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Industry Report

Industry reports, briefs issued by Samsung Economic Research Institute

Competition in Wireless Services

Competition in Wireless Services

CHOI Byong-Sam

Jan. 22, 2005

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Korea's mobile phone operators are fiercely competing to bring more versatility to wireless services. Nowadays, there are about 250 wireless applications that mobile phone users can enjoy, ranging from ring tones, connection tones - tones the caller hears before the person at the other end of the line answers the phone - to music and games. Some applications have become basic services that most subscribers use. For example, about 90% of all mobile handset subscribers use the caller identification service, which allows phone users to see the number of the party calling them on their displays when the phone rings.

Obviously, the ever-intensifying competition reflects the growing demand for these services by mobile phone users. Currently, 49.7% of total mobile phone subscribers use wireless Internet. And wireless service rates commanded a good 31% of the combined revenue generated by the nation's three mobile operators in 2003, almost a four-fold increase from 9% in 2001. A drop in new subscribers and introduction of number portability system by the government have touched off a battle among mobile operators. The number portability allows subscribers to switch their carriers without having to change their phone numbers. In the past, mobile operators only had to attract new customers, but now they have to persuade users change to their carriers, and to maximize revenue of existing users. All these have prompted mobile operators to create a variety of wireless services to stay ahead of the competition.

But these services haven't brought them higher returns. Although KTF and LG Telecom saw their average revenue per user - an indicator for gauging mobile phone operators' profitability - increase in 2004 over the previous year, this wasn't due to higher income creation made through wireless services. Rather, they had benefited from the number portability system, which made a lot of existing SK Telecom subscribers switch to their services. In fact, all three mobile operators have been providing similar services to customers.

But the number of new subscribers did manage to grow steadily along with marketing efforts of each carrier. Approximately 3 million more people subscribed to mobile phones in 2004, raising the mobile phone penetration rate by 5.8% from the previous year.

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