Abstract

Streamlining of Billing Mechanisms

In the last few years, mobile phone operators in Korea have introduced a variety of low-cost charge rate tariffs. While the average cost of value-added services has been falling steadily, the different charge rate plans and complicated fee calculations make it difficult for subscribers to choose the best charge rate package. Recently, both KTF and SK Telecom have introduced monthly charge systems for their more expensive game and video services that combine content fees and transmission fees into a single payment. If this new type of billing system comes into more widespread use, this should help to stimulate increased take-up of mobile value-added services in Korea.

Innovative Service Packages for Product Differentiation

To differentiate their services from those offered by their rivals, Korean mobile phone operators have introduced a variety of innovative service packages that integrate different types of service. Examples include KTF's location-based SMS service, which combines text messaging with LBS, and SK Telecom's vibration ringtone service, whereby the mobile phone vibrates in synchrony with the ringtone when a call is received. SK Telecom is currently planning to extend the applications of vibration capability to include games and other services.

SK Telecom's 1mm intelligent interface service can be integrated with several other SK Telecom services. With this service, users can interact with cute animated icons when using different mobile value-added services, thus giving subscribers more enjoyable user experiences. 1mm service also keeps records of subscribers' usage habits, and makes recommendations accordingly as to which new SK Telecom services subscribers might wish to try using.

Acquisition of Content Providers

The main requirements for successful promotion of mobile value-added services are rich content and differentiated services. To maintain a steady supply of value-added service content, Korean mobile phone operators have maintained close collaborative relationships with the three leading broadcasters in Korea - KBS, MBC and SBS. As part of their efforts to maintain competitiveness and differentiate themselves from their rivals, the SK Group and KT Group have also been buying up content providers.

In 2005, the SK Group embarked on a major campaign to expand the range of value-added service content that it was able to offer to subscribers. In February 2005, the SK Group acquired a 20% share in IHQ, Korea's largest performing arts agency. SK then continued to gradually build up its share in IHQ, and by July 2006 had become the company's largest shareholder. IHQ is involved in a broad range of business activities, including talent management, film and soap opera production, game development, and music recording. Its subsidiaries include talent agency SidusHQ, game development firm Ntreevsoft, film production company iFilm, and soap opera production company Castle in the Sky. IHQ has been steadily expanding its operations in the content business, acquiring a 51.42% share in satellite broadcasting company YTN Media towards the end of 2005, and purchasing film production company Cerfilm in September 2006. To ensure a steady supply of music content for its Melon music portal site, in June 2005 SK Telecom acquired YBM, Korea's largest record company. The SK Group has also been negotiating with leading game development company NC Soft - the company behind the highly successful online game Lineage - to establish a mobile game joint venture. In addition, SK Telecom has set up a 50 billion Won (US$53.4 million) Entertainment Fund and a 20 billion Won (US$21.4 million) Music Fund to enable it to purchase additional content providers as needed.

The KT Group's member companies include satellite broadcaster Sky Life and digital content provider KTH (KT Hitel). KTH's business areas include portal site operation, m-commerce, and multimedia content. KTH provides most of the content for KTF's Dosirak music downloading site, and for the company's mobile gaming and educational services.

Responding to the SK Group's aggressive acquisition of content providers, in September 2005 the KT Group established the "KT Club Contents Association" to cultivate digital content production talent. The KT Group has also acquired SidusFNH, Korea's largest film production company, and has developed close collaborative relationships with other leading domestic and overseas content producers including Disney and 20th Century Fox Film Corp.

The main reason for KT and SKT's aggressive acquisition activities is the introduction of new technologies by these two companies, including HSDPA (High Speed Downlink Packet Access), S-DMB, and WiBro. With these new technologies, demand for digital content is much greater than it was with CDMA2000. The mobile operators have been forced to act aggressively in order to ensure a steady supply of content and to build up the entry barriers to protect themselves from competitors.

Opening Up of the Mobile Internet Portal Site Sector

In the past, operation of mobile Internet portal sites in Korea has generally used a closed model, whereby mobile phone subscribers can only use the portal site of their own mobile service provider; they are not able to access other parts of the Internet. In 2001, the KCC (Korea Communications Commission) began to examine a number of issues relating to the further opening up of the mobile communications sector. It was eventually decided that mobile phone subscribers should be allowed to access portal sites other than those of their own mobile phone service providers, provided that the portal sites in question agreed to pay network access fees to the mobile phone operators. This policy is aimed at stimulating the development of the Korean digital content industry and ensuring fair competition,  

In 2005, the KCC imposed heavy penalties on three leading mobile phone operators for obstructing the government's policy of mobile communications liberalization, hindering fair competition, and violating consumers' rights. The KCC has ordered the gradual elimination of the restrictions that the operators have in the past placed on mobile Internet access. As a result, mobile phone users in Korea now can access their mobile phone provider's portal site and then move from that site to one of the major Korean portal sites, such as Naver or Daum. The second half of 2006 saw the launch of a new mobile phone model provided with a special button to give immediate access to the Naver portal site.

Appendix

List of Companies