Status Report on Korea's "Smart Phone Revolution"

An article in the Joongang Daily today reports that the "Smart Phone Revolution" in Korea is finally starting.  It was accompanied by the graphic shown to the left (click on graphic to see a full-size version).   Last year only about two percent of consumers used smart phones, defined as those capable of accessing e-mail or the internet and performing functions much like a small hand-held computer.  This year the percentage of smart phone users has risen to 22 percent.

Expert predictions when the Apple iPhone was introduced have been shown to be way off target.  For example, experts predicted that 1.8 million smart phones would be sold in 2010.  Now the predicted figure is up to 5 million.

Not surprisingly, the introduction of smart phones has been accompanied by a boom in wireless data transmissions.  This is not surprising because most, although not all of the applications on the iPhone and other smart phones, rely on internet access.

Worldwide Trends in Sales of Mobile Devices

CNET has an interesting report on the trends in sales of smart phones over the past year.  Overall sales of mobile phones increased 17 percent year on year.  However, smart phones showed a 48.7 percent increase as 54.3 million units flew off the shelves.

The most interesting data in the report were in Table 2 (click on the graphic here to see a full size version).  Note that ONLY the iPhone and Android phones increased their market share year on year.  The report notes that the first quarter of this year was Apple's strongest yet, helped in part by overseas sales from mature regions, such as the U.K. but also in new markets such as China and South Korea.

Gartner's forecast for the near term suggests that the most successful companies will be the ones that control an integrated product in terms of operating system, hardware and services.  To stay competitive, manufacturers must integrate hardware, the user interface, the cloud and social networks to continue to attract customers.  Enough said. The challenge for Korean handset makers and mobile service providers should be apparent.

Korea's RFID Plan

According to the Ministry of Knowledge Economy, Korea will introduce high-tech identification tags on steel, electronic and pharmaceutical products as part of its ongoing effort to enhance overall inventory control of its businesses.    As reported in the Joongang Daily, the effort, which will receive 5.1 billion won ($4.5 million) in state support, aims to attach radio frequency identification tags (RFID) and build related sensor network systems to maintain real-time accurate monitoring on various products.

The ministry said Posco plans to use 2 million tags on its steel products and help set up related information technology infrastructure for 17 affiliates. LG Electronics said 860,000 tags will be used within the year on its flat-panel displays, while another 5.9 million may be used next year on monitors.  The latest support measures are part of a larger effort by Korea to become one of the top three industry leaders in RFID and related sensor networks. 

The "Smart-Phone Wars" in Korea

A recent article in The Korea Times notes that "smartphones may get more pricey."  Wireless carriers are worried that the governments attempt to limit their marketing expenses (see my previous post) could cool the smartphone boom by making the devices more expensive.  SK Telecom, the country's largest mobile-phone carrier with a 50-percent-plus share in subscribers, spent an amount equivalent to 27 percent of its revenue last year on marketing expenses, while the number was 33.5 percent for KT and 30.6 percent for LG Telecom, the smallest carrier.

HTC's recently released Desire, which is generating significant buzz among the handsets powered by the Google-backed Android operating system, is priced at around 900,000 won out of the factory. But SK Telecom's handset subsides have the phones sold to customers at around 300,000 won, although the exact price depends on the monthly data plans they choose.

The Korea Communications Commission (KCC) is reportedly considering adopting a ceiling for the handset subsidies, limiting the amount to around 250,000 to 270,000 won per device. 

South Korea to Cap Telecom' Marketing Costs

The Korea Communications Commission (KCC), South Korea's telecommunications regulator said on Thursday that it will limit the amount telecoms companies spend on marketing in a move aimed at cooling intense competition and boosting profits in one of the world's most saturated telecom markets.  As reported by The Wall Street Journal, the KCC said that the country's major mobile operators --including KT, SK Telecom, LG Telecom --should not spend more than 22% of their respective revenues from fixed-line and wireless businesses on marketing.   The regulator said it expects the move, which takes effect from May, to lower total marketing costs to 7.03 trillion won ($6.14 billion) this year, sharply down from 8.02 trillion won spent last year.

In order to ensure companies follow the guidelines, KCC said it will conduct an industry inspection in June and take strict action against companies that have spurred marketing competition by giving heavy subsidies on handsets or offering free gifts.

The introduction of Apple's iPhone last Fall, followed by the release of Android and other competing smartphones have contributed to the increased marketing costs.  In other words, the current intense competition is part and parcel of the so-called "iPhone effect" or "smart-phone shock" here.

Assembly Speaker Urges Creation of IT Control Tower

As reported in The Korea Times, the Speaker of the National Assembly, Kim Hyong-o has reiterated the need to set up a control tower for information and technology policies.  "Korea needs a control tower that can oversee and lead the entire IT industry," he said in a radio program.  He contended that the IT industry has been treated as a byproduct of other industries, following the disbandment of the Ministry of Information and Communication in early 2008.  "We are facing a revolutionary moment, with the advent of smartphones, including the iPhone," he said. "We must quickly realize our failure to respond to the rapid evolution of the IT industry."

In February 2008, shortly after taking office, the Lee Myung-bak administration divided MOIC into the Korea Communications Commission; the Ministry of Knowledge Economy; the Ministry of Culture, Sports and Tourism; and the Ministry of Public Administration and Security. Certain functions of the information ministry were also taken over by the Ministry of Education, Science and Technology.

Korea's IT Trade Surplus Reaches New Record

As reported in the Joongang Daily, a new report by the Knowledge Economy Ministry shows that South Korea's IT trade surplus has reached record levels.  In April, Korea posted a record trade surplus of $6.71 billion in the information technology (IT) product sector, led by increased demand for semiconductors and display panels.  IT exports surged to $12.67 billion last month, the eleventh consecutive month the surplus has exceeded $10 billion.  Exports of mobile phones fell 28.2 percent to $1.75 billion, mainly due to increased overseas production by local companies as part of cost-cutting efforts.   Also, as mentioned in the last post, the popularity of the iPhone was an overall factor affecting the market for mobile handsets. (Click on the graphic to see a full size version.)

Smartphones lead hike in high-end Imports

A short, but very interesting article in this morning's Joongang Daily is titled, "Smartphones lead hike in high-end imports."  According to the Korea Customs Service, imports of mobile phones surged by 149 percent last year to $137.04 million, largely due to smartphones.  The Apple iPhone, released in Korea late last year, was responsible for most of this effect, as 72 percent of the mobile phone imports occurred in the fourth quarter of last year.  Moreover, imports of mobile phones rose by another 369 percent in the first quarter of this year from the same period a year ago.

Growth in other high-end imports is shown in the accompanying graphic (click to see a full size version of the graphic).

Yet More on the "iPhone Effect" in Korea's Telecoms Market

One part of the "iPhone Effect" or the "iPhone Shock" to the Korean market is becoming clearer.  An article in today's Chosun Ilbo is headlined "The iPhone Casts Clouds for Korean Handset Makers."  The article notes that Korea's mobile phone exports for the first quarter of 2010 were down 11.4 percent compared to a year ago, mainly because Samsung and LG are unable to compete strongly in the surging "smartphone" segment, led by Apple's iPhone and the Google-based Android phones.

This is just another strong piece of evidence that Korea's leading handset manufacturers and exporters bear a big part of the responsibility for the two and a half year delay in bringing the iPhone to Korea.  

The "iPhoning" of Korea

Jasper Kim had an excellent short article in the Wall Street Journal a few days ago, entitled "The iPhoning of Korea."   It reiterates a number of points made in earlier posts here, and adds a new one.  According to the article, mobile service providers balked at providing free WiFi service for the iPhone, something that had become commonplace elsewhere in the world.  Eventually, as we all know, KT provided free WiFi service to iPhone owners through its nationwide Nespot network.  I'd be pleased if any readers can elaborate on this point.  Did the issue of free WiFi further delay the iPhone's entry into the Korean market, after WIPI issue was taken care of?