APRICOT2000 IN SEOUL
February
28~March 2, 2000
KEYNOTE
ADDRESS
The
Internet Phenomenon in Korea
Sang
Hyon Kyong
Graduate
School of Management
Korea
Advanced Institute of Science and Technology
Seoul,
Korea
Thank you for the kind introduction.
Mr. Pindar Wong, Dr. Kilnam Chon, honored guests, ladies and gentlemen.
It is a tremendous pleasure for me to be taking part in APRICOT2000. It
is a special honor and pleasure to serve as its honorary chairman and to
address this distinguished audience as one of the keynote speakers. I would
like to take this opportunity to thank the organizers of the conference for
giving me this honor.
As the title of my talk suggests, I would like to tell you a little
about what the “Internet Phenomenon” looks like in Korea today. In short, not
unlike in many other places, it is a tidal wave, affecting everyone and
everything in a big way and all at once. It will leave the landscape
permanently changed. But, before I go into that, I would like to spend a moment
sharing with you my thoughts as to why and how such a thing could have been
possible.
Let me begin by telling you that I come from the traditional
telecommunications background; research and development mostly, but I also
spent some time as an executive at an incumbent telecommunications carrier and
as a telecommunications policy-maker in the government.
Last several years have been confusing and trying times for me, like, I
am sure, for everyone involved in telecommunications industry. And, today, we
all know that the culprit for those confusions and trials has been the
Internet, or more precisely, those of you here in the audience who caused and
helped the Internet to grow into what it is today.
I like to believe that the traditional telecommunications -- its
technologies and know-how, the ubiquitous and robust networks, its tradition of
public service -- contributed in making it possible for the Internet to get
started and to grow in its early phase. Yet, it is true that the Internet started
out from outside of the traditional telecommunications, and that the
contribution of traditional telecommunications to the early growth of the
Internet was a result largely of the instigation of something from outside of
traditional telecommunications -- often the political will to impose
competition, open access, and interconnection.
For those of us from traditional telecommunications background, with an
immense sense of pride for the past accomplishments, the fact that an
"outsider" is usurping the order and long-held value has not been
easy to accept. But, the harsh fact is that telecommunications is beginning to
be thought of in terms of, or as a part of, the Internet by exactly those
people the traditional telecommunications industry has valued most, our own
customers. I am overstating the case for the sake of making the point -- to
them, our customers, the Internet is all that matters; what some of us may want
to retain as a distinct territory for traditional telecommunications does not
matter at all, unless it has something good to offer for the Internet.
Slide 2. The Age of the
Internet
So, clearly, this is the age of the Internet. The Internet has won over
the traditional telecommunications. There does not exist traditional
telecommunications any longer, only the reborn, "new
telecommunications" centered around the Internet.
But, why and how did this sea change come about?
Perhaps my views on this are tainted by my background, but in any
event, I think it has a great deal to do with the "openness of the
network" and the policies of the governments that made such network
openness possible and effective.
The policies of the governments in large parts of the world that
encouraged network openness and interconnection have been a major enabler of, and
stimulant to, the success of the Internet. Indeed, throughout its evolution,
the Internet grew and prospered wherever government’s policy interventions
effectively enforced the opening of the basic telephone network to a large
variety of service and content providing new entrants. Who are these new
entrants? They are today's ISPs, portals, shopping malls, and indeed, all of
the so-called Internet businesses. Without them, what really is today's
Internet?
But, much more importantly, the "opened network" made
possible what we may call the "user-driven innovations".
The opened network afforded these new entrants, and their more
knowledgeable and aggressive customers to some extent, a vastly increased and
ready opportunity to experiment and try out ideas on novel and exciting ways of
using the network. Such experiments and tryouts, in turn, sparked a surge of
self-sustaining innovations. The emergence of the World Wide Web and the
further innovations it has stimulated and facilitated may be the most dramatic
examples. Such user-driven innovations, as opposed to ones that are
provider-dictated, undoubtedly form the basis of the strength of the Internet.
Here again, in my way of thinking, the governments played a crucial role by
keeping their hands off from what services can and cannot be provided by the
new entrants.
"As these innovations are driving the Internet to grow larger and
more potent, the larger and more potent Internet is affording expanded
opportunities and motivations to more and more millions of potential innovators
to innovate with growing ease and speed" -- this is an unbeatable
"self-reinforcing cycle". This must be what is behind the global
Internet Phenomenon we are witnessing today.
We are entering yet newer phase of the Internet evolution, spearheaded
this time by broadband and wireless access. The fulfillment of the promise of
digital economy requires that we make sure to retain, if not enhance, those key
building blocks that enabled the Internet to succeed in the earlier phases: the
network openness and user-driven innovations. I believe that the governments
must continue to play a role here also.
Slide
4. The Internet Phenomenon in Korea
Now, let me turn to the Internet Phenomenon in Korea. Having spoken of
governments' role in bringing about the age of the Internet, I will begin with
a few words on the policy measures the Korean government has taken to establish
the all important network openness. I will go on to the present state of the
resulting telecommunications market, to the state of the infrastructure
development efforts, and to the state of the Internet usage. Then, I will give
a brief summary of the ongoing policy undertakings to promote the Internet and
digital economy in Korea. Lastly, I will allude to what may be considered as
the “user-driven innovations” in action by way of mentioning some interesting
facts about the Internet scene in Korea.
Serious efforts at establishing network openness through deregulation
and promotion of competition in telecommunications industry began in 1990 in
Korea. A series of measures to deregulate the industry has followed. Nominally,
today, Korea's telecommunications market is deregulated and competitive, and
the basic communications infrastructure open. Maybe we have met the necessary
condition, but is it sufficient to sustain the self-reinforcing virtuous cycle
I mentioned a minute ago?
Effective deregulation, open network and a working competitive market
in telecommunications industry are, however, not easy goals to attain. I think
competition and open network have been made possible only in principle, and we
have a long way to go before we can make it actually work, make it real and
effective, and make it enforceable.
Fortunately, there are determined efforts on the part of the government
lately to establish a genuine market economy in Korea. Information sector
having been identified as the main thrust for endeavoring to regain the global
competitiveness of the Korean economy, a firmer establishment of open network
and a real, effective, and working competition in telecommunications industry
is receiving renewed attention. So, we await, with crossed fingers, some more
decisive actions by the government.
Slide 6. State of the
Infrastructure Development
Since the mid-1980s when elimination of waiting-list for telephone
services and full automatization of the network were accomplished, and
especially since the early 1990s when competition began to be introduced in the
telecommunications market, it has largely been possible to leave to the
providers themselves for adequate provision of infrastructure needed for
services for which substantial demand exists -- for instance, ordinary
telephony, low-speed data, wireless telephony, etc. It has been in the area of
broadband infrastructure believed to be an essential building block of the
digital economy for which certain government initiatives are thought to be
needed and are being undertaken.
The Korea Information Infrastructure (KII) effort is an important
government initiative directed towards an early deployment of broadband
infrastructure.
A high-speed, Internet protocol (IP)-enabled optical backbone network
will interconnect 144 major traffic centers by 2002. Digitalization of local
exchange networks throughout the country will also be completed by that time.
It is expected that a combined use of optical cables, ISDN, DSL, cable modems,
wireless local loops and direct satellite distribution will contribute to
upgrading local access. The objective is to be able to provide 1.5 to 2 Mbps
service to users located in most parts of the country.
Incidentally, I am not passing judgement on the advisability of
counting on ISDNs, DSLs, or cable modems for this purpose. Nor, I am endorsing
the adequacy of 2 Mbps delivery to the users. I am just relaying to you what
the program now endeavors to achieve.
The total cost of upgrading the network is expected to be about 10.4
trillion won until 2002, which will consist of government-borne and private
sector- borne components. A two-pronged approach characterizes the approach for
KII development: one is the government-financed “Public Sector KII” and the
other is the “Commercial KII” to be financed by the facilities-based providers.
In either case, the actual construction of the network is done by the
facilities-based providers. The government-borne component of the cost is for the Public Sector KII, and
is to be financed by budget allocations and proceeds from privatization of
government-owned corporations such as Korea Telecom.
Slide 7. Public Sector KII
The Public Sector KII development involves the establishment of a broadband
network to be used by government agencies, public sector organizations,
educational institutions, healthcare organizations, R&D institutions, etc.
As the Commercial KII develops, what may start out as the Public Sector KII
will be gradually integrated with it to provide seamless interconnection. In
addition to the construction of physical infrastructure, the Public Sector KII
effort includes certain support programs such as the development of
technologies and applications, demonstration projects, building of testbeds,
education and training, public awareness campaigns, institution building, standardization,
international cooperation, and regulatory reform and other policy initiatives.
I will have more to say about these initiatives later in the talk.
Slide 8. Commercial KII
The Commercial KII will be constructed competitively by the private sector
on commercial basis. It is anticipated that Commercial KII will develop through
evolution of existing infrastructures and timely incorporation of applicable
new technologies.
A number of facilities-based providers are engaged in expanding their
backbone networks based on ATM and optical WDM technologies and are
aggressively participating in the construction of new international links.
Again, I would like to remind you that I am not passing judgement on
the correctness of their approach to this based on ATM.
One of the government initiatives had to do with introducing
competition in the local network market. The second local services provider,
Hanaro Telecom, is targeting the broadband access market in collaboration with
the cable TV distribution firms for its initial entry. This has caused Korea
Telecom to expand its own efforts in broadband access market using N-ISDN and
DSL technologies. A leased-line provider, Thrunet, is also active in this
market. The competition in the broadband access market is fierce. There are
about 700,000 broadband Internet accesses in place in the country, and the
estimate is that this figure will reach 4 million, divided evenly between ADSLs
and cable modems, by the end of this year.
I see some concerned looks from the audience. ISDNs, ADSLs and cable
modems? I am quite concerned about it myself, but I trust it is a result of
tough business decisions on the part of the leaders of these firms.
In order to further enhance the conducive environment for private
sector to participate in constructing the Commercial KII, the government
continues to take policy and regulatory measures such as entry and investment
inducements, easing of various regulatory restrictions, investment credits,
business incentives, interconnection requirements, and the ground rules for
fair competition. But, I am afraid it still clings to the "Big Brother
Knows All" paradigm. Why not just let it go, period?
Slide 9. State of the
Internet Usage
Like elsewhere, Korea has experienced an explosive growth in Internet
usage in recent years. The growth in the number of domains, which is probably a
better indication of the growing commercial interests in the Internet, has been
300% to 400% annually during the last three years. Table 1 shows the growth in
the number of Internet hosts, domains and users.
Table
1. Numbers of Internet Hosts, Domains and Users*
|
|
93 |
94 |
95 |
96 |
97 |
98 |
99 |
|
No. of Hosts |
7,650 |
13,856 |
36,644 |
73,191 |
131,005 |
202,510 |
460,974 |
|
No. of Domains |
61 |
192 |
579 |
2,664 |
8,045 |
26,166 |
207,023 |
|
No. of Users** |
-- |
138 |
366 |
731 |
1,634 |
3,103 |
10,860 |
* End of the year, except "No. of Hosts" for ’99 refers to
that at the end of August.
**In thousands.
Source: Korea Network
Information Center (http://www.nic.or.kr)
Note: The numbers of
hosts and domains represent those of <.kr> ccTLD sites. In addition to
these, there are known to be a number of <.com>, <.net> and
<.org> gTLD sites operating out of Korea.
The sudden surge in the number of domains and the number of users in
1999 is particularly remarkable. The number of Internet users reached nearly 11
million, or some 23% of the population, making Korea one of the most
concentrated regions of Internet users in the Asia-Pacific. The eight-fold
increase in the number of <.kr> domains in one year will probably rank
Korea as one of the regions with highest Internet expansion in the world.
As of the end of 1999, there were 54 domestic ISPs providing Internet
access and other related services such as web-hosting, of which 47 were
commercial and the remainder non-commercial. The non-commercial ISPs provide
Internet access services to public sector organizations such as government
agencies, public institutions, schools and hospitals.
A large variety of new businesses have been and are continuously being
created by the Internet, and diversity, health and vitality of these businesses
will be increasingly crucial in sustaining a digital economy. Internet
businesses may be broadly categorized into three groupings: ones for which
Internet itself is the stage of their business such as portal services and web
home page design services; ones whose business is based on making use of the
Internet such as electronic commerce, distance medical care and education,
Internet phone services, etc.; and ones that are making the working of the
Internet their business such as wireline and wireless network operators and
network equipment manufacturers. Electronic commerce is widely believed to
emerge as the most important of Internet businesses.
Spurred by the explosive growth of Internet usage in recent years, the
Internet business in Korea has begun to expand rapidly. Numerous Internet-based
start-ups are entering the business, including hundreds of Internet shopping
malls. The daily trading volume at Kosdaq market, where the shares of many of
these start-ups are traded, has recently exceeded that of the regular stock
exchange where more established firms have their shares listed. Many large
established firms are also entering Internet business, often jointly with
leading foreign firms.
Several attempts to estimate and forecast the size of the Internet
business market in Korea have been made by market research firms lately, but
their figures vary wildly. It appears that the best estimate for the total
volume of electronic commerce in 1998 was 46.5 billion won, of which about 28.5
billion won was from business-to-consumer transactions. Lacking other means,
business-to-business electronic commerce was estimated on the basis of the
volume of trade using EDI services. EDI began to be used in Korea by some
import-export firms in early 1990s, but its penetration remains slow. Only
about 10% of import-export firms and about 1.5% of wholesale and resale trading
firms and manufacturing firms are estimated to be using EDI. Other
Internet-based business-to-business electronic commerce is only beginning to be
used by a limited number of firms.
All forecasts are generally in agreement that the growth in volume of
all Internet business will exceed 100% per year over next several years and
that electronic commerce will increasingly dominate the Internet business
market. This will conservatively put the projected total volume of electronic
commerce in 2003 at something in excess of 2 trillion won.
Slide 10. “Cyber Korea 21”
About a year ago, the government issued a blueprint entitled “Cyber
Korea 21” detailing the policy undertakings designed to better prepare the
nation for the digital economy. My earlier remarks regarding the promotion of
competition and the development of infrastructure form a part of the blueprint.
The stated aims of Cyber Korea 21 are to create a conducive framework for knowledge-based
society, to improve national competitiveness, and to promote better quality of
life. Let me just give you the flavor of the undertaking:
- Pursuing Global Standard and International Harmonization
- Promoting Computer Literacy
- Legal and Institutional Reforms
- Educational Reform
- Electronic Government; The CIO Council; and Informatization of Social
Infrastructure and Services
- Stimulating Private Sector Productivity Enhancement; and Creating New
Industries and Jobs
Slide 11. “User-Driven
Innovations” in Action
So far, I have told you about the various foundation-building,
undertaken by the government and the private sector, that have gone in to
promote and sustain the Internet development in Korea. You may wonder if they
have had the desired effect, especially in terms of spurring the all important "user-driven
innovations". I tend to think they did, to an extent.
I have already alluded to the remarkable explosion we have experienced
last year in Internet usage -- the number of Internet users is now in excess of
20% of the population; and we have seen 8-fold increase in <.kr> domain
names in a single year. I also mentioned that the daily Kosdaq trading volume,
led by the new "Internet stocks", has become consistently larger than
the trading volume at the regular stock exchange. We are also beginning to witness
the market capitalizations of some of the new Internet startups topping those
of well-known, well-established business giants.
For the few remaining minutes, I would like to tell you about several
recent phenomena, which I think are rather interesting. They are interesting in
themselves, but they are especially interesting to me because they seem to
indicate that, thanks to all the foundation-building that has been done, an
environment that encourages thriving "user-driven innovations" may be
alive and well in Korea.
Slide 12. Free Internet
Phone Calls
First, free Internet phone calls. Serome Technology, one of our
Internet startups, developed a Java-based voice-over-IP technology for
PC-to-phone communication. Using this technology, they offered the first truly
free Internet phone services in the U.S., last year, under the name
"dialpad". In about 20 weeks since the start, there are over 3.5
million users there. Similar service started in Korea in January, and in 4
weeks, more than a million people were using it. I understand the numbers are
still growing rapidly.
It is said that several other Korean startup firms are about to offer
their services using their own technologies.
Slide 13. Internet Plazas
and StarCraft Fever
Internet Plazas may not be a uniquely Korean phenomenon, but they are
surely thriving much better in Korea than in other places. Typically, an
Internet Plaza has 20 to 50 Internet-accessing PCs; it has a T1 or E1 link to a
local ISP. Youngsters come in to use the PCs for Internet access, to play
games, or whatever, at a small fee. There are over 13,000 Internet Plazas all
over the country. It is said that they have single-handedly created a very
large group of young, adept, and nimble computer-gamers, let alone a huge population
of sure-footed net-surfing youths.
Undoubtedly encouraged by the large domestic market represented by
these game players, there have developed major Internet game outfits in Korea.
Mari Telecom, Nexon and NCSoft are some of the better known names. And, the
fact that Korean players dominate in most global StarCraft competitions year
after year is surely not unrelated to this Internet Plaza phenomenon.
Slide 14. Cyber Stock
Trading
As of the end of last year, over 40% of the total stock market
transactions is done on the Internet. According to a recent issue of Time
Magazine, this is higher than the similar figure of about 30% in the US and is
most likely the highest in the world.
Slide 15. Popular Portal
A popular portal, "hanmail" of Daum Communications, another
Internet startup, has exceeded 6 million subscribers mark recently. Remarkably,
this is some 13% of the population. In comparison, America Online's membership
of 21 million represents about 8% of the US population.
Slide 16. Conclusion
In conclusion, let me just say -- very cautiously -- that the Internet
Phenomenon in Korea seems to be in pretty good shape now. Yet, I am eagerly
looking forward to somebody coming up with a good kick on our behinds so that
we can fly higher, which I think we are quite capable of. And, according to my
old-fashioned thinking, it will have to be our government.
Thank you very much for your indulgence. And, my best wishes for a
successful conference and pleasant stay in Seoul to you all.