korea case study - lte adoption

120140822 Exchange Day Korea LTE JSK.pptx

Case Study

LTE in Korea – Mobile World Champion


South Korea Country Facts

South Korea since 1960 is one of the fastest growing countries worldwide and has become the 12th largest economy worldwide

• Country area size: 99.392 km² (Germany: 357.168 km²)

• Population size: Approx. 50 million

• Population density: 489 people per km² (Germany: 226 people per km²)

• Largest cities:

• Seoul (10 mil.)

• Pusan (3.6 mil.)

• Incheon (2.5 mil.)

• 1/3 of total population

• GDP: USD 1.6 trillion (12th

largest worldwide)

• Gross salary avg.: USD 37k per year (Germany: USD 42k per year)


Mobile Network Development in Korea (1/2)

South Korea was the first country to reach 100% coverage of LTE and also introduced the first commercial offer of LTE-A worldwide in July 2013

• Market consists of 3 MNOs (1. SK Telecom, 2. Korea Telecom, 3. LGU+)

• Started LTE network building in 07/11 and reached 100% country-coverage within 9 months

• First country to commercialize LTE-A in 07/13 and increased LTE-A capacity in 06/14 to 225Mbps from 150Mbps (3x faster than LTE, 15x faster than 3G)

• Currently SKT working on commercialization of 3-band carrier aggregation LTE-A (450Mbps)

• Started research partnership with EU in 06/14 for 5G network development

2013


Mobile Network Development in Korea (2/2)

Nationwide coverage ensures being connected at high speed anywhere in Korea and 3-band carrier aggregation available end of 2014 with devices


OEMs / Carriers Value Chain

LTE penetration surpassed 50% of mobile users end of 2013 just within one year after introduction, a target penetration of 70% is estimated by 2015

• Data usage of LTE subscribers increased to an average of 2.1GB per month compared to 1.1GB for 3G users (Germany average 2013: 200MB)


Impact of LTE Roll-Out on Operators Financial Figures

LTE roll-out period heavily increased CAPEX investments of all carriers due to network costs as well as strong handset subsidization

• CAPEX investments increased heavily from 12-15% to 20-30% during LTE roll-out period starting in 2011

• Carriers also heavily subsidized LTE handsets to guarantee a large LTE-enabled base of smartphones to foster service adoption (USD 200-250 per device), which also negatively impacted EBITDA (SKT margin dropped from 34% in 2010 to 27% in 2012)

• This resulted in cash-flow decrease in 2011-2012, but 2013 showed signs of stabilization (also regulator intervention by capping handset subsidies to USD 240 max. per device)


ARPU Development Trend

As a contrast to other developed telco markets, Korea has achieved a top-line growth of 2% CAGR since 2012 influenced by LTE market introduction

Insights

• According to consulting firm Delta Partner, a ARPU growth of USD 3-4 is required to compensate for LTE investments

• All carriers were able to realize a strong increase in ARPU, Q1/14:

• SKT: EUR 30.70

• KT: EUR 25.57

• LG U+: EUR 27.39

• GER Avg.: EUR 25.00

• CQGR (Q1/12-Q2/13): 1-3%

• Carriers managed to upsell LTE packages, in SKT case LTE users spend 1.4x more than a non-LTE user


Korean Consumer Mobile Usage Behaviour

xxx

#1 Smartphone penetration 73% (#27 Germany: 40%)

59% of people are likely to subscribe to LTE in the next 12 months, compared to 17% in Germany (Deloitte, 2013)

15% regularly stream video on their phone compared to 3% in Germany (Deloitte, 2013)

51% use their smartphone for mobile banking (Nielsen, 2013)

43% use their smartphone for

mobile shopping (Nielsen, 2013)

Kakaotalk accounts for 20% of total smartphone

airtime becoming an ubiquitous part of Korean

life (avg. 156 msg. per person per day)

10 million IPTV subscribers in

Q2/14 (Netmania)

The Korean Mobile User…


Market Leader Profile: SK Telecom – LTE-A Data Plans & Options

In Q2 2014 SK Telecom has introduced the first unlimited data LTE-A plans into the market – 2 years after initial LTE introduction

Plan Name

Price per month (24m)

IncludedLTE-A Data

Voice Flat SMS/MMS

T&All 75 USD 60 8GB Unlimited intra + inter Unlimited

T&All 85 USD 65 12GB Unlimited intra + inter + fixed Unlimited

T&All 100 USD 76 16GB Unlimited intra + inter + fixed Unlimited

• After usage of included LTE-A data volume, users will be provided 2GB of data per day at LTE speed

• If extra volume is exceeded during a day, users will be offered data at an optimal speed as allowed in the network status

• All plans also include a range of services to further enrich customer’s mobile experience such as multimedia contents services for free including ‘B tv mobile’ and ‘Melon Mobile Streaming Club’ (largest music streaming service in Korea)

Additional options launched catering towards customer demand:

• Unlimited data option for commuters (USD 9/month): Between 7-9AM and 6-8PM users enjoy unlimited data (up to 2GB per day). Average work travelling time for Koreans is 55 minutes and SKT analyzed that up to 20% of daily data volume is used in these peak times.

• 24h data option (USD 3.50/day): During 24hrs of usage only 50% of regular data usage is deducted from monthly volume, useful when watching sport events in UHD or need for large file downloads


Market Leader Profile: SK Telecom – Additional Services ( )

In addition to standard MNO services, SKT successfully operates platforms that drive usage of high speed mobile Internet under SK Planet brand

Angles – Social Multimedia Service

HD video files filmed from different angles by up to four users can be edited into single file in the cloud then to be viewed and shared via mobile

SK Cloud Game

• Cloud Game allows smartphone users to access the cloud server and play the game without installing the game file individually.

• SK Telecom also introduced two tariff plans, dubbed ‘Cloud game pack’ and ‘Cloud game double pack’. The packs offer up to 1 GB and 2 GB, respectively, of data traffic per day. Subscribers will be charged KRW 5,000 for the 1GB pack and KRW 9,000 for the 2GB pack.

B tv mobile – UHD video service 11th Street – M-Commerce

40% M/S – 11 mil. app downloads – doubled Gross Merchandise Value in 2012 (EUR 60 mil)

T-Store

• Digital content marketplace with 17 mil. Users (2012)

• Focus on mobile games (60%), but also video, music and e-books

• Global expansion planned


Lessons Learned from Korea for Positive ARPU Development with LTE Launch

Fast roll-out combined with attractive LTE-content creating higher consumer willingness to pay achieved overall ARPU growth

GET THE PRICING RIGHT – REASONABLE AND ATTRACTIVE

DIFFERENTIATE THROUGH CONTENT – DRIVE USE CASES & CAPITALISE CONTENT

CONTROL DEVICE SUBSIDIESLEVERAGE LTE AS COMPETITIVE

DIFFERENTIATOR

• LTE proposition should be clearly differentiated from 3G data offering

•Objective is to upsell to customers who are willing to pay for better experience & access to broader value proposition (HD video, VOD, shared data plan)

• SKT priced top-selling LTE plan USD 7 higher than 3G selling plan, but initiated shift from unlimited data in 3G plans to capped plans to control traffic evolution and upsell higher data volume packages

• Important that consumers understand the value behind having a faster mobile connection by promoting use cases

• All operators define their value propositions with unique content differentiators with video being key (generating on top ARPU of approx. USD 10/month)

•With exclusive mobile broadcast rights on sports SKT strongly pushes its mobile IPTV offer

• Clear example of strong correlation between availability and price of LTE devices and LTE adoption

• Even though Korean carriers spent almost as much in device subsidies as in network CAPEX

• Early mover advantage of LGU+ (smallest carrier) allowed to capture a larger share of higher-value customers and gain revenue share


Jong-Seo KimIskander Business Partner GmbHPaulstr. 19 l 85737 Ismaning/Munich l Germany

mobile: +49.176.1057 4736phone: +49.89.99 650 86-1fax: +49.89.99 650 86-2

e-mail: [email protected] www.i-b-partner.com