Korean Mobile Ultra Broadband

- KTs Strategies for the Era of Mobile Data Explosion -

2011. 10. 14

Hee-Su Kim, Ph.D.

Senior VP
Economics & Management Research Lab
KT
1. Data Explosion Status
Mobile traffic in Korea is expected to grow by 103% each year, increasing 35-fold from 2010 to 2015.
In 2010, the average monthly traffic among KT iPhone users was 360MB, 5 times more than the average traffic of
75 MB among smartphone users worldwide.

For KT, iPhone traffic increased over two-fold, and call quality has decreased since the introduction of
unlimited data plans.
Before the plan: average traffic = 250MB (monthly increase = 8%) After the plan: average traffic = 630MB
(monthly increase = 14%)

Call success rate drops to 97.2% during data use (98.3% during voice calls only). * Source: KCC (04/2011)
QoS: call success rate = 95%

Korean Mobile Traffic Forecast KT iPhone Users Monthly Data Usage Trend
(MB)

(PB/mon.) Increase by 14%

per month
CAGR Introduction of
unlimited data
plans
Increase by 8%
per month

Global average of
smartphone traffic in
2010 = 75 MB*

*Cisco Global Mobile Data Traffic Forecast, 2010-2015 1

 2. KTs 3W Network Strategy WCDMA+WiFi+WiBro

Facing the Data Explosion, KT has implemented the 3W N/W strategy for offloading.

Combination of WCDMA(3G), WiFi , WiBro(WiMax)

Offloading smartphone traffic to WiFi and WiBro
Relative ease of implementing 3W N/W due to the superiority of Koreas fixed high-speed internet
network. 50,000 Hotspots(03/2011) + WiBro (82 Cities & Expressways)

KT WiBro Network KT 3W Network

WCDMA(3G)
Upgrade to HSPA+ in Oct. 2010

WiFi
50,000 Hotspots(2011.3) 100,000 Hotspots in Public Egg*
2011

WiBro
Expanding WiBro coverage (82 Cities &
Expressways)

*WiBro(Wireless Broadband): Korean version of Mobile WiMAX *Portable WiBro+WiFi Router c 2

3. KTs 3G Strategy for D/E CCC(Cloud Communication Center)
KT tried to manage the Data Explosion by increasing network capacity through the adoption of
the CCC technology, but the outcome was limited.
Separates the DU and the RU that were combined in the base stations.
Centralizes the DU, installs the RU in service areas, and interconnects them through an optic cable.
Allows for capacity expansion by splitting cells KT plans to establish CCC networks in 90% of the
Seoul region (10/2011)

Existing Network Structure CCC Network Structure

* DU: Digital Unit, RU: Radio Unit 3

4. Securing 4G Frequency Bands LTE Spectrum Auction
As a response to the D/E, KT participated in an LTE spectrum auction to secure frequency bands.
Traffic is expected to exceed the maximum capacity of 3G and WiBro in 2012.

LTE services exceeding 100 Mbps are unlikely in the near future due to the results of this auction.
Continuous frequency spectrum of mobile operators for LTE usage is 2x10MHz, enabling a speed of
75Mbps at maximum.
LTE services exceeding 150Mbps is unlikely until the commercialization of the LTE advanced technology
sometime after 2014.
Mobile Traffic to Exceed the capacity of 3G+WiBro LTE Spectrum Allocation in Korean Market

3G + WiBro Capacity KT SKT LGU+

Mobile Traffic
800MHz 10MHz 10MHz 20MHz

900MHz 20MHz

1800MHz 20MHz 20MHz

2100MHz 20MHz

auction spectrum(paired)
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 5. Commercialization of LTE Services LTE Market
SKT and LGU+ started their LTE services in the latter half of 2011, and KT will launch in 11/2011.

SKT and LGU+ launched their LTE dongles in 07/2011 Released LTE smartphone payment plans in 10/2011.

KT launched its 4G WiBro service in 03/2011 Plans to launch its LTE service in 11/2011.

It will take time for LTE services to be fully activated.

Potential obstacles include an end to unlimited data plans, low demand for pads, and limited coverage.

LTE Service Plans by Mobile Operators SKTs LTE Price Plans

Mobile
3G + WiBro Monthly Allowances
4G Service Status Plans Costs
Operators
Mobile traffic Voice(min.) SMS DATA
07/2011. Launched LTE services LTE 34 120 200 350 MB
$ 29
09/2011. Launched LTE smartphone services
SKT LTE 42 180 200 700 MB
2012. Plans to build LTE networks in 25 $ 36
major cities LTE 52 $ 44 250 250 1.2GB
07/2011. Launched LTE services LTE 62 $ 53 350 350 3 GB
10/2011. Launched LTE smartphone
LGU+ services LTE 72 $ 61 450 450 5 GB
By the end of 2012. Plans to build LTE LTE 85 $ 72 650 650 7 GB
networks in 82 cities and towns
LTE 100 $ 85 1,050 1,050 10 GB
03/2011. Launched WiBro 4G services
KT * Exchange rate: 1,179 won per dollar
11/2011. Plans to launch LTE services * Unlimited data plans are unavailable in LTE. 5
6. Characteristics of LTE 3G vs. LTE
Being in the early stage of LTE services, mobile operators emphasize the fast speed of LTE in their
advertisements and services.
Mobile operators promote LTE by emphasizing its speed advantage, 5 times faster than 3G.
Killer App will allow HD Video Calls, N-Screen Video Streaming Services, and Mobile Network Game.
Differences between 3G and 4G Price Plan Comparison

Monthly Cost Data allowance

3G 4G Plans
(3G vs. LTE)
3G LTE 3G LTE

Bigger display size All-in-one 34

Devices -
High performance CPU vs. $ 29 $ 29 100 MB 350 MB
LTE 34
Unlimited data plan All-in-one 44
Unlimited unavailable. vs. 500 MB 700 MB
Plans $37 $ 36
data plan Reduction in monthly prices LTE 42
(vs. 3G)
All-in-one 54
28.8Mbps 5 times faster, compared to vs. $ 46 $ 44 unlimited 1.2GB
Speed
(HSPA+) 3G LTE 52

HD Video calls All-in-one 64 7

Mobile vs. $ 54 $ 53 unlimited 3 GB
N-Screen HD Video
Killer Instant LTE 62
Streaming
App. Messenger
Mobile Network Game
mVoIP * Exchange rate: 1,179 won per dollar
Video Messenger
* Comparison of 3G and LTE services with similar plans
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7. LTE vs. Fixed Broadband Complementary or Substitution?

MBB is expanding in some countries, including Sweden and Germany, by substituting for FBB.
In Sweden, one person households and people under 30 are leading the replacement of FBB with MBB.
In Germany, MBB is expanding in out-of-service areas with limited FBB infrastructure, and its price is at a competitive
level. Germanys FBB data usage per user is 11GB/month, similar to MBB data usage.

In Korea, mobile broadband (MBB) is still a complementary service to fixed broadband (FBB),
but there is a high possibility that MBB could substitute for FBB.
100Mbps high speed and national coverage are distinctive conditions, not comparable with other countries.
If the price gap between MBB and FBB is reduced, MBB could replace FBB.
SKT eliminated its unlimited data plans in concern of LTE replacing the fixed high-speed internet.

Current Status of Swedish BB Services (%) Comparison of Vodafone LTE vs. DSL in Germany

[By age] [By household size] (/mo)

Age DSL Cable LAN/ MBB HH size DSL Cable LAN/ MBB
Fiber Fiber
10s 63.44 6.45 16.13 12.90 1 28.99 16.61 28.34 23.13

20s 35.11 16.03 29.01 19.08 2 52.22 13.30 15.59 13.88

30s 44.33 14.00 22.67 15.67 3 56.63 12.90 16.85 11.83

40s 56.23 13.74 18.21 10.54 4 61.79 10.57 18.29 7.72

50s 58.41 10.03 16.22 11.80 5 61.54 7.69 12.09 14.29

6 or 45.10 9.80 27.45 11.76

60s 50.55 13.93 11.48 15.57
more

*Source : EUI working paper survey results, n=2083, 2011 *Source : Vodafone, UniCredit Research (Mbps)

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8. KTs 4G Network Strategy Premium 4G Networks
Dual 4G Offer an optimum service environment through the harmonization of LTE and WiBro.
WiBro Focus on high traffic devices, including notebooks, tablet PCs (Pad), and netbooks (Data use only)
LTE + WCDMA Focus on smartphones (Voice+Data)

WiBro + LTE Dual Network Composition

City/Expressway Whole country

Mobile WiFi service National service with

WCDMA
High traffic devices Smartphone devices

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9. Governments Future Network Vision Ultra Broadband Roadmap
Mobile operators establish network plans to prevent the dumb pipe phenomenon, while the
government does the same in order to expand the infrastructure.
Mobile operators plan to establish intelligence networks to boost their profits.
The government aims to expand the infrastructure to boost investments in the Smart Era, rather than
planning to expand profit of network providers.
Plans to facilitate private sector investment of 38 trillion won to build a 1Gbps fixed-line network and a 100
Mbps wireless network by 2012.
The governments role is limited, compared to its effort in the high speed internet during the 2000s.
Has limited plans for securing frequency bands and devising demand/supply management policies.
Amount of Private Investments for Fixed and Mobile Ultra Broadband(trillion won)
2008 2009 2010 2011(P) 2012(P) 2013(P) 2014(P) 2015(P)
6.9 6.5 6.4 7.2 7.3 7.7 7.7 7.7
*Source : KCC(06/2011)
Fixed and Mobile Ultra Broadband Roadmap
2013~ 2016~
2011 2012
2015 2020
Advancement of Fixed ~1Tbps transmission links, 1Gbps network '12)
A dozen Tbps
transmission links,
Several dozen Tbps transmission
Broadband Network 1Gbps network
links, 10 Gbps network

Advancement of Mobile 1Gbps ~ WiFi, Several dozen Gbps ~

Network Establishment
600Mbps WiFi, 3.9G(100Mbps) 4G (600Mbps)
Broadband Network Expansion of WiFi,, 4G, or B4G
Introduction of
Virtualization and Establishment of Virtualization Research Expansion of Virtualization,
Intelligence Network Network and Quality Assurance N/W
Virtualization, Establishment
Establishment of Cognitive N/W
of Custom N/W
Introduction of Expansion of
Efficient Content Establishment of Overlay-based Content Smartnode- based smartnode-based
Distribution N/W Content N/W Content N/W
Open Platform and Standardization of Open API,
Trial Application of
Expansion of Open API
Open API and
Integration Establishment of Standard Platform standard platform
and standard platform

*Source : KCC(06/2011)
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10. KTs Future Challenges
The Data Explosion leads to an MBB demand increase, but not to an increase in operators profit.
Rather, there is a loss of investment drives.
Oversaturation of mobile phone market Lack of Killer Application
Collapse of Legacy BM Diminishing ARPU

Mobile phone penetration rate

Oversaturation in 08/2011 = 102.6%
of customers 4Q 09 ARPU $30.8 2Q 11 $29.1
Reasons:
1) Unlimited data plan
Lack of new Crisis of loss - Move from high-end to lower-end plans
Killer Fall in ARPU - Use of Kakao Talk, instead of text/voice
of investment messages
Application drives 2) Intensification of competition for
combined product discounts
Dominant 3) Pressure to lower rates by the
Application: Collapse of government, congress, and NGOs
Nothing but Legacy BM
Kakao Talk Popularity of Kakao Talk is replacing SMS/voice messages.
- 73% of Kakao Talk users reduce their use of SMS.
- 41% of Kakao Talk users reduce their use of voice messages.
Concern for the replacement of PSTN and VoIP from the
expansion of mVoIP
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