Broadband: Lessons from South Korea

Page III: Connection speeds that Australians can only dream of are readily available to South Korean consumers and businesses -- thanks to government support for a massive infrastructure rollout.

"The crazy fans are really crazy," said Guilliame Patry, a Canadian national who moved to Seoul in 1999 after he became the world champion in "StarCraft," a real-time strategy game. He's now a well-known figure in South Korea, where as many as 30,000 people typically attend game tournaments.

Such cultural phenomena can be traced directly to the government's emphasis on the importance of broadband for the advancement of society in South Korea, as well as for its economic health. Part of that campaign involved Internet training for the portion of the population deemed likely to be left behind in the digital age.

About 10 million people fell into this category in the first round of the government's initiative, including stay-at-home wives, military personnel, disabled citizens, and even prison inmates. That program was ultimately expanded to practically anyone who wanted it.

Consumers began switching over quickly from their dial-up Internet access after 1999, prodded in part by better rates. Dial-up accounts were often charged by the minute, while broadband services were offered for a flat monthly rate.

Yet consumer demand was only one element in the broadband equation; the networks still needed to be built, and their services had to be affordable for most citizens. For this to occur, South Korea's government worked closely with providers, encouraging investment and coming up with a development strategy that was collective but still included a deep reliance on competition.

"The government made a decision to be very focused on this issue and set some very aggressive goals," said Laura Ipsen, Cisco's vice president of worldwide government affairs. "They worked with service providers to decide what the infrastructure would look like. Part of the plan included how the government and the private sector could help improve take-up rates."

Most of the country's consumers were already served by the dominant carrier Korea Telecom, but the government encouraged competitors with a low-interest loan program for companies that built their own broadband facilities. The program offered $77 million in two years alone, with a particular focus on rural areas.

The government offered other incentives for Korea Telecom. Once a state-owned monopoly, the company began the transition to private hands in 1993. But the government, which retained some shares until 2002, allowed the process to become final only on the condition that Korea Telecom bring broadband -- defined as connections of 1mbps -- to all the villages in the country.

As was the case with established US telephone companies, Korea Telecom was initially reluctant to cannibalise its profitable dial-up ISDN business. The company eventually plunged headlong into high-speed service over DSL and fiber-optic lines, but only after rivals got an early jump on the broadband market, beginning to offer widespread services in 1999.

One of these was a well-financed newcomer called Hanaro Telecom, which is now the second-largest provider of service in the country. In some cases, Hanaro offers services over Korea Telecom's telephone or cable lines. But it also has built many of its own fiber lines, so that many apartment buildings have two separate fibre strands in their basement, giving consumers a choice between services.