FTTH Content Business Case Study

And the FTTH Industry in Korea

Roxanne B Batson

Chairman, WSN TV 75, Inc.

205-601-5265

www.wsntv75.com

 Introduction

Korea is one of the most wired nations in the world, with over 85% of the population having access to broadband with speeds of 10 Mbps to 1000 Mbps.  This study involved benchmarking the successful development of information age business as the Korean people gained access to high-speed internet connectivity. 

Observation of the evolution of information age business in Korea following high speed fiber deployments will enable entrepreneurs in the US to model successful deployment of fiber to the home and development of information age business in America.

It is said that investing in economic infrastructure creates economic booms.  The US invested in the building of the Interstate Highway system in the 1950’s.  In the 1960’s the government invested in building rocket ships.  The technology developed during that time created a whole new economy based on space technology and computers.  In the 1990’s the US invested in the building of the Internet by wiring high-speed fiber to towns as part of the NII-National Information Infrastructure. 

Fiber was never brought up to the home, however, where people could actually use it.   Korea, a nation that was suffering under heavy foreign debt and poor economy, took action where others did not and created the first National Broadband Policy.  They began to invest for their future.  They began to invest in Fiber To the Home.

This is the result of that investment.

Korea Government Broadband Initiative

In 2001, the government of Korea and telecom providers became actively involved in bringing fiber to the home as a result of an initiative to improve the lives and circumstances of their people.  With a national broadband policy to guide them, Korea sought partners to underwrite the cost of deployment.  AIG Consortium, an American insurance company, contributed $1 billion toward the deployment project for one telecom provider, Hanaro Telecom.

The Korean government did not launch these projects in order to make a profit on FTTH.  Their motive was to enable business that would thrive in the future to develop.  By deploying a billion dollar project they were able to drive the cost of parts down so that fiber to the home became affordable for the masses.

With the government deployment projects, the incumbent telephone companies began to realize competition.  They began to develop deployment projects of their own in order to keep business so the government project has actually spurred fiber to the home deployments at a much faster rate than anticipated.  Many Koreans actually have a choice of 2-3 fiber to the home service providers.  Costs for the consumers have been very affordable due to triple play offerings of phone, video and internet.

The first installations of 100 Mbps fiber to the home began in Gunpo City, Korea in 2001. 

Installation of fiber to the home meant that Korean entrepreneurs could begin to develop online businesses at lower costs.  For example, to develop and distribute 1000 hours of

video or 1000 gigabytes of data online, entrepreneurs could invest in 2 CPU servers and deliver straight from their home for the cost of electricity.  That is approximately $100 per month to host and distribute content compared to the cost of renting servers located at fiber connected data centers for $10,000 per month.

Enormous cost savings meant the entrepreneurs could begin to compete with large-scale corporations at a nominal cost.  This vast difference in expense would make all the difference as to whether a home based entrepreneur would be able to conduct their business in a cost effective manner.

Surprising results of fiber deployments

The emergence of information age business in Korea has already begun to shape the new society. For instance, individual politicians no longer have the ability to rule Korean society when access to information is so prevalent.  Voters have a voice online and can express their satisfaction or dissatisfaction with individual issues rather than waiting for an election.

 Large companies are downsizing as they find it difficult to compete with the high expense of bricks and mortar and capital assets.  These things were necessary in the Industrial Age because development of physical product required warehousing of people and equipment.  Corporate offices became the norm, tied to plants and warehouses where product was produced, stored and delivered. 

However, information age business, that delivers digital products such as information and entertainment content can be conducted by one person from one home.  It does not require the capital asset base needed for industrial production.

As digital products began to emerge, many corporations involved in production and delivery of paper products were no longer needed.  Companies in Korea who are still tied to industrial age businesses are struggling with these issues and the result is continued downsizing and bankruptcies.  

Interestingly enough, real estate has been one of the victims of this move to information age business.  With companies downsizing and more entrepreneurs working from home, large office complexes are becoming obsolete.  Less employees means less capital equipment is needed to serve them.  Therefore, whole companies that required large complexes no longer need them. 

Real estate prices are falling, as much as 50% in some locations.  A number of large corporate office buildings or retail centers that will be empty can be converted to condominiums and apartments where young people in urban settings can live and work via fiber connection.   That will supply more homes for people at a lower price.  In the end, 20% of Korean homes will be surplus.

Outsourcing, joint venturing and home-based workers are becoming the source of business development.

Some areas of the country are experiencing renovation of old corporate buildings or new development of cluster communities.  These business clusters are technical parks where workers form communities that research and develop businesses that are enabled by internet connectivity such as games, videos, biomedical research, nano technology, environmental, IT, robotics, and education.  They can share multimillion-dollar facilities in clusters and work from their fiber-connected homes.

One of the beneficiaries of this move to information age business is, and will increasingly be, the environment.  As more people meet online, teach online, research and develop new products online, they are no longer required to drive in a car to a meeting, store, theater, office or school. 

Online conferences are becoming commonplace in Korea.   This is reducing automobile usage.  Emission from cars has been a major cause of air pollution.  Therefore, fewer cars on the road means less pollution and higher quality air.

Development of content based business

As entrepreneurs in Korea are emerging, content is produced at a rapid rate.  Content is still freely available in the US due to the fact that heavy content is not easily delivered on dial up, DSL or cable modem lines.  In Korea, where large files can be easily delivered, 90% of content is now sold.  Generic content is free.  Knowledge based, in-depth information or more highly developed content is sold.

Products are being developed around this content.  For example, one of the most successful online businesses in Korea today is character design.  Companies who make and sell digital characters and accessories for those characters are making billions of dollars from online sales.  Characters can be used for Instant Messaging, cell phones, games and web pages.  They are unique and customizable.  One character may have hundreds of accessories their owner bought online for $1-$2 each.  Feel like being a knight today?  That’s a whole different outfit with swords, helmets, armor and a horse.

Video on demand is also quite popular in Korea.  As technology and robotics saves people time, they are gravitating to the internet for their entertainment and education.

One example is a ballad singer named Jiyoung Paek from South Korea who has become an internet entrepreneur.  Last year she sang at a concert where 1000 fans came to see her in person.  At a cost of $50 per ticket, she brought in $50,000.  However, her VOD show generated $1 million income in just 7 days in January 2004.    Over 200,000 fans and consumers paid an average of $5 to view her show off of links on Korean websites.  The show was priced from $3-$9 depending on how many hours viewers elected to watch.  It was broken into 1 hour, 2 hour and 3 hour price/viewing points. 

$10 million income is possible from a single singer's show when 45 million Korean digital consumers access web sites in their homes through computers that average 15 Mbps Internet connections. 

The by-product of Fiber to the Home is economic revitalization with new and inexpensive telephone, television, internet and video on demand services and products. With FTTH, content is produced at an accelerated rate for millions of digital hungry consumers.

Forrester Research, a highly regarded research company, recently projected that by 2007, video on demand will attract 7.5 million users spending approximately $700 million annually with the total market for on-demand television weighing in at about $6 billion.  The Korean VOD market has already achieved this goal in 2004.

Business applications emerging in Korea will spread to the US as access to high speed becomes available.  Movies, once the domain of physical movie theaters or video rental stores will be delivered online.  A 2 ½ hour movie, for instance, at 100 Mbps speed can be downloaded in a minute versus 1-3 hours at 1.5 Mbps of DSL or Cable Modem depending on how many local users are online or the distance from the tower.

New business is also emerging in the biomedical and technical fields.  Fueled by the ability to work with other scientists, researchers and technicians across the country and the world, new products are being developed rapidly. 

In Chunchun there is a bio/content cluster that takes up only 4 acres of land, yet yields approximately $200 million dollars annual revenue.  These companies are producing everything from bird-flu medicine to animation for popular American television shows.  They are targeting to generate a billion dollars revenue each in 5 years by selling cancer bio chips and cancer drugs worldwide after FDA approval or by producing their own digital characters for television.

Educators have begun developing online courses at a rapid rate also.  The first fully online High School was announced recently.  Students will work from their homes and interact with the teachers by high-speed fiber to the home connection.   Teachers may teach hundreds of students at the same time because they do not have the physical limitation of a classroom.   Educators may begin being paid by students signing up online for their class.  Popular teachers will make more than those who are not so popular, turning teachers into entrepreneurs in addition to being educators.

Korea is participating in the massive development of information age business because they have the wiring that enables research and development of products built for the wired society.  They have become a leading manufacturer of flat TVs, LCD screens and computer screens, including plasma displays.   Mobile phones are another major industry.  At the end of last year, the country's mobile phone population stood at 32 million in a 45 million populated country. 

Current State of Affairs in Korean Fiber Deployments

Korea has become the world’s most enthusiastic adopter of broadband.  There are no 56K phone modem users left in Korea.  Not only do the majority of Korean homes now have broadband penetration, but there are 30,000 broadband cafes that rent hundreds of PCs by the hour so that all Koreans have access. 

One Korean government funded research center is developing a 1,000 Mbps triple play demo project by using E-PON technology.  Research and development cluster communities will continue to produce innovative products that will accelerate the speed while lowering the cost of internet connectivity.

Korean Photonic R&D center directors are now managing billion dollar budgets to develop FTTH parts cheaply for the world market.  They are developing 10 Gbps FTTH parts cheaply now.  The price will drop further by massive global deployment.

Development of Virtual Reality Based Business In Korea

Korea already has 10 Gbps Ethernetavailable.  This has been mixed with 10 Gbps Ethernet protocol and passive optic networks.  Their back- bone inside the community is 2,000 Gbps WDM-wavelength division multiplexing which is already operated successfully in the country.  The price has been lowered by making a module and then assembling it manually.  The module system is contained within one chip that has everything needed to operate.

These markets can be increased 100 fold by virtual reality that is more compelling than physical reality.  According to the directors of the research facilities that are testing virtual reality products, 10 GB fiber to the home will be needed to satisfy all the requirements of the average family who will use it for entertainment, operation of home appliances, education online, virtual reality and telepresense.

Virtual reality products require headsets and goggles, already available today, which enable people to feel as though they are actually seeing, touching, and interacting with virtual images.   For example, the travel industry is a trillion dollar industry, but virtual travel will emerge as an inexpensive and secure alternative.

There are 300 photonic companies in clusters within Gwangju city.  One of them produced a fiber home splitter and fiber home DWDM-dense wavelength division multiplexer with their own patents.  Their product reduced fiber home parts prices by using planetary chips.  Professors at a local university founded this company. 

Their cost can also go lower by more production capacity.  It required a 10 million dollar facility to produce 10,000 units monthly.  They built the facility themselves and dropped the price by producing more units.  They have the capability to produce as much as 30,000 units monthly as demand continues to escalate. 

This company, due to their low price and high quality parts, have already received some orders from US phone companies. 

The Korean government is responsible for companies such as this to start up by offering grants for research and development based on a match program.  The companies generally raise funds from stock or bond sales and then if approved by the government are able to receive matching funds.  By this way, the government is enabling entrepreneurs and improving their own economy.

By 2007, all the households across the country will be able to access between 100~1,000 Mbps broadband Internet. Korean condos and home buildings
are being designated as Super class who have 1,000 Mbps wiring, 1st class who have 100 Mbps wiring and 2nd class who have 10 Mbps wiring. 

Summary

South Korea's volume of electronic commerce increased almost 50 percent in the last year, with business-to-consumer and business-to-government transactions showing the largest growth. According to the National Statistical Office (NSO), e-commerce
transactions totaled 177.8 trillion won ($149 billion) in 2002, up over 49 percent from 2001.

The US market could be 20 times bigger than the Korean market when high-speed internet access is widely available.  But the Korean developers have a jumpstart on information age business and they are continuing to accelerate product development.  Korean made parts for fiber deployments are already being developed and sold to a global market.

No country in modern history has tried to do so much in such a short period of time. Because of this, South Korean has become a global information technology powerhouse. 

With 10 Gbps FTTH, dual CPU PCs and 21" LCD monitors and Virtual Reality goggles/data gloves for each person, the Information Age will blossom and Korea will be at the forefront of this evolution from the Industrial Age.  Korea is proof that creation of a national broadband policy and investment in a fiber infrastructure spawns economic development for a country and it’s people that results in prosperity.