SEOUL - A typical
South Korean graduate student, Lee Choon-han
spends most of his free time online at home, but
he is not satisfied with what he says are slower
broadband Internet connections. "I'm not pleased
with my Internet access speed these days,
especially when I download movie files," said the
25-year-old student in Seoul. Lee, hungry for a
faster connection speed, is now considering
upgrading the speed, for a higher price, or
switching to another operator.
Millions of
Internet-savvy young customers like Lee may be the
subject of intensifying courtship by Powercomm
Corp, which is set to provide an "ultrafast"
broadband Internet service at a low price starting
next month. The speed war between South Korean
broadband Internet operators
is escalating, with the high-speed Internet
wholesale company Powercomm entering the cutthroat
retail market from September. Powercomm was
formerly a unit of the state electricity monopoly
Korea Electric Power Corp. KEPCO sold a
controlling stake in Powercomm to Dacom in early
2003.
In South Korea, a country where more
than 75% of homes have broadband Internet
connections, the high-speed Internet is becoming
as ubiquitous as electricity, and most household
subscribers surf the Web at speeds of up to 5
megabits per second, considered blazingly fast in
most of the world. However, Powercomm, an unlisted
unit of fixed-line telephone company Dacom Corp,
plans to offer the ultrafast high-speed Internet
service with an announced connection speed of up
to 100 mbps, based on its nationwide fiber-optic
networks.
Connection speed is one of the
crucial factors South Korean users consider when
choosing their operators, and the speed of these
ultrafast services is almost 20 times faster than
today's conventional digital subscriber line (DSL)
offerings sold by rivals such as KT Corp and
Hanarotelecom Inc, which use copper telephone
lines. To stay competitive, KT and Hanaro have
already begun shifting gears to provide faster
fiber-optic broadband connections with speeds
comparable to Powercomm.
The Internet
wholesale company, however, has another weapon:
cheap pricing. Recently, Powercomm set the monthly
subscription price for the ultrafast Internet
service, called "Xpeed", at 33,000 won (US$32)
with a three-year contract, excluding installation
costs. The price is as much as 5,000 won cheaper
than those offered by KT and Hanaro, some analysts
said.
"Powercomm's entry into the retail
broadband industry is expected to spark a change
in the nation's saturated high-speed Internet
landscape," said Stan Jung, a telecom analyst at
Woori Investment & Securities Co in Seoul.
"Still, it is not clear how many new users
Powercomm will attract or win from its rivals, but
I expect about 600,000-700,000 customers to sign
up with Powercomm by the end of next year," the
analyst said.
But Jung said aggressive
pricing and faster connection speed might not be
enough for Powercomm to break into the saturated
market. "Inevitably, the latecomer needs to spend
more in marketing than its competitors and that
could prompt some smaller operators to bow out,"
the analyst said.
Paek Yong-dae, a
spokesman at Powercomm, declined to comment on the
company's subscriber target, saying its chief
executive officer Park Jong-eung will hold a press
conference on August 30 to explain this.
"Currently, we have about 15% of the leasing
market, and our customers include Dacom, LG
Telecom, Hanaro, Thrunet and SK Telecom," the
spokesman said.
To connect to the
ultrafast broadband, operators must install
fiber-optic cables to each home. The installation
is expensive, but customers are now benefiting
from the intensifying competition. Powercomm's
move is also fanning speculation on a merger
between Dacom, owned by LG Group, and Hanaro,
controlled by US investors American International
Group Inc and Newbridge Capital Ltd.
Yang
Jong-in, a telecom analyst of Korea Investment
& Securities Co, said LG and the AIG-Newbridge
consortium will eventually choose a consolidation
of Dacom and Hanaro because of each other's own
interest with Powercomm entering the retail
business. For LG, which has telecom laggards such
as LG Telecom and Dacom under its wing, a merger
with Hanaro would realize its dream to become one
of three strong players in the nation's telecom
market, after KT and SK Telecom, Yang said.
From AIG and Newbridge's point of view, a
merger with Dacom would allow the US investors to
recoup their investment in Hanaro, which they took
over in 2003 after it rejected LG's bid. However,
Powercomm's Paek ruled out any such possibility.
"Right now, it's just a scenario by some market
analysts," the spokesman said.
Officials
at LG and Hanaro declined to comment. "Powercomm's
move is especially bad news for Hanaro, which is
struggling to retain customers of Thrunet after a
takeover," said a brokerage analyst, asking not to
be named. To better compete with market leader KT,
Hanaro purchased the bankrupt Thrunet for about
500 billion won this year, raising its total
broadband subscriber base to about 4 million,
compared with KT's 6.2 million.
However,
Hanaro may have difficulty persuading Thrunet's
1.2 million users to extend their contracts after
the acquisition, given Powercomm's aggressive
entry, the analyst said. "Powercomm will become a
new name of the Internet in South Korea," reads
the company's prime-time TV ads.
