Cellular mixed with WLAN could spell trouble: Korea Telecom is one of first to take the plunge into a territory U.S. operators are bound to explore

America's Network, August 1, 2004

SEOUL, SOUTH KOREA -- U.S. operators may be anxiously awaiting the arrival of converged cellular-WLAN phone solutions, but the future has already arrived, once again, here in South Korea.

Korea Telecom's One-Phone service, the latest converged concept to hit the market, may prove attractive to subscribers. So far, however, it has been met with a distinctly cool reception from the country's three other competitive cellular operators.

The concept of a convergent voice and data solution hit a promotional high note last year when Motorola announced plans to team with Avaya and Proxim to develop an IP phone that seamlessly roams for mobile network to LAN. "Users can move about inside and outside of their workplace and continue to conduct business as if they were sitting at their desk," says a Motorola spokesperson.

BARRIERS TO SUCCESS

But a host of issues stand in the way of commercial success. Battery power for the devices may be inadequate, and the general business case still appears incomplete. Even so, KT's launch should prove intriguing for those around the world anticipating a major windfall from enterprises seeking greater mobility.

KT's service, called DU, is expected to start at the end of this month. A KT official told America's Network that the company will start the service only on a small scale.

"KT is the only company pushing for this service. All other telecoms companies are against One-Phone service," says Cho Sung-ho, manager of LG Telecom's public relations office.

REDUCED COSTS

SKT, LG Telecom and even KTF (in which KT has a 46.7% shareholding and whose network is being used for the mobile call portion of the MU service) are not exactly applauding the move. "Our position is to wait and see what happens," says Cho. KTF officials say they have nothing to do with the service beyond letting KT use their network. DU is based on a CDMA2000 1x EV-DO portable handset operating on KTF's network, but it is Bluetooth-enabled and automatically switches calls from the mobile network to KT's local network whenever the subscriber comes within range of his or her landline's access device.

In South Korea, mobile calls cost eight to ten times more than local fixed-line calls, and some estimate that the service might help subscribers cut more than 20% off their monthly mobile phone bills. That's great news for consumers and also for KT, which controls around 96% of the country's local call market.

"There is only one possible beneficiary of this service, and it is KT," declares Sungbay Kim, chief spokesman of Hanaro Inc. "We fear KT's unfair competition, especially with number portability starting in Seoul and Pusan in July and August," he says.

Assuming that KT can successfully market what is basically a mobile service very different from its traditional businesses, this new mobile phone concept could prove very attractive. The impact on the market, however, is that it will basically siphon off a portion of any participating mobile operator's revenues into KT's coffers. This will strengthen KT and, at the same time, put pressure on the profitability of cellular operators.

One-Phone might look like a winner for KT, but it can only succeed as a service if KT has the cooperation of one or more mobile operators prepared to see a proportion of their revenues go to KT. With the MIC's current regulations, One- Phone isn't a value proposition for mobile operators unless there are large numbers of subscribers involved.

Meanwhile, KT plans to take its convergence concept a step further by launching another service offering with similar capability to wireless LAN subscribers.