Future Netwoks: Challenges & Opportunities - Jaehyun YEO, Senior Researcher, KISDI - DigiWorld Summit 2014

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Future Networks : Challenges & Opportunities

Nov.19, 2014

Jaehyun YEO KISDI

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1. Telecommunication Market Status

(‘14.3Q) Fixed Internet Mobile

Subscribers Market Share Subscribers Market Share

KT 8,106,821 42.4% 17,184,013 30.3%

SKT & SK BB 4,741,382 24.8% 28,403,097 50.0%

LG U+ 3,010,347 15.8% 11,158,666 19.7%

Others 3,257,903 17.0% * MVNO’s subs. are included in Operator’s subs.

Total 19,116,453 100.0% 56,745,776 100.0%

LTE61.1%

WCDMA

27.3%

CDMA

11.6%

LAN37.8%

FTTH29.3%

HFC24.0%

xDSL8.8%

< Fixed internet Subs. by

Technology >

< Mobile Subs. by Technology >

2

Fixed Internet Market

Fixed internet Subs. : 19.1 million (3Q 2014), 104% penetration ratio to household

VoIP Users: 12.5 million (3Q 2014), 65.1% of Subs.

2,428 2,156 1,851 1,774 1,726 1,691

5,031 4,931 4,784 4,725 4,656 4,593

6,355 6,610 6,995 7,054 7,133 7,234

4,045 4,555

5,107 5,300 5,445 5,597

-

2,000

4,000

6,000

8,000

11.4Q 12.4Q 13.4Q 14.1Q 14.2Q 14.3Q

xDSL HFC LAN FTTH

Transition from xDSL & HFC to LAN & FTTH

(unit: ‘000)

1. Telecommunication Market Status

3

Mobile Market

Mobile subscribers : 56.7 million (3Q 2014), 113% penetration ratio to population

MNO : 52.6 million, MVNO : 4.1 million

Smartphone Users: 40.1 million (3Q 2014), 70.6% of Subs.

15,815 10,753

7,742 7,204 6,946 6,599

35,500

27,060

18,489 17,088 16,124 15,506

1,191

15,811

28,449 30,870 32,602 34,641

-

10,000

20,000

30,000

40,000

11.4Q 12.4Q 13.4Q 14.1Q 14.2Q 14.3Q

2G 3G LTE

Rapid transition from 2G/3G to LTE since 4Q 2011

(unit: ‘000)

1. Telecommunication Market Status

4

Mobile & Fixed Networks

Preparing to transit to 5G & Giga internet from 4G & BcN

Service

+ New

Technology

Time 1980s 1990s 2000s 2010s 2020s

2. Network Evolution in Korea

Dial-up (2.4~9.6kbps) (1.5~10Mbps)

(50~100Mbps)

(~Gbps) AMPS

CDMA/CDMA2000

WCDMA/LTE

LTE-Advanced

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Mobile : LTE-Advanced

Since 2013, LTE-Advanced service has been provided in Korea

LTE LTE-Advanced

Bandwidth (DL) 10MHz 20 MHz (10+10)

20MHz 30 MHz (20+10)

40 MHz (20+10+10)

40 MHz (20+20)

Carrier Aggregation

- 2 band CA - 2 band CA 3 band CA 2 band CA

Max. Throughput

(DL) 75Mbps 150Mbps 150Mbps 225Mbps 300Mbps 300Mbps

Commercialize July ‘11 June ‘13 Sep. ‘13 June ‘14 Early of ‘15 End of ‘15

2nd 20MHz bandwidth spectrum plan to be provided to Mobile Operators in mid-2015

50MHz CA (20+20+10) would be possible in 2016

R&D for 5G technology

2. Network Evolution in Korea

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Fixed : BcN & Giga internet

BcN Construction Plan (2004~2010)

BcN coverage : over 90%

Coverage expansion in rural area

Giga Internet Construction Plan (2009~2017)

FTTH & LAN base

Pre-Commercial service in major 23 cities : 1 Gbps wired internet, 400 Mbps Wi-Fi

<Network Comparison>

Data Rate Service Feature

BcN 50~100Mbps Video Telephony,

IPTV

Telecommunication-Broadcasting Convergence

Giga Internet 100Mbps~1Gbps UHDTV, 3DTV High quality & Realistic service

2. Network Evolution in Korea

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Future Network Visions of SKT

Source: SKT, SK Telecom 5G white paper (2014.10)

2. Network Evolution in Korea

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Future Network Visions of KT

Source: KT, Gigatopia (2014.8)

2. Network Evolution in Korea

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Future Network Visions of LGU+

Source: LGU+, Innovation and Migration toward 5G (2014.10)

2. Network Evolution in Korea

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Fixed Network Operators

M&A among operators for preparing convergence

3. Preparing Convergence by M&A

~ ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ’10~’14.3Q

SMP in fixed voice services KT (42.4%)

New Entrant Hanaro Telecom SK Broadband (24.8%)

(SKT’s subsidiary)

New Entrant

Thrunet

Long Distance Onse Telecom

KEPCO's Division Powercomm (KEPCO's subsidiary) LG Powercomm LG U+ (15.8%) Long Distance LG Dacom

Cable TV SO's (Local Franchisees)

T-Broad, C&M, CJ, CMB, HCN etc. (16.6%)

Others Dreamline, Constructors (0.5%)

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Mobile Network Operators

# of Mobile Operators: 5 -> 3

‘84 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10-’14.3Q

Cellular KMT SK Telecom

SK Telecom (50%)

Shinsegi SK Shinsegi

PCS

KTF

KTF KT (19%)

Hansol PCS M.COM

LG Telecom LG U+ (31%)

3. Preparing Convergence by M&A

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Line-up by operators

Fixed Broadband Mobile Broadcasting

(IPTV or CATV)

KT Group KT KT KT

SK Group SK Broadband SKT SK Broadband

LG Group LG U+ LG U+ LG U+

Cable TVs T-Broad, C&M, …. MVNOs T-Broad, C&M, ….

Other Important Players

Internet Platforms : Naver, Kakao & Daum, Nate, Google, Facebook, etc.

Terrestrial Broadcasting : KBS, MBC, SBS, etc.

Device Manufacturer: Samsung, LG, Apple, etc.

Traditional Industries: Banks, Hospitals, Utilities, Automobiles, etc.

3. Preparing Convergence by M&A

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Market Saturation, Slowdown of Growth

Increasing Network Investment Cost for advancing network infrastructure

Increasing Customer Attraction Cost for severe competition in saturated market

Price cutting by commoditization of service

→ Degradation of Profitability, Decreasing Network Investment incentives

Challenges: Service Commoditization & Profit Degradation

4. Challenges & Opportunities

자료: Merrill Lynch 『Global Wireless Matrix』('14.2Q)

< EBIDTA margin of major mobile operators (%) >

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Challenges: Platform-led Ecosystem

Platform-led Ecosystem

Pre-Smart Phone: MNO controlled the closed value chain

Post-Smart Phone: OS controls the C-P-N-D alliances

Telcos: Traffic Explosion without returns Dumb Pipes ?

< Aggregate Market Value (Oct. ’14, billion US$) >

4.7

8.1

21.6

8.8

26.3

- 10.0 20.0 30.0

LGU+

KT

SKT

Daum

Naver

4. Challenges & Opportunities

Source: Shin Cho (2014.6)

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Opportunities

How to Overcome Profit Degradation

Cost Minimization by Economy of Scales

• Sharing: Network Sharing, Co-construction, Resource Sharing

• Structural Changes: M&A , Cooperation with other operators

Searching for New Growth Engine & Cash Cow

• IoT, cloud, etc. New growth opportunities for telcos

• Telcos can provide connections, manage platforms, and control overall system

• Competition using network as a leverage in Platform, S/W, Device market

• Cooperation with Strong Players in Platform, S/W, Device market

4. Challenges & Opportunities

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Thank you.