The Arrival and Impact of the iPhone in Korea

-- By WookJinRha

The iPhone by Apple Inc. has been a strong emerging force in the world smartphone market for the past couple of years since its launching in 2007 and sold over 25 million phones worldwide. See http://iphonemeter.com. The iPhone arrived in South Korea last November with enormous attention and spotlight. It is expected to cause earthquakes within the mobile phone market industry, expand domestic smartphone market and pose a challenge to local phone manufacturers.

I. Mobile Phone Industry Situation in Korea

South Korea's mobile telecommunication market is an oligopolistic market dominated by three mobile carriers. Smartphones currently make up about 5 percent of 48.18 million cell phones in the country, which has approximately 48 million populations. Local phone manufacturers Samsung Electronics Co. and LG Electronics Inc. currently dominate the local market for cell phones, which together sell about 90%. See Report on Prospect of Telecommunication Market 2010 dated 15th December 2009 by Digieco http://www.digieco.co.kr/.

II. The Arrival of the iPhone in Korea

1. The Arrival

The iPhone began its launching in Korea on 28th November 2009 and the retail stores began its selling on 1st December. Like in US where the iPhone entered exclusive partnership with AT&T, Korea's 2nd leading mobile carrier KT Corp. became Apple's local partner. Around 65,000 people placed pre-orders before the official launching, and so far over 150,000 iPhones were sold in Korea.

2. Long Delayed Arrival

The iPhone has already been available in other Asian countries including Japan where it launched in 2008, and China in October of last year. Regulatory hurdles had delayed its arrival in Korea. The iPhone includes applications such as maps and direction finders which are part of the Location Based Services (LBS), and Korean law requires companies that provide such applications to obtain government permission. Final approval by the Korea Communications Commission came on 18th November 2009 with the granting of a license to Apple to offer LBS.

Why does offering LBS require govt permission? Is this for bribery, for regulation by domestic security, because of military paranoia, or for some other reason?

In 2005, Korea passed the “Use and Protection of Location Information Act” for the purpose of “protecting privacy from leak, misuse and abuse of location information, and establishing safe environment of location information to encourage its use (Section 1).” The Act distinguishes “Location Information Business” which collects location information, and “LBS Business” which provides services using location information. In order to conduct Location Information Business government permission is required, whereas for LBS Business just filing of registration. Apple Inc. applied for both Location Information and LBS Business, which they obtained.

III. The Impact of the iPhone

1. Subsidy Competition on Phones

The launching of the iPhone is likely to trigger once again exhausting subsidy competition on phones among the mobile carriers and phone manufacturers. KT is subsidizing estimated around 500~800 USD per iPhone, and as a consequence other mobile carriers and phone manufacturers are also planning to increase their subsidy on new phones in order to maintain competition. Korea has already experienced the overheated competition of the phone subsidy in the past several years, which led to constant administrative order and pressure by the government to limit the amount of subsidy that could be provided. Subsidy given out by Korea's three mobile carriers in 2008 totaled 1.7 trillion Korean Won (approx. 1.46 billion USD) which is about 77% increase from the previous year.

In late November 2009 just before the iPhone launching, Korea's leading mobile carrier SK Telecom and Samsung dropped the price of their latest smartphone Omnia2 by about 200 USD through subsidy and reduced retail price, in order to compete with the iPhone. This is causing a huge frustration among the customers who already purchased Omnia2 which launched only a couple of months ago. Customers within 14 days of purchase can receive a refund but in other cases there is no remedy.

Apple, who triggered this situation also faced similar issue 2 years ago. It dropped the price of the iPhone by about 200 USD 2 months after its launching. Steve Jobs closed out the matter by apologizing and giving out 100 USD Apple gift certificate to customers.

Isn't the market completely saturated? Subsidies are for the purpose of convincing people to throw away existing, functioning equipment.

2. Surge of Smartphones

The arrival of the iPhone is expected to increase the market share of smartphones in Korea’s mobile phone industry. Due to the iPhone, the mobile carriers and phone manufacturers started fierce competition surrounding smartphones for the market leadership, and are offering many attractions for customers to buy smartphones. From 30th November to 6th December last year which is right after the launching of the iPhone, smartphone sales reached around 80,100 which included 43,200 iPhones, and was about 18.9% of the total phone sales during the period. See Mobile Index Report dated 15th December 2009 by ATLAS Research & Consulting http://www.arg.co.kr/.

3. Mobile Content Revolution?

Many Korean consumers and analysts are excited by the arrival of the iPhone, for it introduces new method of providing mobile contents.

The conventional mobile contents were provided exclusively through the mobile carriers who controlled and restricted the types as well as standard of the mobile content services, and led to discontent of many users.

The iPhone in contrast provides applications from Apple App Store without going through the mobile carrier. The iPhone could provide diversity in the applications that were not provided in the conventional mobile content, yet it does not seem to solve the fundamental problem. The mobile contents that are provided in the iPhone will now be restricted and controlled by Apple, instead of the mobile carriers in the conventional system.

I don't understand whether "content" here means software for phone operation, entertainment bitstreams for playing on the phone, or services to be provided by nodes elsewhere in the carrier's network or on the public Internet. The analysis is different for each, I presume, and the iPhone, with its "you need a browser but you don't need a keyboard because I'm Steve Fucking Jobs and I told you so" technical limitations relates to the world differently than more human-friendly devices.

I would say that the “content” here means applications or entertainment bitstreams. In Korea for a long time, mobile carriers were making huge money through the applications and entertainment bitstreams they exclusively provided, and the iPhone has brought major threat to this structure. The iPhone has also brought an attention to the relative lack of wireless internet infrastructure in Korea, which is mainly concentrated on wired internet connection.

IV. Future Prospect

Recent report by a mobile market analysis company ROA Group expected the iPhone to do well in Korean market with sales to reach around half a million by this year's first half. The report also indicated that the existing smartphones in Korea which has MS Windows Mobile OS, have provided many people with horrible experiences regarding application expansion services. Due to these unpleasant experiences, MS Windows Mobile platform based smartphones will not be able to provide decent sales competition for the iPhone. See Report dated 30th November 2009 by ROA Group Korea http://www.roagroup.co.kr/.

Whether the iPhone will dominate the Korean smartphone market is unclear, with intense contention from the No. 1 mobile carrier SK Telecom and domestic phone manufacturers Samsung and LG, along with Google's Android based phone expected to launch in Korea early this year.

The iPhone effect is undoubtedly dropping the price of the high-priced smartphones, benefitting the customers. However, the overheated competition surrounding the iPhone could eventually come back to haunt the mobile carriers and phone manufacturers, shifting the their burden back to the customers.

This is informative, but it's not insightful. Okay, the iPhone exists, and soon everyone in Korea dumb enough to want one will have one, as is now the case pretty much everywhere else. But as usual the people stupid enough to want to live trapped in Mr Jobs' world isn't large enough: Apple things are sold to people who already have one. And whatever he makes next it, like the phone itself, can't be cheap enough to survive on its own. So whatever the future of technology is, he may be able to convince people that he represents it, but he can never be it. So we're still looking past "the earthquake caused by the arrival of Mr Jobs' self-promotion in Korea" to find out what the real determinants of the Korean technical future are.

Professor, I once again thank you for your comments.

---