Korea and Japan both have the reputations of being two of the most wired nations in the world. Japan is number three in total number of broadband subscribers, with 26.5 million according to latest reports. Korea as well is fourth with 14.1 million broadband subscribers. The United States and China are first and second, mostly due to their overwhelmingly large populations compared to other countries. However, the profitability of investing so much money into Internet infrastructure is still questionable.
It is said that Japan's largest telecommunications company NTT has invested US$1.4 to $2.8 billion every year since 2004 to lay down state of the art fiber optic infrastructure. This meant of the 26.4 million Japanese homes receiving broadband, 8.8 million got speeds of 100 megabits per second. This is excellent for the users, but despite the scale of its investment, NTT's share price is not going up. Fixed-line telecommunications operators like NTT battled drastic price erosion through falling calling revenue. Some said that broadband investment was the answer to this problem, but now broadband services are also being subjected to falling revenue due to severe competition between telecoms companies in Japan and South Korea.
There is money being made in these Asian broadband markets, but not by the infrastructure companies, and definitely not enough yet to return a significant fraction of billions of dollars worth of infrastructure investment. This is what Horst Melcher, Deutsche Telekom's president and country manager for Japan, had for the Broadband World Forum Europe in Berlin recently.
Mr. Melcher said the challenge was offering services people were prepared to shell out money for. But even in the most advanced broadband markets, there was still a lot of guessing and searching for how to offer content that would eventually justify huge infrastructure investment. Furthermore, the popular paid services were provided by content providers or portals, not the fixed-line telecommunications firms, Mr. Melcher said.
In Korea, 88 per cent of Internet users had broadband. In this country, the most popular content bought online was music downloads. The average revenue per user generated from broadband customers was US$17 a month. Gaming is also popular, along with movie and television services. Other services on offer included e-learning and fortune telling. E-learning, through university entrance exam preparation, child education and foreign language courses, is a US$1.8 billion market, growing at between 15% and 20% a year.
CyWorld, a Korean community site similar to Myspace, has 20 million registered users in a country with a population of 49 million. CyWorld has also expanded to China, Japan, the United States, Taiwan and Germany. Mr Melcher also cited Hangame, a Korean online game provider with 25 million Korean members and 23 million in Japan. At any given time, it had more than 100,000 users online.
He also pointed to Gyao, a free- to-use Japanese video-on-demand site. Launched in May 2005, it had 15.3 million subscribers and made money by charging advertisers per page views. Finally, NTT's Internet telephone service, launched two years ago, had 3.8 million users paying a minimum of US$5 per month.
These were examples of profitable services, not loss leaders, Mr Melcher said. However, the Korean story is still not encouraging. Korea Telecom's operating profits in the third quarter fell by 7.2 percent this year. The company also quotes sluggish demand for telephone services and is looking to online services such as IPTV to bolster its profits. "We lost some subscribers and traffic for our telephony services as a growing number of people have shifted to mobiles and moreover the nation's high-speed Internet market is nearly saturated," a KT spokesperson said.
KT had secured 52.5 percent of the FTTH broadband for the year to date. "We are also set to increase subscribers of wireless broadband (WiBro) services to metropolitan areas," according to the official, adding the service has not been drawing much attention though demand is gradually seen to be on the rise.