|
|
 |
Market incumbent and technology pioneer, KT Corporation, has announced US$3.1bn CAPEX guidance for 2006 despite a dismal revenue performance during its earnings call for the last quarter. One-third of this will be spent on upgrading infrastructure and deploying technologies that will help secure its long-term market position. KT has no choice—it has to spend and speed up its upgrade process.
In the area of convergence, the Korean market finds peers to match it. This in turn has increased competition, heavily impacting KT’s bread-and-butter circuit-switch based business. With HSDPA, WiBro, and WiMax becoming commercially available within the next year or two, the competition will further erode the profitability of the traditional wireline business. While these technological developments hasten the market’s transformation into one having ubiquitous connectivity, there is a strong case for stepping back and looking at how commercially available carriers will be in a market having multiple technological standards. Pyramid is cautious in viewing these developments with much optimism: While convergence’s twin promise of value creation and OPEX reduction can be exploited, the communications space remains a scale business and this will ultimately enforce a discipline among carriers in terms of technological deployments.
Despite lackluster performance in 4Q05, KT Corporation remains undeterred in realizing its broadband convergence network (BcN) objective. This year it plans to spend one trillion Korean Won (US$1.03bn) on technology enablers of its next generation network. In particular, two services are being planned this year to create a much-needed revenue growth avenue for the operator: IPTV and Wireless Broadband (WiBro). In particular, out of the three trillion Korean Won (US$3.1bn) CAPEX guidance for 2006, KT allocates KRW500bn (US$517m) on WiBro deployment, KRW50bn (US$52m) on IP Media with possible deployment within the year, KRW300bn (US$310m) on next generation networks (NGN), and KRW150bn (US$155m) on other growth areas (such as content).
KT’s IPTV offering is a much-needed defensive play for the carrier. Faced with a saturated broadband market and competitors that offer triple play services, the carrier needs an element to lock-in customers and thus maintain a subscriber base. Despite having the lion’s share of the DSL market, KT has been unable to offer triple play service on par with its cable competitors because of unresolved regulatory conflict between the telecommunications regulator and the broadcasting regulator. Both regulators contend IPTV should be under their respective provinces. However, KT’s outlook is positive that this regulatory difficulty will be resolved within the year and to commercially deploy its IPTV offering mid-year. KT expects a take up of around 2.5m subscribers by 2010. Certainly, as the incumbent DSL carrier, IPTV would allow KT to defend its subscriber base as a triple play service provider.
KT expects its WiBro offering to be its offensive play. Because WiBro’s addressable market are individuals on the move as opposed fixed broadband’s market (which are households), KT hopes to gain from the organic growth in the wireless broadband market. KT estimates the WiBro market to grow to a 10m-strong subscriber market by 2010, and of this it expects to take more than half of the market. Trials of the service show quality of connection comparable to wireline broadband connections. Despite being optimistic about the success of deployment, we are cautiously optimistic of WiBro’s growth: Depending on initial service pricing (KT roughly outlined a fixed + variable rate type of pricing scheme), there may be a negative impact on wireline broadband uptake as subscribers merely substitute wireline broadband connection with wireless broadband; more importantly however, WiBro will have to compete with HSDPA and Wi-Max services. The latter two will be standards deployed across the world, which implies that end-user device prices created to run on these technologies will go down faster as equipment-makers benefit from the scale of producing for a global market. In turn, this hastens mass-adoption of the newer technologies and will pose a challenge for the market success of WiBro.
Related Reports:
Transforming Telcos with IPTV: Business Models, Competition and the Content Challenge
Fixed-Mobile Convergence: Creating Value With Successful Business Model
WLAN-Cellular Convergence: The Carrier Business Case for WLAN, UMA and VoWLAN
Positioning WiMax: How WiMAX Stands Up To Cable, DSL, WiFi and 3G
|
