SK phone groups look to set tills ringing

Ryu Sung-yul, a 28-year-old computer programmer in Seoul, recently replaced his old mobile phone with a pricey LG model that can receive digital TV signals.

He says the new $700 handset has improved his life, enabling him to watch news and other entertainment on his one-hour bus journey to the office.

“Watching TV on the small screen is not so bad. It works well with clear picture quality. I can even read news scripts on the screen,” he says.

South Korea's biggest mobile operator SK Telecom is hoping this new service, which is called S-DMB (satellite digital media broadcasting) and was launched in May, will drive revenue growth and offset declining voice traffic.

South Korean telecoms operators have struggled to develop new revenue sources in a near-saturated market. Now, they are ramping up investment in 3G networks and content development, betting that wireless data services will become their next cash cow.

“There is a limit in voice-traffic growth but there is still growth potential in the wireless-data business, which will become our core business,” says Song Hyun-jong, vice-president at SKT. “Digital convergence will create new demand for our data services.”

SKT plans to spend about Won600bn ($591m), or 38 per cent of its 2005 capital expenditure, on building 3G networks, which enable consumers to quickly download online games, music and movies to mobile phones.

It is also buying content providers to broaden the range of services. Increasing sales of wireless data services such as music-on-demand or video phonecalls have boosted Korean telecoms operators' bottom lines this year.

SKT, which controls half of the country's $17bn mobile market, reported a 56 per cent jump in second-quarter profit, while net income at its smaller rival KTF more than trebled and LG Telecom swung to a net profit from a loss.

Wireless data services contribute 25 per cent of SKT's total revenue. Its digital music service, Melon, which allows customers to download songs to a mobile phone, PC or MP3 player, has attracted 500,000 subscribers since its launch in November. KT, the country's largest fixed-line carrier and broadband operator, is also striving to diversify amid increasing competition in land-lines business and stalled growth in the broadband market.

The company, which recently cut its operating profit target for this year by 14 per cent, is pinning hopes for growth on new technology dubbed WiBro (wireless broadband), which will be commercialised next year. Wibro, similar to Intel's WiMax, will allow users to maintain a high-speed internet connection on mobile devices even as users travel at speeds of up to 60 kilometres per hour.

Along with KT, SKT and Hanaro Telecom have been awarded the licence to offer the service, although the latter has decided not to roll it out because of the estimated $1bn cost of building the infrastructure and networks. In spite of the ambitious projects, analysts say it will take a long time for the new investments to generate proper returnsif operators, particularly in 3G, fail to come up with compelling services to entice subscribers.

“The initial returns are low but they have high hopes for long-term profits. And they have no other choice because of stalled growth in the existing market,” says Chang Sung-min, an analyst at Samsung Securities. “But they need to adjust their investments according to consumer demand.”

He warns that the new technologies face many obstacles before they can become mainstream services.

SKT has attracted about 100,000 subscribers to the S-DMB service. But mobile phone TV is likely to remain a niche market for some time because of the high price and limited line-up of DMB phones and an unwillingness among public broadcasters to beam programming to handsets.

Analysts also question how strong consumer demand will be for wireless broadband in a country that has a high penetration of fixed-line broadband. South Korea is the world's most wired nation, with more than 70 per cent of households logged onto the internet via broadband connections.

But SKT officials remain confident about the future. “If three out of 10 services become successful, we can get enough returns to cover our investments,” says Mr Song.