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.

 

Slide 1. (Title Page)

 

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 3. (Map)

 

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.

 

Slide 5. State of Network Openness and Telecommunications Market

 

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.