1

Successful Innovation of the Korean Mobile Communications

Industry and SK Telecom's Role

InnChan Lee. Ph.D. Vice President

ICT Research Office SK Telecom

1. Introduction

The telecommunications industry is one of the major pillars of the Korean economy

along with the semiconductor and automobile industries. The IT industry including

telecommunications has been leading the growth of the Korean economy since the late

1990s.

According to Digital Opportunity Index 1 published by the International

Telecommunication Union, Korea ranked first out of 180 countries around the world for

two years in a row, proving that it is a true IT powerhouse. In wireless broadband

penetration, Korea and Japan show far higher rates than other developed countries.

1 The Digital Opportunity Index (DOI) is a composite index comprising 11 separate indicators,

grouped in three clusters of IT Opportunity, Infrastructure and Utilization. Examples of indicators

are ‘internet users per 100 inhabitants’, ‘internet access tariffs as a percentage of per capita

income’, ‘mobile cellular subscribers per 100 inhabitants’, and etc.

2

[Figure 1] Development of the Korean telecommunications industry

Digital Opportunity Index(2006)

0.66

0.66

0.67

0.67

0.69

0.69

0.69

0.69

0.69

0.69

0.69

0.70

0.70

0.71

0.71

0.72

0.74

0.76

0.77

0.80

0.00 0.20 0.40 0.60 0.80

United States 20

Germany 19

Austria 18

Canada 17

Switzerland 16

Macao,China 15

Israel 14

Luxembourg 13

Norway 12

Finland 11

United Kingdom 10

Sweden 9

Hong Kong,China 8

Taiwan, China 7

Netherlands 6

Singapore 5

Iceland 4

Denmark 3

Japan 2

Korea(Rep.) 1

Top 10 economies by number of mobile

broadband subscribers, in milions, 2005

0 5 10 15 20

Australia

Portugal

Spain

France

Germany

United States

United Kingdom

Italy

Korea(Rep.)

Japan

Sources: ITU, UNCTAD, KADO

The high infrastructure penetration rate and rapid growth of the ICT2 industry are

the basis for Korea to lead the global ICT market as a test-bed for new technology and

services. In order to take advantage of the leading status of Korea in the global ICT

market, global IT companies have established R&D centers, developed next-generation

IT technology and services, and conducted a test within Korea3.

The advancement of ICT services has facilitated growth of various sectors of the

ICT value chain, helping contents and platform providers and devices and handset

manufacturers develop. In particular, advances in mobile communications services

have helped ICT device and handset manufacturers including Samsung Electronics

and LG Electronics improve their competitiveness and become major players in the

2 ICT : Information Communication Technology 3 Intel established a R&D center in collaboration with ETRI in March 2004. IBM opened the

Ubiquitous Computing Research Institute in July 2004. Microsoft established the Mobile R&D

Center in July 2005 to develop the next-generation mobile platform technology. Google opened

its R&D center in Korea in October 2006 to develop search and wireless internet technology.

3

global handset market. Rankings in the global handset market show that Samsung

Electronics and LG Electronics have been among the top 5 players since 2004, while

Nokia, Motorola, Ericsson, and Panasonic have been leading the market since the late

1990s.

[Table 1] Ranking Changes in the Global Handset Market

Ranking 1998 2000 2002 2004 2006

1 Nokia Nokia Nokia Nokia Nokia

2 Motorola Motorola Motorola Motorola Motorola

3 Ericsson Ericsson Samsung

Electronics

Samsung

Electronics

Samsung

Electronics

4 Panasonic Siemens Siemens Siemens Sony

Ericsson

5 Alcatel Panasonic Sony

Ericsson

LG

Electronics

LG

Electronics

6 NEC Samsung

Electronics

LG

Electronics

Sony

Ericsson

N/A

7 Samsung

Electronics

Alcatel Alcatel N/A N/A

Sources: KISDI, Gartner

The Korean mobile communications industry has grown based on a series of

technology and service innovation: technological independence based on the world's

first commercialization of CDMA technology in 1996, the world's first commercialization

4

of CDMA 1x and CDMA 1x EV-DO technology, the world's first service of Mobile WiMax

and HSDPA, wireless internet service development, and development and upgrade of

ICT convergence services. In Korea, innovation and advances in mobile

communications have been led by SK Telecom. SK Telecom’s innovation efforts have

been recognized as one of the top 100 innovative companies in the world by Business

Week in April 2006.

This report thoroughly analyzes major innovation in the Korean mobile

communications industry, and success factors and lessons from each innovation.

Chapter 2 examines CDMA technology, which is the most significant innovation in

history of Korea's mobile communications, and the subsequent development of

wireless platforms and convergence service based on the advanced communications

network. Chapter 3 explores global cooperation for innovation including collaboration

between SK Telecom and the Chinese government in TD-SCDMA. Lastly, Chapter 4

analyzes what are success factors to Korea's mobile communications innovation and

what can be learned from Korea's innovation.

5

2. Major Technology Innovation of the Korean Mobile Communications

Industry

2.1 World's First CDMA Commercialization

Background

Until the early 1990s, Korea had had no proprietary wireless communications

technology and depended companies in developed countries for mobile technology. As

of 1991, AT&T and Motorola lead the switch, base station, and transmitter markets, and

Motorola accounts for 40% of the Korean handset market.

[Table 2] Mobile Communications System in Korea (as of 1991)

AT&T Motorola Korean Firms

Switch APX 7 units EMX 4 units None

Base Station APX 173 units EMX 35 units None

Transmitter 3,729 RF 1,052 RF None

Source: Sangduk Lee, et al. (1991)

[Figure 2] Market Shares in the Korean Handset Market (as of 1991)

Motorola43%

Samsung,20%

LG, 9%

Hyundai,9%

Others,19%

Source: Electronics and Telecommunications Research Institute (ETRI) (1997)

6

As foreign companies were occupying the Korea's mobile communications devices

and handset markets, mobile devices and handsets were very expensive. Also, foreign

companies were reluctant to transfer their advanced technology to Korean

manufactures, making it difficult for Korean companies to accumulate technological

expertise and knowledge. Lack of technological expertise led the communications

device market to be a seller's market. Therefore, Korean communications service

providers had no negotiation power in introducing mobile systems and handset devices.

Even though the first mobile communications network was built in Korea in 1984 and

as much as 180 billion won was invested in network infrastructure until 1991, only

foreign manufacturers gained profits from such a huge investment in the Korean

market.

From the late 1980s, demands for mobile telephony in Korea began to increase

sharply, requiring technological migration to digital mobile communications. However,

the only commercialized digital mobile technology was TDMA developed in Europe. In

the early 1990s, CDMA developed by QUALCOMM, a small venture start-up in the U.S.,

had no public attention, as there were high uncertainties about CDMA

commercialization. However, the Ministry of Post and Telecommunication of Korea paid

attention to technological advantages of CDMA such as high frequency efficiency and

excellent call quality. Korea decided to become the world's first country to

commercialize CDMA in order to avoid technological dependence on other nations that

it experienced in analogue communications, and to overcome structural weakness of

the Korean mobile communications industry.

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CDMA Technology Commercialization

CDMA technology development was a national R&D project of large scale funded

by the Korean government and jointly conducted by handset manufacturers, telecoms

service providers, and government-sponsored research institutes. From 1989 to 1996,

around 1,000 people worked for this project every year.

CDMA technology development was divided into two phases. In phase I from 1989

to 1993, CDMA was selected as the Korea's mobile communications standard and

technology community was organized. In phase II from 1994 to 1996, technology

development activities were newly adjusted while the project faced difficulties and the

technology environment was rapidly changing. The following figure describes the

history of CDMA technology development.

[Figure 3] History of CDMA Commercialization

In the national CDMA project, participants had specific roles and responsibilities:

QUALCOMM and ETRI designed the basic technology foundation system; Samsung

Electronics and LG Electronics developed devices and handsets; Korea Mobile

Telecom4 coordinated the whole project and led test and evaluation of developed

4 Korea Mobile Telecom was the predecessor of SK Telecom. It was a public

corporation owned by the Korean government. After the 1994 privatization, it changed

the name into SK Telecom in 1997.

1989

Research on digital mobile technology

1991

Agreement on joint research program with QUALCOMM

1993

Designation of CDMA as the technology standard

1995

Development of commercialized CDMA system

1996

Launch of the world's first

commercialized CDMA service

1989

Research on digital mobile technology

1989

Research on digital mobile technology

1991

Agreement on joint research program with QUALCOMM

1991

Agreement on joint research program with QUALCOMM

1993

Designation of CDMA as the technology standard

1993

Designation of CDMA as the technology standard

1995

Development of commercialized CDMA system

1995

Development of commercialized CDMA system

1996

Launch of the world's first

commercialized CDMA service

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products. As QUALCOMM had CDMA technology of basic level, it had difficulties in

developing switches to commercialize mobile telephony system and producing and

manufacturing mobile devices at a large scale. Under the circumstances, Korea, which

had sufficient financial resources for technology development and technological

expertise in mass-producing TDX, an electronic switch, was the perfect partner for

QUALCOMM to create synergy.

QUALCOMM provided only stations-handsets connection technology for the

CDMA project, while Korea independently developed CDMA switch (based on the

existing TDX switch), system design technology, control technology, RF technology,

and hand-off technology.

Success Factors of CDMA Commercialization

There are several factors to the successful CDMA technology innovation. First, the

Korean government pushed for a large-scale project in collaboration with the private

sector to commercialize the cutting-edge CDMA technology at a time when the

paradigm was shifting from analogue communications to digital communications in the

mobile telecoms market.

In 1980, the Korean government enacted the ‘Electronics Industry Promotion Act’

and designated communications as one of the core industries of the Korean economy.

It recognized the importance of the communications industry and facilitated

development of communications network and basic technology to upgrade the Korean

9

communications industry. In addition, it funded around 70% of cost for the CDMA

project with government budget as it was leading the project. Also, the Korean

government came up with policy5 to link selection of new mobile telecoms operators

and service types to the CDMA commercialization project.

Second, development methodology and project management expertise learned

from the previous TDX technology project contributed significantly to making the CDMA

project a success.

The TDX development project required highest technological expertise. Korea was

then compared to a tube radio repairman trying to make a color TV set. In 1981, ETRI

had an annual R&D budget of 2.4 billion won, while a total of 24 billion won was

invested in the TDX project for five years. With development of TDX technology, Korea

became the 10th country in the world to have digital switching technology, laying the

foundation for developing CDMA technology later.

In the early stages of the CDMA commercialization project, Korea planned to

design and develop a system in collaboration with QUALCOMM. However, in 1993,

ETRI changed the plan and decided not to depend on QUALCOMM 100% in order to

develop its proprietary CDMA system based on the basic system design. The reasons

for such decision were that the pace of the joint project was too slow, it took too much

5 In 1993, the Ministry of Information and Communication announced that new mobile telecoms

operators would have to provide mobile telephony service using CDMA-based equipment made in

Korea. It postponed selection of new telecoms operators until CDMA technology was successfully

commercialized. At the same time, the Korean government requested new service providers to

launch digital mobile communications service in 1995, two years earlier than scheduled, to

encourage CDMA project participants to concentrate more on the project.

10

time for QUALCOMM to finish system design, and the Ministry of Information and

Communication announced in 1993 to accelerate the CDMA project by two years.

Since the decision was made, ETRI shifted its focus from development based on

technology transfer from QUALCOMM to independent management and control of the

CDMA project. ETRI also applied experience and know-how learned from the previous

TDX development project. For example, the general manager of CDMA technology was

replaced by another manager, who had been responsible for the TDX-10 technology

project before. Experience gained from the TDX project laid the basis for the successful

CDMA development.

Third, the ‘Taskforce for Mobile Communication Technology Development Project

Management’ led by Korea Mobile Telecom defined the scope and specifications of

technology development from the perspective of service providers to reduce

uncertainty in the project, and conducted tests to solve technological problems.

In the early stages, there were conflicts of interest between ETRI, which was

responsible for system design and integration, and manufacturing companies, which

produced commercial devices based on the design presented by ETRI. In other words,

ETRI focused more on technology itself than commercialization, as it was responsible

for design and technology development. Therefore, participating companies made

complaints that they had difficulties in producing commercial products as ETRI did not

clearly define required system specifications and features. Such conflicts discouraged

the two parties from conducting joint research and study, and consequently, brought

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about challenges to the CDMA project.

The Taskforce for Mobile Communication Technology Development Project

Management presented user specifications that clearly define system configuration and

functionalities from the perspective of mobile communications service providers to set

the direction of the CDMA project. Once specifications and common design guidelines

for ETRI and participating companies were defined, the project was accelerated in

earnest.

Lastly, the Korean government developed demand facilitation policy to create a

commercial market for CDMA technology after CDMA technology was successfully

developed.

The Korean government allowed mobile telecoms operators to both manufacture

handsets and provide mobile service to consumers to create synergy. It also selected

synchronous IMT-2000 service providers to lay the foundation for continuous

development of the CDMA industry. In addition, ‘Shinsegi Telecom’ and three PCS

service providers entered the mobile communication service market in 1996 and 1997,

respectively, intensifying competition and resulting in lower service prices and market

expansion. In fact, subscription cost including a handset started to fall significantly

since 1996, when CDMA infrastructure was localized and new players entered the

mobile communications market, increasing competition. This competition policy

contributed to penetration of mobile communication among general public as well as

business users, leading to CDMA technology taking root in the market earlier than

12

expected.

<Figure 4> Changes in the Number of Subscribers and Subscription cost

‘Shinsegi Telecom’ and three PCS service providers launched their service in 1996 and 1997,

respectively.

Source: Ministry of Information and Communication

In addition, competition to attract subscribers has resulted in better service quality,

and Korean handset manufacturers were able to catch up with foreign manufactures in

the process of the Korean mobile market expansion, allowing the Korean

manufacturers, not foreign handset manufactures, to lead the Korean handset market.

(Unit : USD) (Unit : 10,000)

0200400600800

100012001400160018002000

1991 1992 1993 1994 1995 1996 1997 1998 19990

500

1000

1500

2000

2500

Handset Cost + Subscription fee number of subscribers

(Unit : USD) (Unit : 10,000)

0200400600800

100012001400160018002000

1991 1992 1993 1994 1995 1996 1997 1998 19990

500

1000

1500

2000

2500

Handset Cost + Subscription fee number of subscribers

13

<Figure 5> Changes in Market Shares of the Korean Handset Market

0%

10%

20%

30%

40%

50%

60%

1994 1995 1996 1997 1998 1999 2000

Motorola Samsung LG

Source: Cellular Monthly

As competition has been intensified in the mobile service and handset markets,

Korea has become a global test-bed for new technology, products, and services. Also,

next-generation products and services have been first commercialized or developed in

the Korean communications market.

Significance of CDMA Technology Innovation

Before CDMA technology was commercialized, Korean companies were making

efforts to catch up with global leaders in developed nations by importing, adopting, and

improving products of advanced companies. However, CDMA technology first

commercialized by Korean companies did not existed in the market before. The CDMA

project was the turning point for Korea's technology innovation, as it successfully

developed a brand-new technology, despite uncertainties in technology and market

conditions. The successful CDMA commercialization helped Korea change from a

follower into a leader in IT and communications innovation. Korea is now able to

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independently set the direction of technology and service development, define

technological architecture, and pursue new technological innovation.

2.2 Development of the Korean Wireless Internet Platform - WIPI6

Growth of the Korean Wireless Internet Service Market

With technological innovation including CDMA 1x and CDMA 1x EV-DO, the

Korean communications market has gone beyond voice-oriented service to lay the

basis for wireless internet environment earlier than expected. Also, as the Korea

communications market matured and the increase in the number of new subscribers

slowed down since 2000, competition became more intense. As a result, telecoms

operators tried to provide consumers with differentiating services to gain competitive

edge and create new revenue streams. After wireless internet service was first

released in May 1999, mobile telecoms providers began to compete to offer handsets

with high-end features and various contents and to develop new business models. In

this process, the Korean wireless internet market has grown rapidly to create one of the

world's most advanced wireless internet markets along with Japan.

A comparison study on wireless internet markets of developed nations shows that

contents excluding messaging accounts for 19.4% and 9% of total revenues in Japan

and Korea, respectively, and takes up 72.4% and 55.2% of data revenues in Japan and

Korea, respectively. These figures in Japan and Korea are far higher than those in

other developed markets. These high figures suggest that the data market has shifted

6 WIPI: Wireless Internet Protocol for Interoperability

15

its focus from simple messaging to various contents.

<Figure 6> Revenue Shares of Contents in Developed Economies (as of 2006)

3.3% 4.2% 3.8% 5.5% 4.6% 3.5%6.9%

19.4%

9.0%

27.2%24.3%

29.6%26.4% 26.6%

21.5%

30.5%

72.4%

55.2%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

USA Finland France Germany Italy Spain UK Japan Korea(rep.)

% of Contents Revenue in Total Revenue % of Contents Revenue in Data Revenue

Source: OVUM (2006). SK Research Institute analysis

Background for Development of Wireless Internet Platform

Growth of the advanced wireless internet was accelerated based on network

infrastructure upgrade and standardized proprietary wireless internet platform

development. Mobile telecoms operators had provided consumers with services based

on their own wireless internet platforms since 2000 to differentiate themselves from

other players in the face of intense competition and matured market. However, in 2000,

the global communications market did not have an advanced wireless internet

technology that Korea wanted to introduce. Therefore, mobile telecoms operators in

Korea decided to develop a proprietary platform to upgrade their wireless internet

service. QUALCOMM, which provided basic CDMA technology to Korea, released its

wireless platform, "BREW" only after 2001.

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As of 2002, SK Telecom adopts GVM and SK-VM, KTF introduces MAP and

BREW, and LG Telecom selects KVM as their wireless internet platform.

[Table 3] Wireless Internet Platform Penetration in Korea (as of 2002)

SK Telecom KTF LG Telecom

GVM

SK-VM

MAP

BREW (QUALCOMM)

KVM (SUN Microsystems)

* All standards except BREW and KVM are proprietary wireless internet platforms

developed by the Korean telecoms operators.

As each mobile telecoms operator adopted its own proprietary service platform,

the mobile contents market was divided by operator. Consequently, this led to

redundant investment and inefficiency, as contents providers and handset

manufacturers had to develop multiple contents and handsets according to wireless

internet technology specifications of each operator.

In addition, the Korean mobile communications industry had to pay huge royalties

to QUALCOMM in the process of CDMA commercialization. QUALCOMM also

requested Korean companies to pay additional $3 per a handset as royalty for its

wireless internet platform, BREW. To reduce the cost burden caused by high royalty to

QUALCOMM in the mobile communications industry, Korean service providers had to

develop their own wireless internet platform.

In conclusion, Korea pursued to develop its own proprietary wireless internet

17

platform to eliminated inefficiency from lack of standardized wireless internet platform

and increase interoperability among contents and handsets.

Process of Wireless Internet Platform Development

In 2001, SK Telecom, KTF, LG Telecom, Samsung Electronics, LG Electronics,

ETRI, the Telecommunication Technology Association, and the Radio Research

Laboratory began to work together to develop WIPI, the Korea's proprietary wireless

internet platform. A total of 8 billion won (4 billion won for each of Phase I and Phase II)

was invested in the WIPI project for one year from July 2001. For a month from August

2001, SK Telecom, KTF, and LG Telecom jointly defined next-generation wireless

internet platform requirements after reviewing advantages of each of the existing

platforms.

In March 2004, WIPI was selected by the WIPI Forum as the official wireless

internet standard in Korea. Starting April 2005, all handsets newly released had to

support WIPI to promote penetration in the market.

Significance of Wireless Internet Platform Development

WIPI was developed under the support of the Korean government for technological

standardization and innovation of mobile telecoms operators. As WIPI is an open

standard to meet various needs of interested parties, it has been successfully

penetrated into the market. Mobile telecoms operators in Korea provided technological

expertise and know-how for WIPI based on their experience in developing their own

wireless internet platforms and services before WIPI was developed. In addition, WIPI

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accommodated technological differences and requirements of contents providers,

handset manufactures, and wireless internet platform providers including QUALCOMM

and SUN Microsystems as an open standard, laying the foundation for successful

market penetration.

The standardized wireless internet platform promoted content development,

helping Korea lead the global wireless internet market along with Japan and Korean

mobile content and platform providers advance into overseas markets. From 2003, a

total of 55 content and platform providers had entered overseas markets along with SK

Telecom, and sold their wireless internet platforms and solutions in 10 countries

including China, the U.S., the Netherlands, and Israel.

SK Telecom launched HELIO, a MVNO, in the U.S. market based on its expertise

on advanced wireless internet service. HELIO laid the foundation for Korean content

providers to advance into the U.S. market earlier than expected. Also, 23 partners that

offered wireless internet solutions including wireless internet platforms and download

servers were able to sell their products and solutions in the U.S.

Such joint efforts to advance into overseas markets created good opportunities to

prove technological prowess of Korea's IT start-ups in the global market. Difficulties

facing small content and solution providers in entering the global market have been

eased with global business model, where a mobile telecoms operator first builds a local

stronghold in other countries, and content and solution providers advance into

overseas markets based on the stronghold.

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In addition, WIPI has been the basis for developing killer contents for wireless

internet. Korean ICT companies in related fields join forces to enter the global market

based on expertise and know-how gained in the Korean market, and in turn,

achievements in the global market are applied to the Korean market. Such a virtuous

cycle has been created to help the communications service industry that creates higher

values added become a new engine for export growth of Korea.

SK Telecom has built R&D infrastructure for SMEs that try to advance into the

overseas markets. For example, SK Telecom has operated the ‘3G Reality Center’,

where GSM test network is built, and the ‘Mobile Test Lab’, where technology and

solutions of partners are tested on the real mobile communications network and

feasibility test is conducted, to support partners to enter the global market.

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2.3 Innovation of Convergence Service – Satellite DMB Service

As information and communications infrastructure evolves and the

communications market matures, ICT convergence has become a new growth engine

for Korea since 2000. SK Telecom has been leading ICT convergence innovation by

launching a variety of services such as MONETA, a financial convergence service,

Nate Drive, a telematics service, and TU, a mobile TV service, in order to provide

consumers with new values and to promote the ICT industry based on a new growth

engine. A good example of convergence services in Korea is satellite DMB, a

communications-broadcasting convergence service.

Overview of Satellite DMB Service

TU7 is a satellite digital multimedia broadcasting (DMB) service. It is a true brand-

new broadcasting service to help consumers access audio, video, and data anywhere

anytime from various devices such as cell phone, specialized DMB terminal, or vehicle-

based terminal. It is totally different from the traditional terrestrial DTV or satellite radio

broadcasting with fixed receptor, as broadcasting center on the ground sends various

multimedia data to a satellite, which in turn, transmits broadcasting contents to

handsets or vehicle-based terminal via a satellite repeater.

7 Satellite DMB service provider is TU Media, whose largest shareholder is SK

Telecom.

21

[Figure 7] Configuration of Satellite DMB Service

Currently, various mobile broadcasting technology standards including DVB-H and

MediaFLO are being developed. However, Korea became the world's first country to

commercialize satellite DMB and provided satellite DMB service since May 2005.

[Table 4] Comparison of Major Mobile Broadcasting Technology Standards

Standard S-DMB DVB-H MediaFLO T-DMB ISDB-T

Coverage Korea, Japan Europe, the U.S., Asia

U.S. Korea, Europe

Japan

Operator

TU, Toshiba, Samsung Electronics, LG Electronics

Nokia, TI, BenQ

QUALCOMM, Samsung Electronics, LG Electronics

Samsung Electronics, LG Electronics

Panasonic, Sanyo, Hitachi

Status

Commercial services by TU in Korea and MBCo in Japan.

Tests are conducted in France, the U.K., and Finland.

Tests are conducted in the U.S.

Tests are conducted in Germany and Norway.

OneSeg, an ISDB-T-based service was launched in the first half of 2006.

Program Provider

DMB Broadcasting

Center

Gap Filler

Ku-band(13.824~13.883 GHz) Ku-band

(12.214~12.239 GHz)

Handset DMB Device Car

S-band(2.630~ 2.655 GHz)

S-bandProgram ProviderProgram Provider

DMB Broadcasting

Center

DMB Broadcasting

Center

Gap FillerGap Filler

Ku-band(13.824~13.883 GHz) Ku-band

(12.214~12.239 GHz)

Handset DMB Device CarHandset DMB Device Car

S-band(2.630~ 2.655 GHz)

S-band

22

Satellite DMB Technology Development Overview and Major Issues

SK Telecom had a strong will to innovate service and significantly contributed to

developing satellite DMB service, the world's first mobile TV service. It recognized the

potential and importance of mobile multimedia service early on. Despite high risks

including lack of relevant laws and technological standards, SK Telecom decided to

focus its investment on commercial communications-broadcasting convergence service

for four years from 2001 to 2005.

SK Telecom laid the foundation for satellite DMB service by registering satellite

network internationally in 2001 and began to provide pilot service right after the

international satellite network registration. In October 2002, it reached a collaboration

agreement with Mobile Broadcasting Corp. (whose largest shareholder is Toshiba) in

Japan to launch commercial satellite DMB service.

SK Telecom also played a leading role in standardization of satellite DMB

technology in Korea. It supported in the Satellite DMB Standardization Committee,

which consists of academia, research institutes, manufacturers, broadcasting networks,

and government agencies under the Ministry of Information and Communication. The

committee evaluated various satellite DMB technology standards including five system

standards. At the time, European "System A" and Japanese "System B" were strong

candidates to become the technological standard. However, "System E" adopted by SK

Telecom was finally selected as the Korea's DMB standard in February 2003.

To promote the Korean IT industry, major system components such as

23

broadcasting center, gap filler, and receiver chip except satellite itself were all

developed by Korean companies, helping other related industries including handset

and gap filler manufacturing grow. In the process of satellite DMB technology

development, SK Telecom participated in the joint research on gap filler, supported

development and commercialization of H.264, the next-generation video compression

technology, and helped satellite DMB device and content providers advance into the

global market. In particular, in February 2003, SK Telecom established the ‘Handset

Development Council’, which consisted of 19 handset manufactures, to support

effective development and commercialization of satellite DMB handsets. The council

helped manufactures develop products of various types and prices, contributing to

promotion of satellite DMB service in the Korean market.

[Table 5] Localization of Satellite DMB System Components

Component Possibility of Localization

Note

Satellite Low Satellite

Launch Vehicle Low N/A

Broadcasting System

Middle PMS/APC and data

broadcasting devices are localized

Broadcasting Center

Station Middle TDM/CDM converters are

localized

Signal Processing

High Localized Gap Filler

RF High Localized

Chip Module High CDM and

compression/multiplication chip are to be localized Receiver

Receiver High To be localized.

24

Delays in enacting laws and regulations on convergence service were a major

challenge to commercialization of satellite DMB service. As satellite DMB service was

launched by Korea for the first time in the world, broadcasting laws and regulations had

to be first revised to allow for such a new service. However, the Korean Broadcasting

Commission and Ministry of Information and Communication had differences of opinion

on the scope and regulations of data broadcasting. 8 As a result, revision and passage

of laws and regulations were postponed, presenting a big risk to the successful launch

of satellite DMB service. In the end, the Broadcasting Act was finally revised in March

2004, when a satellite was supposed to be launched. Since then, satellite DMB service

providers were selected and broadcasting networks gained government approval for

convergence service.

Significance of Satellite DMB Technology Development

TU, a satellite DMB service, is one of the most successful convergence services in

the Korean ICT industry. It has promoted the Korean mobile TV market and made

Korea a global test-bed for satellite DMB service. After S-DMB service was launched,

the Broadcasting Commissions, broadcasting networks, and telecoms operators in

many countries including France, the U.K., Finland, the U.S., and China benchmarked

TU and showed interests in adopting satellite DMB service.

8 The Korean Broadcasting Commission insisted that data broadcasting should be regarded as

broadcasting contents and subject to evaluation of the commission. However, the Ministry of

Information and Communication was against the idea, saying that internet business would be

shrunk, if all data distributed via the internet should be reviewed by the commission.

25

As satellite DMB technology enables for personalized broadcasting service, it

creates more consumer demands than the traditional broadcasting technology based

on the unit of households. In the existing content distribution market occupied by

terrestrial, cable, and satellite broadcasting service providers, a new sector for mobile

broadcasting contents was created, contributing to expansion and growth of the Korean

content market. In addition, satellite DMB service promoted development of specialized

or differentiated contents and mobile broadcasting contents, offering more consumer

values.

SK Telecom has innovated services based on its satellite DMB technology by

developing mobile T-commerce and TPEG-based9 intelligent telematics service as well

as mobile broadcasting service. In March 2007, it made an alliance with CJ Home

Shopping to open a DMB shopping channel for TU. The DMB shopping is the world's

first two-way communication T-commerce, which allows users to purchase products on

the spot while they are watching satellite DMB. TPEG is a traffic and related

information service, where drivers can access real-time intelligence data on the fastest

path, traffic speed of the road ahead, best detour road, travel and weather, and traffic

accident rescue from their terminals via satellite DMB signal.

Satellite DMB service is a successful convergence service, which has encouraged

various interested parties including broadcasting networks, broadcasting content

providers, and the Korean Broadcasting Commission to effectively cooperate with one

another. The Korean Broadcasting Commission was responsible for selection of

satellite DMB service providers and revision of the Broadcasting Act, while the Ministry

9 TPEC: Transport Protocol Experts Group

26

of Information and Communication selected a satellite DMB technology standard and

gave a government approval to broadcasting networks. Such a close cooperation also

applied to TU Media. Media companies and handset manufactures have 9% and 12%

of shares in TU Media, respectively, to promote satellite DMB service, while SK

Telecom coordinates interests of related parties and promotes mutual cooperation as

the largest shareholder.

[Figure 8] Collaboration Model for Satellite DMB Service

In addition, satellite DMB service is one of the most successful service innovation

based on global cooperation, as SK Telecom has developed TU in collaboration with

MBCo in Japan. SK Telecom and MBCo decided to jointly own the satellite. In terms of

the number of satellite repeaters and coverage, SK Telecom owns 34.66% of the

satellite and MBCo has 65.34%. This joint ownership helped SK Telecom reduce risks

and cost in the early stages of satellite DMB business.

TU Media Corp

SKT

Program Provider

Korean Broadcasting Commission

Subscriberssatellite repeater

rental

satellite repeater rental fee

program fee

advertising fee broadcasting promotion fund

subscription feeservice fee

frequency fee

Ministry of Information and Communication

TU Media Corp

SKT

Program Provider

Korean Broadcasting Commission

Subscriberssatellite repeater

rental

satellite repeater rental fee

program fee

advertising fee broadcasting promotion fund

subscription feeservice fee

frequency fee

Ministry of Information and Communication

27

3. New Innovation in the Communications Industry Based on Korea-China Cooperation

As advanced ICT technology of Korea attracts a lot of attention from global market

players, R&D collaboration between Korean ICT service providers and global telecoms

operators has been promoted and expanded. SKT, the ICT leader in Korea, has led

global R&D cooperation and explored new service innovation in collaboration with

leading global companies such as Google, Yahoo, and Visa.

In particular, SK Telecom has cooperated with China to develop the next-

generation mobile technology based on its technological expertise on CDMA, CDMA 1x

EV-DO, and wireless internet platform. In August 2006, SK Telecom became the first

foreign communications service provider to make an MOU with the National

Development and Reform Commission of China to develop TD-SCDMA technology and

build a test-bed in Korea, laying the basis for another new technological innovation.

Based on the MOU, China and Korea will be able to develop an ICT collaboration

model for post-3G and 4G technology as well as TD-SCDMA, and share the benefits of

such a collaboration model.

After the MOU was signed, SK Telecom and the National Development and

Reform Commission of China established the Joint Service Development Center for

TD-SCDMA in China to jointly conduct a research on 3G multimedia and value added

services and related platforms. SK Telecom has also established and operated the TD-

SCDMA Test Center in Korea and tested TD-SCDMA technology and value added

services in order to improve TD-SCDMA network and facilitate TD-SCDMA

28

commercialization in China. In this regard, the TD-SCDMA Test Center has several

objectives: improvement of TD-SCDMA network, development of network management

system (NMS) for TD-SCDMA, development of TD-SCDMA-based LBS technology,

organization of the TD-SCDMA Industry Alliance in Korea, development of TD-SCDMA

handset platform, and development of platform for value added service (VAS). The

center also checks and corrects problems in advance in the process of TD-SCDMA

commercialization, and cooperates with the Joint Service Development Center for TD-

SCDMA in Beijing, China, to facilitate TD-SCDMA commercialization.

Based on such technology development cooperation, the TD-SCDMA Test Center

in Korea became the world's first institute to have successfully tested TD-SCDM-based

global video telephony between China and Korea, and interconnection between TD-

SCDM and WCDMA. Demonstration of global video telephony and TD-SCDM -

WCDMA interconnection laid the foundation for China to upgrade its TD-SCDMA

technology, and proved SK Telecom's superb technological expertise.

SK Telecom has significant experience developing and operating 3G technologies

such as CDMA and WCDMA, and hopes to share know-how and experience in TD-

SCDMA development. SK Telecom expects to significantly contribute to growth of the

Chinese communications market and globalization of TD-SCDMA in the future.

29

4. Lessons Learned from Innovation of the Korean Mobile Communications Industry

There are several factors behind a series of successful innovation in the Korean

mobile communications industry ranging from the world's first CDMA commercialization

to the global test-bed for TD-SCDMA.

First, top management vision for growth based on technology and service

innovation, and organizational commitment are the basis of the continuous innovation.

Korean mobile telecoms operators have not been complacent with the world's first

CDMA commercialization and continued to make an investment in R&D to create new

innovation. In particular, critical success factors include continuous investment

supported by top management with vision for innovation, and organization-wide

commitment for technological innovation as well as technological prowess to develop

world's first technology and service such as CDMA 1x, CDMA 1x EV-DO, and satellite

DMB.

Second, innovation has been made based on consumer needs, not technological

attractiveness, to provide more consumer values in order to maximize market adoption

of new service and to increase innovation potential in the market. It is well-known that

Asian consumers, especially Korean consumers, have higher adoption rate in new

communications technology and service than their counterparts in other countries and

regions. However, Korean consumers have also higher expectation of the quality of ICT

service and products. To satisfy the demanding consumers, Korean mobile telecoms

operators have thoroughly studied consumers' needs in every day life and designed

30

technology and service to maximize consumer satisfaction from the consumer-oriented

perspective.

Third, Korean mobile telecoms operators have cooperated with other service

providers in various industries and government agencies to maximize service values

created through innovation. Convergence between ICT and finance, broadcasting, or

distribution requires telecoms operators to closely cooperate with companies in

relevant industries and to get policy support from the government. In order to promote

convergence service, Korean mobile telecoms operators have made a collaboration

with relevant industries and government agencies, built convergence infrastructure,

shared technological know-how with other participating companies, and coordinated

interests among related parties, contributing to successful market penetration of new

convergence service.

Lastly, risk taking and perseverance to overcome difficulties in the process of

technological innovation and new service development are the foundation for the

Korean mobile communications industry to become an innovation frontier with

competitiveness edge in the global market. Self-conviction and strong will to overcome

challenges have helped Korean mobile telecoms operators move beyond import and

accommodation of technology and service developed by developed countries and

develop their own proprietary technology and service.

The Korean mobile communications industry is now focusing on the 4G network,

the most promising ICT technology in the future, and speeding up development of

31

cutting-edge wireless multimedia technology and intelligent network. It seeks to

reinforce collaboration wit other countries including China based on its advanced R&D

infrastructure, technological expertise, and innovation initiatives to lead the global ICT

industry.

32

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