SEOUL-In a city where a mobile phone is as common as kimchi and coffee shops must provide a landline phone at every table in order to draw in customers, Seoul, one of the largest cities in the world, seems to be a wireless carrier’s dream.
South Korea recently ushered in three new personal communications services carriers, bringing the number of mobile phone carriers in the entire country to five. The new carriers-LG TeleCom Ltd., Korea Telecom Freetel and Hansol PCS-each have around 50,000 subscribers on their systems, and all claim to have around 1 million customers on their waiting lists. All three carriers officially launched service Oct. 1, but have been marketing their service and signing up customers since July.
The demand for wireless communications has caused a shortage of PCS handsets that isn’t expected to be resolved until the end of the year. A host of South Korean and U.S. manufacturers anticipate having models available by then. South Korean handset manufacturers are blaming the problem on the carriers’ early entrance into the marketplace. The three weren’t expected to launch service until the end of the year.
The increased competition in South Korea’s market is a result of deregulation of the telecommunications industry. The carriers’ recent service launches have triggered price cuts and drastic changes in distribution strategies similar to the U.S. market. All three competitors are undercutting the country’s two cellular carriers, SK Telecom and Shinsegi Telecomm Inc., by about 20 percent and are waiving insurance fees that the incumbents charge new subscribers. To keep customers on their waiting lists, some have offered a free month of service and other significant discounts.
PCS providers also have opted to implement new distribution strategies different from their cellular competitors, which distribute handsets through exclusive dealership networks by purchasing them from handset manufacturers such as Samsung Electronics, Hyundai Electronics and LG Information and Telecommunications, said the U.S. Commerce Department in a recent report on the South Korean market. PCS provider LG Telecom, for example, allows its authorized dealers to directly buy handsets from the manufacturers.
LG Telecom believes the new distribution system will quiet the pricing competition by giving back the right to distribute handsets to manufacturers. The department said that LG Telecom also has developed new channels of distribution, such as gas stations and convenience stores. These new methods are in turn being adopted by the cellular operators.
Since all five mobile phone operators in the country operate CDMA systems, PCS carriers primarily are competing against the incumbents using price and call quality and enhanced services. All the PCS carriers are using 13 kilobit-per-second vocoders, the same vocoders U.S. carriers use, to provide better voice quality than the 8 kbps vocoders South Korean cellular operators use. However, both SK Telecom and Shinsegi plan to migrate to the 8 Enhanced Variable Rate Vocoder (EVRC) by the end of the year. The 8 EVRC allows carriers to offer virtually the same voice quality of the 13 kbps vocoder without compromising capacity. Cellular customers must purchase a new handset to have access the improved voice quality.
Offering enhanced services such as short messaging service, voice mail and voice dialing services is another way carriers plan to differentiate themselves in the future. Currently, customers only require basic voice service, but carriers believe the advent of competitors will drive the demand for value-added services. Some operators are ready to deploy such services, but are waiting for capable handsets.
SK Telecom, the country’s first mobile phone operator, still by far is the market leader, with about 2.7 million Code Division Multiple Access customers and 1.8 million analog subscribers. It has seen its rate of subscriber additions slow by about 8 percent since PCS carriers began to market their services in July, said Shin Bae Kim, SK Telecom’s director of corporate strategy.
Though it has more coverage and more subscribers than its PCS counterparts, SK Telecom is not taking the competition lightly. The CDMA innovator is offering new subscription fees and drastic cuts in service charges and has waged large ad campaigns to defend its turf.
“The marketing division is concerned about efficiency,” said Jin Woo So, SK Telecom’s general manager of the marketing strategy planning division. “Not every customer is profitable so we have to differentiate our marketing strategy.”
As such, customer retention and data base marketing is becoming a large part of SK Telecom’s focus. As average usage continues to rise in the market, SK Telecom has put customer loyalty plans in place for its some 1 million valued customers, offering special discounts on equipment and other goods and services.
Shinsegi, the second cellular operator that launched 18 months ago and has about 1 million customers, also is focusing on keeping customers by strengthening its customer service sector. The company also has made discounts on cellular handsets and call rates, but views competition as a “win-win” strategy. It believes the mobile phone market is expanding and therefore, the industry should compete to expand the market rather than carving it into pieces.
The mobile phone market in South Korea may support as many as 15 million subscribers by 2000, experts predict. Many industry observers believe that one or two players could fail due to intensifying competition. If airtime and handset prices continue to fall, the result may be disastrous, because PCS carriers and Shinsegi will have problems breaking even, say analysts. As mobile phone service evolves to become even more of a mass market service, revenue per subscriber will drop and marketing costs will continue to increase.
