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(Jan 2006) Thank you. Elliott Parker ====================================================================
A Comparative Analysis of the Broadband Policy: The US vs. South Korea ABSTRACT This paper attempts to simultaneously provide an answer to the following interrelated questions: Why is broadband more readily available in South Korea than in the US? It is found that the Koreans' rapid diffusion of broadband access is the result of combining the government's culturally-sensitive ICT policy that promotes both the supply and the demand of the broadband with Korean people's unique cultural traits including the sophisticated, hush-rush consumer behavior, the collective culture reflected in the combination of 'Baang' and online gaming, the sanctity of education, the densely populated living conditions, and the emerging dynamism in Korea. Five broader implications were drawn from this comparative analysis as conclusions. 1 1. BACKGROUND Broadband, or high-speed Internet access has not only been one of the most popular topics in the media but also one of the highest priorities in public policy and on political agendas at a global level. Policy makers assume that rapid diffusion of broadband would bring numerous benefits to society including global competitiveness. They share a common goal: making access to broadband services widely and rapidly available. However, they disagree with how to achieve that goal. As with other technologies, some view broadband adoption as a response to consumer demand, while others view the deployment as a push from the business side. Some argue that US government intervention is not necessary; while others lament that the US lags behind other nations in adopting broadband connections, and frequently blame the government for lack of a broadband policy. In March 2004, President Bush set a national goal of making high-speed Internet access available to every US home by 2007. The broadband adoption at US homes already surpassed that of dial-up in July 2004, reaching 51 percent of residential Web users (Reuters, Aug 19, 2004). In early 2005, however, FCC Commissioner Michael Copps argued that the US may be "the only industrial country on the face of God's green earth that doesn't have a national plan for broadband deployment"(Hu, Feb 28, 2005). To some US technology executives, the US information superhighway has turned into a "bumpy, two-lane country road"(Forsberg, March 13, 2005). In contrast, every so often a pundit or a journalist rediscovers South Korea and presents it as a broadband nirvana. For example, South Korea has been described as a "Broadband Miracle" by the Wall Street Journal (Aug 26, 2004), "Bandwidth Capital," 1 2 by Wired Magazine (Aug 2002), and as a "Broadband Wonderland" by Fortune magazine (Sep 20, 2004). In fact, Fortune said that it might soon be possible for Korea to exercise a strong influence over the future of communications just as France exercises great influence on wine and cheese (Fortune, Sep 20, 2004).1 Accordingly, Korea is "at the forefront of the broadband revolution, and everyone from telephone and cable companies in America to policy makers in developing countries wants to learn from Korea's experience" (Gamble in Shameen, April 2004).2 At one time, 25 percent of the world's broadband users were in Korea, and 10 percent were in Seoul. Still, however, not many try and write about how South Korea has become the center of the broadband world. Then, why is broadband more readily available in South Korea than in the US? Is government push more important than consumer pull? What are the major differences in regulatory policy and consumer characteristics between the US and South Korea in the area of broadband access to the Internet? We will look at the broadband phenomenon from two perspectives: communication policy and consumer behaviors in cultural contexts. 2. AN ANALYTICAL FRAMEWORK AND LITERATURE REVIEW A. Theoretical Positions There are two major theories on technology and society that have been particularly influential in new media research: diffusion of innovations and social shaping of technology (SST). They are sometimes characterized as competing -- even antithetical -- approaches to technological change. Both diffusion and SST address the origins and 1 See also "South Korea's Digital Dynasty" by CnetNews.com's three-part special report (June 23, 24 and 25, 2004). The McKinsey Quarterly (2004, No. 4). Broadband's future: Lessons from South Korea. 2 According to Chang-Kon Kim, vice minister for Ministry of Information and Communication (MIC) in Korea, "Everyone from the FCC in Washington to telecom policy making institution in Nigeria has sent delegations to study our broadband phenomenon." (Townsend, Feb 23, 2005). 2 3 uses of new technologies and the evolution and rate of related development. Although they differ in emphasis, both contextualize technology relative to human action, social relationships and culture (Lievrouw, 2002). The current study synthesizes perspectives from both approaches. It appears natural for communication scholars to apply the diffusion model in their investigations of the adoption of the new media mainly because it was formulated several decades ago from research on the spread of technological innovations. The diffusion of innovation paradigm provides a systematic demand side explanation of when and how newly introduced technologies are communicated, evaluated, adopted or rejected, and re-evaluated over time by consumers (Rogers, 1983 & 1995). The diffusion process is concerned primarily as a process of information exchange which is facilitated by mass media and by interpersonal channels within the social system (Rogers & Singhal, 1996). In fact, the diffusion of new information and communication technologies (ICTs) has been studied most extensively in sociology, communication research and economics, whereas technology has usually been treated as an exogenous factor in neoclassical economics. The diffusion theory treats innovation as a given3; it focuses on the effects or impact in social systems, emphasizes individual traits, assumes different technologies/ innovations are unitary and stable phenomena throughout the diffusion process, or depicts the process as linear. In so doing, the diffusion theory as a whole does not weigh socioeconomic influences as much as other factors that the SST approach takes into account. Several areas of theory and research coexist under the umbrella of social shaping 3 Fewer than one in ten new consumer products succeeds, according to Schiffman et al, (1997, 498). 3 4 of technology, with technological determinism as an inadequate explanation of social change. SST emphasizes the importance of human choices and action in technological change, rather than seeing technology as politically and ethically neutral. By emphasizing the influence of society on technology, rather than the reverse, SST has attempted to understand the complicated society-technology relationship. Although the direction of causality has been reversed in the SST perspective, this hypothesis is still a linear explanation of technology adoption and use. Actor-network theory (ANT) rejects both strong technological determinism, on the one hand, and the strong social constructivist argument, on the other. This approach considers people, technology, and institutions alike as forces that have equal potential to influence technological development. Neither technology push nor consumer pull can fully account for the shaping of technology. In other words, technologies and people alike should be treated as interrelated nodes in constantly changing socio-technological networks, which constitute the forms and uses of technology differently in different time and places for different groups. When we look at overall communications media from a research perspective, projections used to be made mainly by marketing firms even before the technology, or a medium, or service is available in the marketplace. Then, a medium was introduced to the market, the research interest move to diffusion/adoption patterns by both market researches and academic researches. Once the medium is in place, however, the research focus shifts from adoption to usage and effects. While both usage patterns and effects are favorite research topics for the academia, marketing researches seem to prefer usages to effects. Given this general research preference trend, it is quite natural not to have many 4 5 academic studies on the diffusion of broadband yet. B. Review of Literature Hausman (2002) examined current regulatory regime, which mandates wholesale unbundling of telco networks and retail price control while largely exempting cable from retail or wholesale regulation in the US. He found that Korean households have far more DSL connections than cable modems, while cable modems outnumber DSL connections in the US. One reason for this disparity is that the Korean telephone company is not required to unbundle its local lines to allow other companies to use its facilities to deliver digital service. On the other hand, cable companies can lease Korea Electric Power's infrastructure to offer cable modem service without regulation. Other reasons for the success of broadband access to the Internet are the service's low price and the built-in access in Korea's numerous high-rise apartment complexes. Han (2003) claimed that broadband is not just a new medium technology but also a PC-like enabling infrastructure which requires a broader interdisciplinary approach both in research and public policy-making process. He argued that both stepping-stones and stumbling blocks in the adoption process must be considered with a special attention to cultural variables such as different policy making models and different characteristics of consumers. Han also claimed that the role of government policy should be differentiated depending on the different stages of broadband diffusion process. Beardsley et al. (2003) examined broadband penetration at the global level and found that broadband is actually on track to become one of the fastest-growing consumer offerings ever in certain markets. In the US, broadband reached the 25 percent penetration mark more quickly than either PCs or mobile telephones did. They predict 5 6 that broadband Internet will become a more important marketing, sales, distribution, and communications platform for all industries; that media and entertainment are the industries most obviously affected by this trend; and that it is not yet clear what kind of content and services non-media companies might provide through broadband. Odlyzko (July 2003) argued that broadband is full of puzzles and paradoxes, which suggest caution before taking any drastic action. Despite the dismay over the slow pace at which broadband is advancing in the US, broadband penetration is extremely fast by most standards, faster than cell phone diffusion at a comparable stage. Considering the dynamics in the financial market, broadband access may arrive sooner than expected. However, fiber-to-the-home (FTTH) might not become widespread, considering the cost effectiveness of deployment and the monopoly potential as an omnibus pipe. According to Kwak et al. (2004), while narrowband and broadband technologies share the essential characteristics of new information technology, progress to a more advanced Internet technology should not be considered a linear transition. Instead, they argue, changes due to advances in the different stages of Internet connection are unique to each technical advance. They found that the main advantage of broadband over dial-up is in the domain of multimedia content where the speed of information flow makes crucial difference; thus, for consumers of mostly textual content, broadband could be just a matter of convenience. They conclude that broadband may not facilitate the "virtual circle," in the way that the news media further activate those who are already most politically active. This is because potential gains of the advance from narrowband to broadband are most likely to be in the entertainment domain. Ferguson (2004) analyzed a market failure and a policy dilemma broadband 6 7 technology in the US by focusing on the impact of structural problems not only in the telecommunications and media industries but also in political and regulatory systems. The author argued that the broadband deployment problem in the US is the result of a form of "crony capitalism" in what has remained largely a monopoly industry, and that the current federal policy-making and regulatory system has severe problems that make it politically, administratively, and logistically difficult to do better than the status quo. Under the belief that the overarching goal of any broadband policy should be the establishment of a competitive, open-architecture industry, 11 policy recommendations for achieving the policy goal are provided. As an effort to construct a framework for modeling the determinants of broadband penetration in the US, Flamm (2004) identified local telephone competition and state policy as the two most important factors affecting penetration of broadband into underserved areas. Paradoxically, income and population density, most often correlated with broadband penetration, seem to be among the least important determinants of broadband penetration. He also argues that the eRate program does not appear to play a statistically significant role in encouraging broadband use. C. The TPC Model Han (2003) proposed the TPC model - a simple model for the analysis of the adoption process of communications media in general and broadband in particular. A basic assumption of the TPC model is that technology is an extension of people, and that technology itself is a necessary but insufficient condition for the adoption of a new service. Therefore, we would look at not only supply/ push side but also demand/pull side, all in a cultural context. 7 8 [Figure 1] shows the nexus between technology as an industry, users as consumers and policy as an influence. All of these elements are affected by culture in a specific society. In this sense, this study weighs more on macro-level over micro-level analysis by taking a holistic approach to the relationship between technology and society. Covering micro-level analysis is beyond the scope and the purpose of this paper. Also, we cover only two parts of the three areas of analysis (P and C, not T) due to the limited space. But the comparative analysis of broadband from technological perspective is provided as a summary table in the appendix. HERE, [Figure 1]. Factors Affecting the Adoption of Broadband (See appendix) Technological progresses in ICT begin with a breakthrough in some form of basic hardware (including physical infrastructure), followed by a period before software/ applications appropriate for the hardware/infrastructure were developed. Once any electronic medium technology is introduced into a market, it must be infused with human expression – information or actual human beings. In a broader sense, technology is an extension of human life. While all the factors mentioned are interdependent, many are culture-specific, too. 3. PUBLIC POLICY A. Overall Regulatory Structure A series of competing broadband bills have been introduced in US Congress with the intention of sorting out competition and speeding consumer adoption of broadband Internet service. But the implementation of the US broadband policy is less likely to speed up the rule-making process due to the conflict between the 'constrained vision' and 'unconstrained vision' among the bills introduced and at other regulatory levels, bills like those related to Internet taxation and associated competition and regulation which reflect 8 9 the complexity of conflicting views, or rigidity, of the overall US regulatory structure under the tradition of check-and-balance and unique features of the US political system such high entry costs, lobbying and pervasive monopoly which have resulted in consumers seeing little in the way of competition and innovation in local phone and data services. Unlike the US, the executive branch comes first in Korea, and Congress follows. Within the executive branches, the MIC and the Ministry of Travel and Culture (MTC) are two leading policy makers in ICT including broadcasting. In theory, the MIC takes charge of deploying the overall telecommunications infrastructure, whereas the MTC oversees the contents thereof. In practice, these two ministries (and related parastatals) compete fiercely for hegemony in the policy making process. Competition among other Korean government branches has also been inevitable because the ICT is positioned at the center for funding.4 The MIC especially has been at the center of overall ICT projects. This seemingly undesirable competition also expedited the implementation of broadband. In the ICT sector, MIC strives to not only deploy telecommunications infrastructure but also supports the development of computer software including games. The MCT, based on its strong connection and experience with the media industries, has been aggressive in its promotion policy for movies, TV programs, and computer games. The other ministries are scrambling to offer different ICT projects. As a result of severe competition among the industry players and the government branches, Korea has become the best test-bed for ICT in a global sense. Unfortunately, or perhaps fortunately, the role of both Congress and court systems in Korea has been substantially limited compared 4 Governmental competition results in the redundancy of projects and balkanization of the budget and talented people as evidenced in the cable television and DBS policies in both Korea and France in the late 1970s and early 1980s (Han, 1998). 9 10 with the US. Instead, labor union has its unique power structure in political system. Emerging converged media services keep on providing new conflicts between different regulatory bodies. B. Broadband Policy vs. ICT Policy The FCC 's online homepage shows broadband at the top of its strategic goals (www.fcc.gov). While broadband deregulation legislation appears "mired in a legislative quagmire," the FCC has been taking numerous actions to promote competition and expand investment in the field of broadband (need citation). During the late 1990s, the FCC approved several large and controversial cable mergers. The center of contention then was whether the FCC would require large consolidate cable companies to provide unaffiliated ISPs with nondiscriminatory access to their cable distribution networks, a requirement modeled on Section 251. The FCC rejected the 'open access' arguments in favor of the cable companies promises to invest in massive build-outs of their networks; as a result of $95 billion network upgrade by the cable industry between 1996 and 2004, cable has had the upper hand in the broadband wars. In the Triennial Review Order issued in February 2003, FCC rejected similar arguments and accepted similar promises from the RBOCs in issuing a series decisions aimed at blunting cable's potential dominance in emerging broadband markets. (18 FCC Rcd 16978 (2003). In August 2004, the FCC ruled that loops serving primarily residential MDUs would be exempt from Section 251. Reaction from the Bells has been swift and high-profile as we see SBC's Project LightSpeed and Verizon's FiOS. In October 2004, the agency issued a decision designed to upset the cable/telco duopoly in broadband by 10 11 permitting utility companies to carry digital data on their electric wires, using a technology called broadband over power lines, or BPL. However, promoting the supply side alone can hardly be effective enough to accelerate the adoption process because broadband is not only a technology but also a utility-like service. Many US Internet users still do not view broadband as an absolutely necessary thing, so there is a basic demand curve at work. Customers must be able to see the value of broadband service, and businesses must be able to sell it at profit. The consumer has been largely ignored by the US regulatory policy makers as they traditionally focus on the supply side. In the 1980s and 1990s, led by pressures of technological change and by the example of US policy, Korean government began to privatize its Korea Telecom (KT) and to open its telecommunications industries to competition. The broadband policy implemented by the Korean government falls into three categories: (1) promotion of the technology development, (2) introduction of competition, and (3) training programs for both the technology-push side as well as the consumer-pull side. Instead of implementing the broadband policy independently from other policies, the Korean government has integrated broadband into the larger scheme of ICT policy. Korea was able to develop and commercialize strategically important ICTs. The first successful case was to develop TDX-1 in the 1980s. The success of this project enabled both the industry and the government to take on many large-scale technology development projects like CDMA, memory chips, TFT-LCD, broadband Internet access, satellite transmission equipment and digital TV. Along with the efforts to develop high- 11 12 tech industry, Korea adopted a competition model and revised and enacted a series of ICT-related laws.5 The introduction of competition among the industry players created the sudden surge of demand for ICT. The promise of profit making was a big incentive for the service providers to enter the market, thereby creating a fiercely competitive business environment. Then, by forcing incumbents to open their copper wires to other competitors, new entrants could offer DSL over these wires. While this policy encouraged the cable companies to compete against the telephone industry by offering cable modems, the bigger incentive for the competitive environment was the lending plan for the competitors at the lowest rate. Due to this competitive market environment, the service providers had little choice but to maintain low telecommunication tariffs, which attracted an enormous number of subscribers. Finally, the Internet training program under the Cyber Korea 21 Initiative provided a sufficient, but not necessary, economic condition for Korea to become the most highly wired nation. The MIC offered Internet and computer literacy programs to 10 million Koreans, including housewives, military personnel, the physically challenged and inmates in prison and juvenile correction centers. The government also provided certificate programs for the military personnel and inmates to facilitate a smoother transition upon reentry into civilian society. Such training of general population is extremely valuable and effective since it not only provides more certified technicians but also creates a huge market demand. 5 In 1995, Korea enacted the Basic Law on Informatization Promotion, followed in 1996 by establishing the Information and Promotion Fund. In 1997, Korea formed its first Inter-ministerial Informatization Strategy Council chaired by the President. The government also established the Electronics and Telecommunications Research Institute (ETRI) in the late 1970s for ICT research and development, and the Korea Information Society Development Institute (KISDI) in the mid 80s as a think tank for ICT policy. 12 13 The MIC also placed an emphasis on creating Internet-friendly classrooms at every level of schooling. This policy accelerated broadband adoption at home because virtually no parent could say no if their children who had experienced the fast-speed at school said broadband was good for education, especially given the extremely high fever for education and the "me-too" tendency amongst Koreans. In this environment, it was natural for the industry to train their own workforce. In the year 2000 alone, Korea Telecom trained 2,500 technicians to install DSL. C. The Industry initiative vs. the Government lead In early 2005, Silicon Valley technology chiefs proposed a seven point plan that the US lead innovation to stay ahead of countries such as India, China, Japan, and Korea. Each of the six principles in the proposal contains the industry initiatives, not government leadership, although they ask for government support. At the same time, big communications companies spent more than $1.1 billion in their efforts to elect lawmakers and influence the government over the past half a decade. The Center for Public Integrity found that the communication industry spent $957 million to lobby Congress and the FCC from 1998 through June 2004, compared with the oil and gas industry's $386 million. Traditional telephone companies spent the most on lobbying by ponying up nearly $500 million to influence government officials. Broadcasters spent $222.3 million, and cable operators spent $119.9 million on influence peddling (Boliek, Oct 28, 2004). The 4 Bells6 have given the White House, Senate, and House a total of $4 million in contributions in the 2004 election cycle, four times as much as the three big 6 These deep-pocked companies are essentially local service monopolies with strong ties to the communities they serve, and they employ battalions of lobbyists and lawyers across the country. Few industries can match the Bell's deep-touch approach, where company reps identify promising young politicians and support them as they rise. Bell reps are so rooted in their communities that many of their employees run for local office. 13 14 long-distance carriers combines, according to the Center for Responsive Politics (Yang, June 15, 2004). In South Korea, the government, rather than the industry, made an all-out effort to nurture the ICT sector and digitize the nation. As James Larson at the Fulbright Commission notes, crucial policy decisions by top technocrats, who were educated in the US and returned to Korea to work in the telecommunications field, were vital for the rapid deployment and uptake of broadband in Korea (Broadband Internet, May 14, 2003).7 One of the most successful policy cases occurred in the 1980s, when it invested $40 million to develop TDX-1. In 1996, Korea was successful in making the CDMA technology a commercially viable mobile communication system after a five-year test. Korea became the first country in the world to commercialize the third generation of mobile communication service (CDMA2000-1x). This technological advancement could not have been achieved without strong and passionate leadership by the government combined with the diligence and dynamics of the industry. Despite the rapid changes in technology and diversifying needs in connecting people and businesses, Korea Telecom commanded the most powerful position in the telecommunications industry until the mid-1980s. The Korean government launched three-step restructuring plan in July 1990 to boost competitiveness in both fixed-line and mobile markets through deregulation and the affirmation of free market principles. Under the initiative, Dacom and Korea Mobile Telecommunications, now SK Telecom, were established to offer data and mobile communication services, respectively. Korea 7 Many corporate regulations have been eased in many other ministries after the 1997-98 financial crisis, whereas the MIC still has "visible hands" to control telecommunications industry. 14 15 Telecom was encouraged to focus on its fixed-line business. As the number of mobile phone subscribers outnumbered that of fixed-line customers in 1999, KT responded to the faltering fixed-line performance immediately by upgrading its own network, which contributed to the successful uptake of broadband Internet access.8 The foundation of Korea's broadband success began when the government took aggressive steps to spur the nation's telecom industry by establishing a Basic Plan for the Korean Information Infrastructure (KII) project in 1993. In particular, a sense of urgency during the IMF crisis in 1997 and 1998 spurred Koreans on to new technology even more aggressively, because they sensed the old economic model had failed them. As a solution to overcome the crisis, broadband, a new infrastructure, created a new market with new demand for modems, routers, servers, and computers.9 However, there are tremendous conflicts among the stakeholders, particularly in the area of emerging media such as IPTV and DMB.10 8 In fact, the government wanted Korea Telecom to continue handling the data and mobile businesses, but KT did not accept the government original idea because of the business uncertainty. Ironically, however, SK Telecom emerged as KT's biggest competitor. 9 The government spent billions of dollars building a fiber grid, reaching schools and government buildings, and offered another billion in financial incentives to phone companies that strung broadband links to homes. The national network accounted for 13.5 percent of the country's economy during construction. In addition, Korean people took advantage of the busting of the US tech bubble in 2000 to buy equipment on the cheap from the likes of Nortel, Juniper Network, Cisco Systems, and Riverstone Networks. 10 Digital multimedia broadcasting (DMB) enables users on the move to enjoy crystal-clear video, CDquality audio and data through hand-held terminals like cell phones and PDAs. Two versions of mobilityspecific broadcasting - satellite-based (S-DMB) and terrestrial-based (T-) DMB – are competing with both services due in May 2005. T-DMB is expected to start the mobility-specific services with a maximum of 6 video, 18 audio and 3 data channels in 7 different areas from May 2005. At the end of March 2005, the KBC selected six DMB licenses: three for terrestrial broadcasters (KBS, SBS, and MBC) and three other players (YTN, KMMB, CBS) (Free-mobile B, March 28, 2005). T-DMB is offspring of DTV transmission format disputes and basically it was devised to enable people on the move to enjoy digital TV programs. Korea opted for a US format as a national standard in 1997 but a handful of over-the-air broadcasters took issue with the system's inability to send signals to mobile receivers and suggested alternative European system in 2001. After a three-year futile standoff, the government and broadcasters agreed to introduce T-DMB for mobile watchers while maintaining the US format as a DTV signal standard. 15 16 4. CONSUMERS Broadband use: Broadband access is available to practically everyone in the US. However, less than 40 percent of over the 107 million US households have purchased DSL or cable modem service. So it appears that the US broadband adoption is less relevant to availability alone. Then why does it take longer or slower than expected to adopt the service? According to a study done by Yankee Group, the top reasons for subscribing to broadband are: not tying up the phone line (52 percent) and wanting a significantly faster connection to the Internet (51 percent) (Bischoff, July 2002). A survey by the Pew Internet and American Life Project reports that broadband users value speed itself and convenience rather than content. In addition to consumers' pricing sensitivity (Harmon, June 2002; The hard sell, Feb 2002; Bischoff, July 2002), Rappoport et al. (2002) concluded that although socioeconomic factors including income and education levels are important determinants of broadband Internet demand, Internet end-use factors are also important. In contrast to the US, seven out of ten (31.6 million Internet users out of 45 million people aged six and above)11 South Koreans go online periodically, according to a MIC study released in January 2005.12 While youngsters led the Internet fever in the past, people in the 40s and 50s spearheaded the year-by-year hike in 2004, although few new users were added in 2004 to those aged between 6 and 29, which reached to 95.8 11 This 70.2 percent rate would be translated into a 65.2 percent of ITU standard which compares Internet users from the overall population. 12 See http://times.hankooki.com/1page/200501/kt2005013115512610230.htm; http://inews.mk.co.kr/CMS/headLine02/headLine01/6390277_5247.php 16 17 percent. Other research shows that the average South Korean Internet user spends an amazing 1,340 minutes a month online, compared with 641 for an American. Pricing and Housing: The Vice Chairman of Verizon at the 2002 Supercom said that DSL prices could be 30 to 40 percent higher than they were if the carrier based its prices strictly on the cost of providing the service. The housing preference of US consumers is closely related to the carrier's cost sensitivity of upgrading local loops. A study shows that 55 percent of US rural ILEC PoPs (Point of Presence) are more than 70 miles away from the closest backbone provider node. This is interpreted that backhaul costs range from $53 per line at 5 percent penetration to $36 a line at 15 percent DSL penetration (Kim, Dec 2001). South Korea's 15 million households are highly concentrated in several metropolitan areas in the land of 38,000 square miles – only 1/100th the size of the US or 4 percent the size of China, Almost one fourth of the Korean population resides in Seoul. More than half of the population lives in some form of MDUs, mostly in high-rise apartment complexes. The result of quick, cheap and easy installation of infrastructure was led to fierce competition between cable and DSL providers – over 2 million DSL connections were installed during the year 2000 alone, resulting in subscriber fees of less than $30 a month, compared to almost $50 in the US. Top Korean broadband carriers reached break-even points soon by reducing the installation cost from $700 per DSL line in the initial stage to less than $100 as subscribers increase. However, high population density or small size of Korean territory alone can hardly be the contributing factor for the rapid deployment of the broadband. Canada with its huge land and small population, is still far ahead of the US. 17 18 Meanwhile, the broadband access in the US has been adopted as quickly as even the non-networked technologies. Studies show that US consumers are adopting the broadband service at a faster pace, compared to CD players, cell phones, color TVs or home video players. Broadband access in the US reached 15 percent level within 4 years. It is important to remember here that these technologies do not require any networked infrastructure.13 The claim of "slow adoption" is valid only when the number is compared to other countries such as Korea, Germany, Sweden, Canada, etc. Consumer Preference/Behavior: South Koreans have very sophisticated consumer tastes and preferences. Sales of premium whisky are increasing with double-digit growth rates. Premium shampoos have also taken about 30 percent of the total market. Premium priced anti-aging cosmetics have positioned as strong players in the market. Then, it is not surprising to find that multinational cosmetic firms regard Korean women as one of the most difficult consumer segments due to their sensitive and delicate preferences (Kwon, June 2002). When it comes to mobile applications and gadgets, Koreans are more delicate than Europeans and North Americans. The public beta nature of Korea's technology consumption can be found most vividly in cell phones, on which replacement rate runs an estimated 6 to 18 months. Competition among cell phone manufacturers to bring a new model to market is really intense. The cell phone market in Korea is six months or a year ahead of the rest of the world. Even American companies' early market is going to be South Korea, if they want to innovate. 13 As Susan Hadden (1991) claims, adoption of post-infrastructure technologies (those that draw on existing connections and wires at home) occurs at a more rapid rate than for the three technologies that require new wiring (electricity, telephone, and cable TV. 18 19 American and Korean culture differs not only in language or meals but also the way they use cell phones. Cultural differences in audio and text-based communication via cell phones will be even more diversified and widened as 3G phones are adding pictures and moving images to the current differences. Education: Korea's high and sustained level of investment in education provided both the technical expertise needed to build telecommunications infrastructure and industries as well as social and cultural environment suitable for rapid adoption of new communications tools and services. The ratio of education cost to the total consumption expenditure among South Koreans reached 5.8 percent in 2003 (Per-Capita education, April 5, 2004), compared with Americans' less than 2 percent in 2003 (Johnson, Feb 7, 2005). In 2004, 390,000 South Koreans' spent $51.5 billion for education in abroad (Education service, Feb 7, 2005). Then, it sounds natural that crucial policy decisions by top technocrats, majority of them were educated in the US and returned to Korea, were vital for the deployment and uptake of broadband in Korea. Baangs and Games: The seemingly overnight emergence of online gaming serves as a successful case study in South Korea's drive to strengthen its flagging economy with new technologies. An unprecedented program to build a national broadband network has provided the fast Internet connections required for online gaming to thrive. In just a few years, online games have become serious competition to movies for mass entertainment in South Korea. Internet cafés, called PC-baangs, are popular hangouts and are credited for the real power behind the success story of South Korea to be the world's hotbed of online gaming. While baangs are popular with gaming clans today, the notion of third spaces 19 20 and rented rooms go back to tea bangs in the 14th century, pool bangs flourished in the 1960s, and sing-along baangs today. Koreans are not about me doing some thing, they are about us doing things together. The paradigmatic example is a cell phone that has a deal with an online video game, and has a one-touch feature to alert your friends if you're online and it will SMS them, telling them where you are in the online world and that you need help. Homogeneity and Dynamism:: The transition of the country from people of "white clothes" to "red shirts" marks a change from politeness and calm in the past to passion and dynamism in contemporary society. Korea was once called the land of the morning calm, but the fans at the 1988 Seoul Olympic Games and at World Cup 2002, amongst other relatively recent events, have challenged that narrow characterization. The dynamism of Koreans can be found not only in the ICT areas but also in all popular performances, including music, TV drams and movies. 5. IMPLICATIONS The following four implications were drawn by examining the experiences of both policy push/supply and consumers pull/demand in the US and in South Korea, • The government's role in the adoption of the high-speed access to the Internet Despite ongoing debates on the role of government in the diffusion process of broadband, it is critical for the government to provide not only the infrastructure but also a "fertilized soil." Therefore, the broadband gap between the US and Korea can better be explained by ideological differences in policy-making, a cultural preference for speed itself, and by the "do-everything-together" climate among Koreans. However, Korea as 20 21 the ICT dynasty could have not been a reality if the government had not cultivated such fertile soil. As the regulatory boundaries have become less clear than ever, competition and disputes between the two Korean ministries have also become more evident than ever. It is interesting to observe which regulatory model works better in the age of convergence: Congress' strong leadership with the integrated regulatory power of the FCC under the same roof, or the executive branches' strong leadership with distributed regulatory power among different ministries? Or perhaps a combination of these two models? • Different killer applications in the different stages of the diffusion process Once service is available, price and speed are the most important factors affecting the broadband adoption early on. As the first stage moves to the next level, then applications based upon diversified contents will be more critical than before. However, the price is always important and needs to be tiered or bundled for advanced users in the mass market, which will lead to better customer service. While many experts point out the lack of killer applications in the US, the real killer application of the early stage is not much related content-oriented applications, rather more related to the fast speed itself, and 'always-on feature– new functions added to the narrowband service by the broadband technology. It is worthwhile to remember that the first problem of the videotext was how to direct the user to the information as quickly as possible, rather than as fanciful as possible. If the Internet is a functional extension of the telephone with content, both speed and content are still critical. When multimedia or rich-media content is critical, faster speed will be a must. As long as dial-up users are satisfied by narrowband service, 21 22 switching to the broadband will take longer. This is a good example of functional alternatives in telecommunications. Conversely, when multimedia content on the Web becomes more available and popular and the price gap between broadband and narrowband becomes marginal, this functional alternative theory may become dysfunctional. The primary economic cause of inequality in Internet access is less the cost of computers or unequal access to computers than the local telecommunications cost in the US, increasingly driven by the cost of broadband services. In the US, the cost of local telecommunication services is now the largest financial and economic impediment to universal Internet access (Ferguson, 2004, 8). • Global competitiveness ICT is widely considered one of the fastest-moving and leading drivers of globalization. Thus, broadband policy has important implications for global economic integration. According to Douglas McWilliams at the Centre for Economics and Business Research in the UK, "Over the next 20 years broadband will have a similar impact on the economy to that of the introduction of electricity from 1890-1920" (Wearden, Nov 19, 2003).14 John Chambers, CEO of Cisco, argued that broadband should be a national priority this century "just like putting a man on the moon was an imperative in the last century" (Papalardo & Martin, Jan 2002). The World Economic Forum's latest annual Global IT Report released early March 2005 reveals that the US dropped from first to fifth in the rankings. Whether the end of US's three years as number one is less due to actual erosion in performance with 14 John Kerry during his Presidential campaign also declared that broadband was as important to the future of the economy as electricity. (Borland, July 27, 2004). 22 23 respect to its past history, or more to continuing improvements by its competitors, the fact is that Singapore, Iceland, Finland, and Denmark have displaced the US as the top economy in IT competitiveness.15 Even someone asks "Is Silicon Valley similar to Detroit? (Lohr, March 28, 2005). In this context, can US private industries do provide universal broadband service themselves, or will it take a regulatory prod to get there? • Korea as the best test-bed for ICT projects and future research The MIC aims to attract five research centers in Seoul area from world-leading info-tech firms per annum for the next 8 years. In 2004 alone, the ministry drew in five research investments from such well-known companies as Intel, Fraunhofer, IBM, HP and Siemens. Micro Soft also opened its Mobile Innovation Lab at the headquarters of its Korean affiliate in southern Seoul to develop technology for wireless devices, and will invest up to $39 million over the next three years (MS opens, March 7, 2005; Information Ministry, Feb 2, 2005). Considering the well-established ICT infrastructure in Korea, it is worthwhile for global firms, policy makers as well as academic researchers to recognize that Korea is the best test bed and real field for the future research. The overall technological environment of Korea can hardly be matched by other nations. There are many more mobile subscribers than landline phone users in Korea. More than 80 percent of the whole population uses the mobile phone service, over 76 percent of households are connected to broadband, and over 10 million mobile Internet subscribers are using the 3G phone service. Korea is moving towards an even more advanced next generation mobile service 15 Singapore surpasses U.S. as top tech nation. http://www.forbes.com/2005/03/09/c_0309wef.html?partner=tentech_newsletter. As for full report, go to . http:///www.weforum.org/gitr, 23 such as BcN,16 DMB17 and Wi-Bro. Many of these phenomena will be future trends in other countries. Korea will provide the best opportunity to investigate, test, and study the economic, social, and cultural impact of mobile phones. The information society has been with us for decades as topic for discussions or a theory, rather than as a reality. It is believed that Korea offers ample reasons for all different levels and areas of professionals to investigate: What are important factors for Korea, a country with 7 percent telephone penetration even in the late 1970s, to become a digital powerhouse so rapidly? What socio-cultural factors, along with policy factors, have contributed most to the informatization process? What socio-cultural factors are and are not applicable to other countries, and why? 16 Korea now hopes to widen its already sizable lead in broadband through the establishment of broadband convergence network (BcN). The government expects to generate $7.7 billion in private sector investment to develop the BcN's infrastructure and applications. The government is also planning high-tech industrial test-beds in Seoul and Daejon by the second half of the year (Government plans, Mar 21, 2005). When the project ends in 2010, the integrated network runs at the speed of 50 to 100 mbps. The original three consortiums were expanded in March 2005 to four when the MIC additionally approved Cable Consortium as a new licensee for the first phase BcN trials (Cable consortium, March 21, 2005). 17 TU Media started a pilot run of the cell phone-based S-DMB service from January 2005 with 3 video channels and 6 audio channels. 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