web. However this was disfavored by mainly political activists

and liberal internet activists who argued that the government was overstepping its boundaries

into the privacies and speech freedoms of internet users. By 2012, the law was scrapped due to

the fact that users were using overseas based servers rather than the local ones and could use

their fake names there, and also the fact that identity theft was now highly possible due to

people’s real information being published online.

3.3 Internet Information Credibility and E-Government Initiatives

Media credibility has shifted from traditional media and its online counterparts to that

of independent media sources. In South Korea, internet users say that they have become more

politically active as a result of their increased internet usage and have become particularly

reliant on independent sources of media, such OhMyNews25, which is a journalistic citizen

participatory news source that encourages citizens to write articles and publish them to the

news source. Not only does this promote citizen participation in the journalistic process but it

also reinforces their freedom of speech. Traditional news media is understood to be pro-

government and therefore biased in the news they provide. It is evident that internet users

favor the online independent sources more than the biased traditional form of media or their

online counterparts. In another instance, internet users were able to influence and be influence

by the internet in order to get their voices heard in the 2002 and 2004 presidential and

25

Kim , Daekyung , and Thomas J. Johnson. "A SHIFT IN MEDIA CREDIBILITY Comparing Internet and

Traditional News Sources in South Korea." International Communication Gazetta 71, no. 4 (2009): 284-

302.

17

parliamentary elections. In the case of the 2002 presidential election, voters who favored the

more liberal candidate banned together and garnered for more support online. The result was

their candidate winning.

E-government initiatives26 are another implication of internet usage that encourages

digital interaction between the government and citizens. Through national portals and social

media spaces online, the South Korean government is able to provide services, educate the

general populace on sustainability and economic development, as well as receive feedback

from citizens on online services and government policy. This a positive implication in that it

allows for dialogue between the government and its citizens and also demonstrates to the

general populace the government’s willingness for providing complete transparency in all its

affairs. Not only will this create an environment of trust but also reassure citizens of their

safety, especially in a country that is still recovering from a couple of decades of dictatorship.

3.4 Widespread Piracy and Government regulation on foreign companies

Piracy is a negative externality of fast broadband connections that is not unique to

South Korea. Downloading and sharing movies between internet users illegally - P2P or Peer to

Peer - is practiced in most countries, but mostly where there is not much government

regulation involved. South Korea’s government, on the other hand, has seen the negative

impact piracy has caused in terms of the loss of revenue27. In 2005 alone, US $1.3 billion worth

26



27

Ahn, Jungmihm Jamie. "Broadband Policy in South Korea: The Effect of Government Regulation on Internet."

Lecture, Pacific Telecommunications Council from Hallym University, South Korea, March 25, 2011.

18

of movies and music were circulated illegally over the South Korean internet. Piracy not only is

a copyright infringement but also uses up so much internet data. It is the sole reason there are

spikes in data demand by internet users. Internet users who illegally download movies and

music normally store this data away online on online webhard disks, otherwise referred to as

webhards. The South Korean government has identified webhard service providers as

facilitators to piracy and has therefore began requiring webhard companies to prove that it has

taken necessary technological measure to cut off illegal forwarding of the copyright work, has

the necessary personnel and facilities to conduct such a business (i.e. 2 monitors to monitor

contents 24 hours day) and is financially stable. However, at any time KCC (Korea

Communications Commission) can revoke a webhard’s registration when it is found to have

repeatedly violated copyright laws.

The KCC is an appointed branch of the government that surfs the internet on a daily

basis 24 hours a day to find any content that it arbitrarily determines is unfit for viewing. As a

result of this unmonitored power that the KCC wields, certain government censorings are

considered to be authoritarian and a direct violation of one’s freedom of speech and right to

information28. For instance, certain government ministries bar search engines like Google from

indexing their pages; therefore preventing the searcher from finding out any information about

that ministry. In another instance, foreign companies such as Google maps and other mapping

and navigation companies are finding it difficult to compete in the South Korean market mainly

because they are unable to provide many of their services. Google maps are unable to provide

28



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navigation maps due to the KCC disallowing that feature on grounds of upholding national

security laws. As the foreign companies are restricted in the type of services they can provide,

the local companies enjoy certain advantages, one of which is that they can provide their

services in Korean.

Section 4 – Plans for the future

The South Korean government, together with the ICT sector stakeholders, plan to build a world-

class information infrastructure which will enable data transmission of 155Mbps-5Gbps29. In

addition, the Ministry of Science unveiled that it would fund a total of US $8.1 Billion over the

next 5 years to promote research and development in the ICT sector. The intended result would

be to place South Korea further ahead in the ICT industry and generate production worth 12.9

trillion won and create some 180,000 jobs30.

Conclusions

South Korea should maintain its position as the number one ICT country in the world

through its research and development and vibrant ICT business industry, however, to prevent a

communication breakdown between the South Korean government, ICT stakeholders and

citizens, it is recommended that they use e-government initiatives like their national portal sites

or social media spaces to pose internet regulation questions to the wider community. It is

29

Smith, Catharine. "South Korea's Internet To Be 200 Times Faster Than In U.S.." The Huffington Post. 30



20

through this that a consensus can be reached that will bring the best out of internet usage and

at the same time putting a stop to harmful internet activities.

21

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Documents

South Korea ICT Infrastructure and Its Implications