Bezeq deputy CEO and VP engineering and planning Paul Weissbach was one of those who accompanied Minister of Communications Reuven Rivlin on his visit to South Korea a month ago. Bezeq CEO Ilan Biran was originally supposed to go, but he remained in Israel, and Weissbach surveyed the South Korean market for Bezeq.
South Korea is a country in which there is competition against Korea Telecom (KT), the South Korean national telecommunications operator. KT once expressed interest in several Israeli tenders for communications operators, but nothing came of it. The South Korean communications market is currently considered one of the most attractive in the world, and Bezeq is very interested in seeing how competition has affected the local monopoly.
The South Korean ministry of communications has been opening the communications to competition since the mid-1990s. Three companies control 95% of this market in South Korea, and the leader is KT, the South Korean equivalent of Bezeq, with 3.9 million ADSL users, a 49% market share, and a $400 million net profit in the first quarter of 2002. Full privatization of KT was completed in June 2002; the state now has no stake in the company. KT’s current shareholders include SK Telecom – 11.34%, Samsung, and Microsoft (Nasdaq: MSFT) – 3%.
The second largest company is Hanaro Telecom, with 2.3 ADSL and high-speed Internet cable users, a 27% market share, 50% growth, compared with last year, but also a $40 million loss in the first quarter of 2002. The fact that Hanaro deals with both ADSL and cable gives its an advantage over its competitors.
The third company is cable TV provider Korea Thrunet, which has 1.4 million high-speed Internet cable users – a 17% market share. The company is currently undergoing major changes to make it profitable, including a new CEO and the sale of business not related to the Internet field.
For many, the South Korean telecom market is the future of the Israeli market in, say, three years. In the fixed-line telephony field, there is competition between three operators, one of which, KT, provides services on its copper wire infrastructure. A second company provides services on both copper wires and cable, while a third provides services on the cable network. In Israel, Bezeq may have only one competitor – the merged cable company, but Bezeq will face a similar situation to that now prevailing in South Korea.
During the visit to Hanaro Telecom, Shin Yoon-shik, the CEO of that company, said the company had conducted a successful test of IP cable telephony services, and commercial services would begin in October 2002.Yoon-shik added that the price would be cheaper than that charged by KT. Of course it will be cheaper – otherwise, how could there be competition?
One of South Korea’s most developed fields is ADSL high-speed Internet services. Weissbach could only look on enviously, and hope the Israeli consumer has similar requirements.
”It’s obvious that the entire development of South Korean communications, both the operators and the industry, is a result of the government’s guiding hand,” Weissbach sighs. “The decisions were made at the cabinet level, not by a communications ministry. I can’t say if it’s good or bad, but it appears to be a fact. This isn’t a new development – it’s been going on for 20 years.
”I didn’t get the impression from my meetings there that KT’s regulatory restrictions are looser and less restrictive than ours. They presented the integrated services of KT and its cellular company. I’m not sure we could offer our customers Pele-Phone services, for example,” Weissbach says, alluding to the structural separation required of Bezeq.
”Globes”: Bezeq is considered advanced for a conventional telecommunications company. What about KT?
Weissbach: ”You could say that both the operators and the industry in South Korea are very advanced, at least in the use of the network, control capability, and network management. On the other hand, I was surprised that 15% of KT’s switches are still analog.”
True, but that means that after they upgrade them directly to IP network-compatible software switches, they’ll have a very advanced network.
”They are testing this possibility. Obviously, they will upgrade to the next generation, not the current one, and it will probably happen next year. They’ll probably be one of the first companies and countries in the world in that respect.”
Is Bezeq also going in the direction of software switches?
”I can’t say. I’m convinced that if KT didn’t have 15% analog exchanges, they wouldn’t do this now. We’re still studying the matter.”
No handcuffs there.
Weissbach says he wasn’t “bowled over” by what he saw in Korea. “I didn’t see anything of substance that we haven’t thought of or handled,” he asserts. “In general, the South Korean model doesn’t apply to Israel.”
Does that mean that even though KT is very strong in a competitive market, Bezeq is at risk?
”I’m not saying that Bezeq is at risk. It’s clear that KT is in a very strong position. In my opinion, it’s because despite the competition, no one is stopping it. They’re not handcuffing KT, at least not in respect of the services and variety it provides.
”It’s presumptuous of me to spend an hour each in two different companies and then formulate theories about them. I’ll give you an example, though. I saw no home networking at Hanaro Telecom, which was part of every KT presentation. No one’s holding KT back on this issue.”
Do I hear a note of jealousy?
”It’s obvious that if revenue from voice services falls to any substantial degree, which is happening, you have to make up for it with data communications services. I asked someone in Hanaro Telecom whether they’re changing the regular payment for ADSL, and he answered no. I asked him how they deal with uncontrolled use of the network, and the lack of connection between the investment and the revenue.”
What did he say?
”He said, ‘Listen, we monitor network usage, and get very high revenue from content.’ Thanks to content, they’re guiding network usage in the right direction. In Israel, everything gets downloaded for the same money.”
Is cooperation between Bezeq and KT possible?
”I think it would be interesting to create a channel for transferring know-how between KT and Bezeq. I spoke a little with the VP who greeted us in the R&D center.”
Published by Globes [online] - www.globes.co.il - on September 23, 2002