[Special report]korean 4th mno is a distant dream lte tdd_20120828
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[Special report]korean 4th mno is a distant dream lte tdd_20120828

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This report provides strategic suggestions in relation to the 4th mobile service based on following three questions and answers. ...

This report provides strategic suggestions in relation to the 4th mobile service based on following three questions and answers.

 What network technology the new mobile carrier (4th mobile carrier) must consider for strategic reasons?
- As of now, major mobile operators in the global market are migrating from 3G to 4G rapidly. The 3G market is divided into various network technologies which are CDMA EVDO, WCDMA and WiMAX. But, in terms of 4G, LTE is the dominant technology. For the success of the 4th mobile carrier, it is required to offer not 3G but 4G service with reasonable prices.

 What could be the methods to deliver new and reasonably-priced 4G services?
-3GPP defined that LTE encompasses FDD (Frequency Division Duplex) and TDD (Time Division Duplex). Among them, TDD (LTE-TDD) in unpaired spectrum just like WiBro has a high chance to be in line with the mainstream trend in the global mobile market.

 What economic ripple effects are expected when the 4th mobile carrier conducts LTE-TDD?
- The 4th mobile carrier is required to analyze possible economic ripple effects if it provides mobile service (including handsets) based on LTE-TDD in accordance with the definition of 3GPP.

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[Special report]korean 4th mno is a distant dream lte tdd_20120828 [Special report]korean 4th mno is a distant dream lte tdd_20120828 Document Transcript

  • Executive Summary Is introduction of a 4th mobile carrier a distant dream? -Economic ripple effects of a new mobile service based on LTE-TDD Release Date: 2012. 8. xxx Gyeong-hyeon LEE (Senior Consultant, khlee@roaconsulting.co.kr) Jinyeong Kim (CEO, Head Consultant, david@roaconsulting.co.kr)
  • < Table of Contents >Part I. What challenges a 4th mobile carrier has?------------------- 1Part II. History and problems with the policy -------------- 4 1. History --------------------------------------------------- 4 2. Problems with the policy ------------------------------------- 4Part III. ‘WiBro(WiMAX)’ vs ‘LTE-TDD’, which is the mainstream?--8 1. WiBro(WiMAX) market is suffering ---------------------------8 2. LTE-TDD operators will account for 37% of LTE in 2015 ----------- 10Part IV. Economic ripple effects of a 4th mobile carrier----------- 16 1. Method --------------------------------------------------------------- 16 2. Industry inducement coefficient-------------------------------------- 16 3. Market demand----------------------------------------------------- 17 A. Market demand of WiBro------------------------------------ 17 B. Market demand of LTE-TDD--------------------------------- 18 4. Analysis of economic ripple effects ---------------------------------- 20Part V. Strategic suggestions: in pursuit of realistic alternatives-- 24< Bibliography > ---------------------------------------------------- 25
  • Part I. What challenges a 4th mobile carrier has?In 2011, one of the hottest issues in the Korea’s mobile market was the policy of the KoreaCommunications Commission (KCC hereafter) to allocate a fourth mobile license. KCC cameup with the plan to introduce price-competitive services compared to current mobile carriers,which are SKT, KT and LG U+, with a view to promoting market competition based onreasonably-priced and high-quality services catered to mobiles users. Up until now, theKorea’s market has witnessed excessive subsidiaries and marketing activities.However, the policy has yet to be implemented because all bidders failed to meet therequired standards. In particular, the Korea Mobile Internet (KMI hereafter), which submittedthe first application in November 2010, was rejected by KCC for three times in total. InDecember 2011, both KMI and Internet Space Time (IST hereafter), the other bidder for theservice, failed in achieving the license.As concern is rising in the market, KCC tried to provide a breakthrough by revising theapplication process and qualification standards for the bidders in May 30, 2012. The revisionis focused on financing capacity of the bidders and lowered the standards (or minimumevaluation point) of quantitative evaluation1 from 60 to 40 points. In addition, evaluation onthe application and that on the bidder’s qualification will be extended from 2 months to 120days and from less than 1 month to 60 days, respectively. It seems that KCC is dedicated toidentifying the best candidates by lengthening examination period, considering financingcapacity as top priority, and lowering other standards because they are newcomers in themarket. KMI and IST are expected to submit the application in the late half of this year anda 4th mobile carrier is likely to be announced within this year.The Korean government has been pursuing the policy for following two goals: first, toencourage market competition by introducing differentiated and low-priced mobilecommunications services compared to current ones and second, to promote WiBro which isa type of WiMax technologies developed by Korea. The government was poised to achieve1 Profitability (pre-tax return in assets), Stability (ratio of liabilities to assets), Future Growth(Increases in revenue), Credit rating 1 View slide
  • the goals with introduction of a 4th mobile communication service.2KMI and IST are known to submit their application later this year in line with the newstandards of KCC. According to media report, both of them are in preparation for 4G WiBroAdvanced, the upgraded version of WiBro.However, there is a growing concern that the 4th mobile carrier might fall short of customers’expectation for cheaper but better mobile handsets and services. It is safe to say that therehas been no competitive WiBro handset and service in the market although KT and SKTintroduced the business 7 years ago in 2005. On March 16, 2012, they made a failedattempt to revitalize the business with newly allocated spectrum.For that matter, the 4th mobile carrier is required to assess the business opportunity beforeit launches WiBro later this year.This report provides strategic suggestions in relation to the 4th mobile service based onfollowing three questions and answers.  What network technology the new mobile carrier (4th mobile carrier) must consider for strategic reasons? - As of now, major mobile operators in the global market are migrating from 3G to 4G rapidly. The 3G market is divided into various network technologies which are CDMA EVDO, WCDMA and WiMAX. But, in terms of 4G, LTE is the dominant technology. For the success of the 4th mobile carrier, it is required to offer not 3G but 4G service with reasonable prices.  What could be the methods to deliver new and reasonably-priced 4G services? -3GPP defined that LTE encompasses FDD (Frequency Division Duplex) and TDD (Time Division Duplex). Among them, TDD (LTE-TDD) in unpaired spectrum just like WiBro has a high chance to be in line with the mainstream trend in the global mobile market.2 This report does not distinguish between ‘WiMAX’ and ‘WiBro.’ But the term ‘WiBro’ is mostly utilized in the context of Korean mobile market because it is the WiMax technology dedicated to the country. 2 View slide
  •  What economic ripple effects are expected when the 4th mobile carrier conducts LTE-TDD? - The 4th mobile carrier is required to analyze possible economic ripple effects if it provides mobile service (including handsets) based on LTE-TDD in accordance with the definition of 3GPP. About the terms, ‘LTE-TDD’ and ‘TD-LTE’- 3GPP which announces global communications technology standards designated FDD and TDD for LTE specifications. FDD is often referred to as LTE-FDD and TDD is being called LTE-TDD. They have a lot in common as both are based on LTE technology, but there are some differences. The biggest difference lies in uplink and downlink transmission. FDD utilizes difference frequencies for transmission. As for TDD, uplink and downlink are on the same frequency but time separated.- Most mobile carriers in Korea are utilizing FDD, and LTE-TDD is emerging as the alternative to ease congestion on network or to make full use of bands allocated for WiBro. The terms, ‘TD-LTE’ and ‘LTE-TDD,’ are being utilized in the industry and have the same meaning. However, this report utilizes the term LTE-TDD, as 3GPP defines it as one of the standard LTE technologies. (The ROA Consulting used the term TD-LTE in its report ‘current and future market of TD- LTE released in April 2012, but will use ‘LTE-TDD’ in this and future report in line with the policy of 3GPP.) Analysis model for economic ripple effects- The report evaluates economic ripple effects of a new mobile service is provided based on LTE-TDD with Input-Output Analysis. Professor Choi Yong-je from Hankuk University of Foreign Studies provided consulting for the analysis model. 3
  • Part II. History and problems with the policy1. HistoryThe government’s effort to announce a WiBro service operator has yet to achieve asubstantial result because all bidders failed to meet required standards. In 2011, KMI and ISTconsortium was rejected by KCC by recording 65.790 and 63.926 point, respectively. Then,the mandatory limit was 70 point.Both the consortiums suggested WiBro as well as WiBro Advanced, which can be interpretedthat they would play an important role in promoting WiBro. However, WiBro business hasbeen stalled as all applications for the 4th mobile service were rejected and the gap betweenWiBro and LTE is widening.On May 30 this year, KCC revised the application process and qualification standards forbidders to provide a solution to the problems appeared up until now. The revision isdesigned to find out bidders with determination and actual capacity for the service. It isexpected to KMI and IST will submit their applications for the service and new mobilecarriers will be announced later this year.2. Problems with the policyThe latest academic paper about WiBro was written by the Korea Information SocietyDevelopment Institute researcher Kim Chang-hwan et al. in December 2012, with the title of‘Study on Methods to Vitalize WiBro in the Korea’s Mobile Market.’ According to the study,WiBro is failing in the market with less than 0.8 million users as of end of 2011. Theypointed out three causes behind disappointing performance of WiBro: first, a lack ofadministrative policies to promote the mobile internet market, second, passive investmentstrategy of the current mobile carriers and third, absence of attractive handsets. Detailedinformation is as follows. 1) A lack of administrative policies to promote the mobile internet market The Korean government failed to provide the market with effective policies because it didn’t identify rising trend of mobile internet service in the world. As a result, WiBro wasn’t fully capitalized in 2009 when mobile internet usage soared due to 4
  • introduction of iPhone in Korea. 2) Passive investment strategy of the current mobile carriers KT and SKT were reluctant to make an investment in relation to WiBro due to the concern that it might erode the market of conventional mobile service. As a result, development of a nation-wide network and dedicated services has been sluggish. 3) Absence of attractive handsets WiBro service has been mostly provided with USB-style modem, router, laptop, and netbook. Up until now, WiBro-enabled mobile phones are not available in the market.The three factors behind the failure of WiBro present potential challenges the 4th mobilecarrier will face in the future, as follows. 1) Shrinking share of WiBro in the world According to the related research, the share of LTE and WiBro will be 8:2 or even 9:1 from 2014 to 2016. In other words, LTE will dominate the market. In addition, LTE will post a faster growth than 3G. ROA Consulting analyzes that LTE subscribers in Korea will reach 42 million, occupying 73% of total mobile users in 2013. In addition, 7 out of 10 new smartphones will be LTE devices. Not only in Korea, but also in the world, expansion of LTE will take place very rapidly, limiting growth of WiBro. WiBro or WiMax is likely to obtain less that 10% of the global market. Against this backdrop, the 4th mobile carrier will face challenges in attracting subscribers, delivering international roaming and developing new services. 5
  • <Table 1> LTE/WiBro market in 2015 (in tens of thousands of people, %) LTE WiBro NoteAnalysis Firm Subscribers Market Share Subscribers Market Share OVUM 30,000 82.9 6,170 17,1 ABI Research 29,000 83.0 5,900 17,0 Maravedis 30,500 85.9 5,000 14,1 as of 2016 iSuppli 33,100 90.8 3,340 9.2 As of 2014Source: Excerpt from the Study on Methods to Vitalize WiBro in the Korea’s MobileMarket, Kim Chang-wan et al. (2011) 2) A lack of WiBro-enabled devices WiBro posted a disappointing performance in the US market and a lack of WiBro- enabled devices was pointed out as the biggest obstacle. The 4th mobile carrier is expected to be face with a similar challenge when the service is launched. Securing WiBro-dedicated devices is one of the most important factors to promote the service. In case of LTE, introduction of LTE devices such as Samsung Galaxy and LG Opimus allows LTE subscribers to reach 1 million in a couple of months. As of now, Korea’s major handset vendors such as Samsung, LG and Pantech have no plan to develop WiBro handsets. If the 4th mobile carrier can’t create enough market demands, handset vendors will continue to be focused on WCDMA and LTE smartphone, turning their blind eyes to WiBro devices. Then the 4th mobile carrier will be mired in a vicious circle because a lack of WiBro-enabled handsets will make attracting WiBro subscribers even more difficult. Although KMI and IST are preparing WiBro Advanced, there is no handset vendor is developing or considering development of chipset, which is the key part of handset. As of now, supplying handsets dedicated to WiBro Advanced is anything but impossible.On top of that, rapid growth of LTE is a proof of shrinking WiBro (WiMax) market. 6
  • According to the report rele e eased by GS in July 2012, 89 mo SA 2 obile carriers including major sopera ators in US, Japan, Korea and Germ mmercialized LTE service as of many have launched comJuly 1 2012. In addition, an 12, nother 61 o operators wil start the services by llate 2012. On the ll s Oother hand, LTE handsets in the marke increased 300% over the past y r n et r year to reach 417mode as of July 4, 2012. In particular, the LTE sm els martphone ha been pos as sting the rapidestgrow to increas 73% from January 20 wth se m 012. [Figure 1] In ncreases in LTE servic operator and han dsets ce rs (in unit) nSourc GSA 201 ce: 12.7.4.The trend in th market is clearly m he moving forw ward with LTE, vitalizin the industrial ngecosy ystem of LTE with active supply of d E devices and equipment. eGrow wing domina ance of LTE is present E ted in incre easing adop ption of LTE E-TDD by WiMax Wopera ators in the world. WiM MAX and LTE E-TDD has a lot in comm mon in tech hnologies be ecauseboth of them ut tilize TDD pr rotocol. In a addition, WiMax spectru can be u um used for LTE E-TDDservic and tran ce, nsition from WiMAX to LTE-TDD is easy with reasonable costs. For that m o h ematte many WiM operato are introd er, Max ors ducing LTE-T TDD. 7
  • Part III. ‘WiBro(WiMAX)’ vs ‘LTE-TDD’, Which is the mainstream? 1. WiBro(WiMAX) market is suffering.WiBro was launched in 2006 in Korea but failed to attracting attention in the marketbecause then, mobile internet service didn’t fully take off. Before the introduction of iPhonein late 2009, mobile data and internet service was mostly for web browsing with laptop orothers in Korea, contributing to the disappointing business results of WiBro. However, KTadded more WiBro users over the past year compared to the previous years because KTpromoted WiBro service to overcome its weakness in the LTE market caused by belatedintroduction of the service. KT lagged behind others in introducing LTE because it needed toditch 2G service. On the other hand, SKT’s WiBro users have decreased since 2010 becauseit has been focused on LTE without making additional investment on and attracting users ofWiBro since 2011 when the mandatory service period determined by the government wascompleted.As for the network, WiBro connected 82 cities and main highways of Korea in 2011, 5 yearsafter the launch of service in 2006. Combined investment of KT and SKT on WiBro networkamounted to KRW 1.9205 trillion by March 2011 but their WiBro service network can’t offera nationwide coverage. KT offers service coverage to 88% of the 82 cities with 54,834facilities and SKT delivers 72.4% with 24,348 facilities. . <Table 2> WiBro subscribers and sales Subscribers Sales (in Operator 100 Y2006 Y2007 Y2008 Y2009 Y2010 Y2011 millions of KRW) KT 950 103,266 156,900 285,040 365,393 743,033 1,729 SKT 447 995 11,051 31,840 89,601 55,330 258 Total 1,397 104,261 167,951 316,880 454,994 798,363 1,987Source: Excerpt from the Study on Methods to Vitalize WiBro in the Korea’s MobileMarket by Kim Chang-wan et al. (2011) and KCC report 8
  • WiBro has been subscribed by 0.8 million users and recorded KRW 198.7 billion inaccumulated revenue as of 2011, which is disappointing compared to other technologies.Over the past year, the number of WiBro users was climbing as KT introduced Egg and otherWiBro-enabled devices to overcome its weakness in the LTE market with WiBro. But, KT’s LTEwas launched in January 2012, hinting that further increases in WiBro users are off the table.On the other hand, SKT introduced LTE in July 2011 and its WiBro decreased 34,271 in 2011from the previous year.WiBro market has been posting disappointing results despite continuous efforts of thegovernment to encourage the service and investment on it. The Korean government orderedthe mobile carriers to speed up investment on the technology in October 2009, andannounced 3 policy directions and 8 tasks3.However, it is a foregone conclusion that WiBro has failed in achieving substantial results. Inaddition, investment on the technology has been slowed due to uncertainty over the service.To make matters worse, introduction of LTE is happening in the world much faster thanexpectation and large mobile markets in the world including US, Russia and India areannouncing introduction of or transition to LTE. Against this backdrop, there is a growingargument that LTE will dominate the 4G market and WiBro is on the verge of crisis in theglobal market.According to the WiMAX Forum, mobile WiMax is being provided in 70 countries by 123operators as of August 18, 2011. Among them, 60% is internet service operator or ISP ratherthan major mobile service operators. Besides, mobile WiMax is available mostly in emergingmarkets such as Africa, East Europe and Latin America.On the other hand, major mobile service operators are announcing their plans to launch LTE,3 The three policy directions include ‘creating conditions to vitalize market competition,’‘constructing a nation-wide network,’ and ‘bettering WiBro business profitability.’ Toimplement the policies, 8 tasks were suggested: ① adjusting bandwidths of conventionalservice operators, ② creating conditions for new comers to enter the market (for thenational and local service) ③ introducing MVNO progressively ④ expanding network toconnect the entire nation ⑤ considering measures for an effective international roaming (fornew comers) ⑥ promoting mobile internet ⑦ creating an environment for betterprofitability, and ⑧ vitalizing public WiBro service. 9
  • in a row. Yota, the leading WiMax service provider, announced in April 2010 that it will stopdevelopment of WiMax and move to LTE4. Clearwire in the US is following the trend byrevealing its plan to pursue LTE by building 5,000 base stations by June 2013, placing morepressure on WiMAX front. Besides, WiMax devices are mostly modem types including USBdongle, PC card, laptop or netbook types. As of December 2011, only 13 voicecommunications handsets including smartphone are available in the market.LTE-TDD operators will account for 37% of LTE in 2015As of July 12, 2012, 89 service operators have commercialized LTE in the world. Amongthem, 9 mobile carriers in 8 countries are offering commercialized LTE-TDD, which accountfor more than 10% among total LTE service operators. <Table 3> Countries with commercialized LTE service Country Operators Launching Country Operator Launching Norway TeliaSonera 2009 Kuwait Viva 2011 Sweden TeliaSonera 2009 Armenia Vivacell-MTS 2011 Uzbekistan MTS 2010 Bahrain Viva Bahrain 2012 Uzbekistan UCell 2010 Hungary T Mobile 2012 Aero2 Poland 2010 South Korea KT 2012 (LTE FDD and TDD) USA MetroPCS 2010 Russia Yota 2012 Austria A1 Telekom 2010 Canada TELUS 2012 Sweden TeleNor Sweden 2010 USA Peoples Telephone Co-op 2012 Softbank Mobile XGP Sweden Tele2 Sweden 2010 Japan 2012 /LTE TDD Hong Kong CSL Limited 2010 Portugal TMN (Portugal Telecom) 2012 Finland TeliaSonera 2010 Portugal Vodafone Portugal 2012 Germany Vodafone 2010 Portugal Optimus 2012 USA Verizon Wireless 2010 Japan eMobile 2012 Finland Elisa 2010 USA US Cellular 2012 Denmark TeliaSonera 2010 Croatia T Mobile/T-Hrvatski Telekom 2012 Estonia EMT 2010 Croatia VIPNet 2012 Japan NTT DoCoMo 2010 USA Panhandle (PTCI) 2012 Germany Deutsche Telekom 2011 Belarus Yota Bel 20124 In this report, LTE includes LTE-FDD and LTE-TDD. 10
  • Philippines Smart Communications 2011 Australia NBN Co (LTE TDD) 2012 Lithuania Omnitel 2011 India Bharti Airtel (LTE TDD) 2012 Latvia LMT 2011 Angola Movicel 2012 Singapore M1 2011 Puerto Rico Open Mobile 2012South Korea SK Telecom 2011 Moldova IDC 2012South Korea LG U+ 2011 Sweden 3 (LTE FDD and TDD) 2012 Germany O2 2011 Hong Kong China Mobile HK 2012 Canada Rogers Wireless 2011 Hong Kong PCCW 2012 Austria T-Mobile 2011 USA Cellcom 2012 USA Mosaic Telecom 2011 USA Pioneer Cellular 2012 Canada Bell Mobility 2011 Netherlands Vodafone 2012Saudi Arabia Mobily (LTE TDD) 2011 Hong Kong Hutchison 3 HK 2012Saudi Arabia STC (LTE TDD) 2011 Netherlands Ziggo 2012Saudi Arabia Zain 2011 Netherlands Tele2 2012 USA AT&T Mobility 2011 Netherlands KPN 2012 UAE Etisalat 2011 Netherlands T-Mobile 2012 Australia Telstra 2011 Namibia MTC 2012 Denmark TDC 2011 USA BendBroadband 2012 Austria 3 2011 Tanzania Smile 2012Puerto Rico AT&T Mobility 2011 UAE Du 2012Puerto Rico Claro 2011 Colombia Une-UPM 2012 Kyrgyzstan Saima Telecom 2011 Azerbaijan Azercell 2012 Brazil Sky Brazil (LTE TDD) 2011 Czech Rep Telefonica O2 2012 Finland DNA 2011 Mauritius Orange 2012 Uruguay Antel 2011 UK UK Broadband (LTE TDD) 2012 USA Cricket 2011 Dominican R. Orange Dominicana 2012 Singapore SingTel 2011Source: GSA 2012. 7. 11.As of now, 31 service operators in 23 countries including US and China are planning tocommercialize LTE-TDD. In February 2011, China Mobile founded GTI (Global TD-LTEInitiative) to promote LTE-TDD, in cooperation with Bharti Airtel in India, Softbank in Japan, 11
  • Vodafone in Europe and Clearwire in the US. <Table 4> Countries and operators planning LTE-TDD Country Operator Country Operator Australia Optus Russia Megafon Austria 3 Russia Base Tel Canada Xplornet Russia Enforta China China Mobile Singapore IDA Croatia Velatel South Africa 8ta Denmark 3 Spain COTA France Orange Taiwan CHT France Bollore Taiwan FarEasTone and China Mobile Germany E-Plus Taiwan Global Mobile Corp Hong Kong China Mobile & 3 HK Taiwan Fitel (PHS, WiMAX™) Malaysia Packet Networks (P1) Thailand AIS Malaysia Asiaspace Uruguay Dedicado Montenegro Velatel USA Clearwire Russia Rostelecom USA Xplornet Communications Russia Voentelecom Venezuela Movilmax Russia MTSSource: GSA 2012. 7. 11.China Mobile has been leading the trend of LTE-TDD. It conducted the first phase of R&Dtechnology test to commercialize LTE-TDD with major system and chipset vendors byutilizing 850 base stations located in 6 cities. The test continued until September 2011. Now,the second phase of test is being conducted with a goal to set up a pilot service network inthree cities of Beijing, Tianjin and Chin Dao. China Mobile will construct as many as 20,000base stations to cover 500 million users by end of 2012 and expand them to 200,000 by endof 2013. At first, the service will be provided with data card type, and then ten LTE-TDDsmartphones will be released in the market in the first half of 2013. In 2014, more than 100 12
  • devices will hit the market according to the plan. China Mobile is pursuing the serviceprogressively with a large scale pilot service and commercialization is expected to begin in2013~2014.Bharti Airtel commercialized the service in April 2012, which was the first time in India.Ericsson, Nokia and Siemens announced that they would provide India with LTE-TDDnetwork equipment. As WiMAX fell short of expectation at the broadband auctionconducted by BWA (Broadband Wireless Access) in June 2010, India became more thanready for LTE-TDD. Before the auction, WiMAX had been regarded as the most adequatetechnology for the nation. Infotel obtained the license to offer LTE-TDD in 22 districts at theauction and revealed its plan to utilize 2.3GHz spectrum. Later, Reliance, the largest mobilecarrier in India, took over Infotel, and has been pursuing LTE-TDD progressively. Reliance isexpected to launch LTE-TDD in 2012, and Samsung Electronics signed a contract worth USD1 billion to provide the company with LTE-EDD devices. The contract outlines that Samsungand Reliance will build LTE-TDD network in 700 cities including Mumbai and Delhi. Aircel isin provision of pilot service of LTE-TDD and Tikona Digital is preparing the service too. BSNLand MTNL are expected to jump on the bandwagon in the future.In Japan, Softbank Mobile started LTE-TDD on February 12, 2012 with AXGP spectrum5 ofWillcom, which had filed for bankruptcy protection. In November 2011, commercialization ofAXGP was realized through cooperation between ZTE and Huawei. AXGP is fully compatiblewith LTE-TDD thanks to the technological similarity. As of now, the first phase ofcommercialization has been completed with 2,000 base stations. The goal of the secondphase of the plan is to build over 10,000 base stations to cover 99% of population of Japanby end of 2012. As of now, Softbank boasts the largest scale of commercialized LTE-TDD.On the other hand, former WiMAX operators are adopting LTE-TDD in a row. Among themare Vivid Wireless in Australia and P1 in Malaysia. Asiaspace is also planning to launch LTE-TDD with 2.3GHz spectrum. Clearwire in the US announced that it would provide LTE-TDD in31 cities in 2013 despite that the company introduced WiMAX faster than any others in theworld. For the plan, its largest shareholder, Sprint Nextel, invested USD 1 billion in April2011. In December 2011, a contract was signed for Sprint Nextel to utilize LTE-TDD network5 AXGP is a type of high-speed data transmission technology that Willcom was poised to pursue as the next-generation PHS using 2.5GHz. AXGP inherits microcell which is one of the characteristics of PHS, and is compatible with TD-LTE. 13
  • of Clearwires and to provide additional investment worth USD 1.6 billion. Clearwire, on theother hand, strives to build 5,000 base stations in June 2013, and add 3,000 more towers tothe network in the near future.As both former WiMAX operators and new LTE service providers are pursuing LTE-TDD, itwill grow to 37.4% of total LTE market. [Figure 2] Increases in LTE-TDD users in the world (in millions of users) 500 LTE LTE-TDD 400 300 200 100 0 2011 2012 2013 2014 2015Source: Excerpt from Pyramid Research and Heavy Reading, ROA ConsultingThe main differences between LTE-TDD and LTE-TDD are around the duplex method used.FDD utilizes separate channels for uplink and downlink. On the other hand, TDD utilizes onevariable channel for downlink and uplink but at different time slots. Due to the variability,LTE-TDD technology is more adequate to asymmetrical data communications. Because theend users are more likely to download contents rather than upload them, LTE-TDD is able toallocate data in a more efficient way. Many service operators in the world are utilizing bothLTE-FDD and LTE-TDD to ease the pressure on the network in case of asymmetricalapplications such as video and M2M. 14
  • <Table 5> Comparison of LTE-FDD/TDD LTE-FDD LTE-TDD - Frequency division duplex - Time division duplex Definition - Utilizes different frequency for - Utilizes same frequency but time upload and download separated - Paired - Unpaired - Fitted to symmetrical - Fitted to asymmetrical data communications such as voice traffic Characteristic communication - D/L:70Mbps - D/L: 70 Mbps - U/L:35Mbps - U/L:35Mbps - Verizon Wireless - China Mobile - NTT DoCoMo - Bharti Major operator - 90% of operators planning LTE - Softbank - Combined users of the three operators above account for 39% of global populationSource: Excerpt from press release and analyzed ROA ConsultingLTE-TDD and WiMAX have a lot in common as both of them utilize TDD protocol. Thanks tothe similarity, unpaired spectrum obtained for WiMAX business can be operated for LTE-TDD.In addition, facilities including base stations of WiMAX can be converted for LTE-TDD servicewith a small investment. As for the mobile carriers, the facilities for LTE-FDD can beoperated for LTE-TDD. One of the biggest strengths of LTE-TDD lies in handsetsdevelopment. Because dual chipset enables LTE-FDD handsets to support TDD technology,companies are saved from the necessity to develop and pursue different types of devices. 15
  • Part IV. Economic ripple effects of a 4th mobile carrier1. Method: Inter-industry relations (Input-Output Analysis)This chapter provides analysis of economic ripple effects caused by the introduction of 4thmobile carrier based on inter-industry relations table released by the Bank of Korea in July2011.2. Production inducement coefficientThe 28 industry types in the inter-industry relation table released by the Bank of Korea don’tinclude the mobile industry. To analyze inter-industry relations in relation to the 4th mobilecarrier, following industry types in the table must be integrated. <Table 6> Industry types to be integrated Industry type Item Electric wire and cable(244), mobile communications system and Network broadcasting equipment(261) Communications facility (318)Mobile Service Handset Mobile handset(260) Voice call(342) 6 , additional communications (344), information Service service(345), development and supply of software(366)Source: ROA ConsultingNote: 1) numbers in the bracket refers to industry classification code of 2005.When the 4th mobile carrier enters the market, not only new communications will beprovided but also network must be laid and handsets should be procured. As a result, theindustrial structure encompassing communications network-service-handset will be created.6 ‘Voice call’ includes both wireless and wired voice communications. As for the mobileservice, only mobile communication service must be considered. But entire voice call itemwas considered because the table released by the government doesn’t provide themseparately. 16
  • Accordingly, this report defines that the mobile service industry includes communicationsservice, network and handset segments73. Market demandMarket demand is composed of consumption, investment and export. To predict futuremarket demand, assumption on future revenue of the 4th mobile carrier, subscribers andnetwork construction costs must be made. This report analyzes the three factors of WiBro aswell as those of LTE-TDD. And those results are compared to find out economic rippleeffects of the 4th mobile service. There must be some differences in variables of WiBro andthose of LTE-TDD. However, we assumed that all factors in relation to subscribers includingservice rate, coverage, and voice communication service are same. But LTE-TDD is assumedto have an upper hand compared to WiBro in terms of handsets. (Y: Market demand, C: Consumption, I: Investment, EX: Export) A. Market demand of WiBroKMI is expected to secure 0.22 million users for one year after the launch of the service. Itsaccumulated users are likely to increase 145.8% every year to reach 8.07 million. IST expectsthat it will start the service at the end of 2012 and secure 4.5 million in 2 years. This reportutilizes projection of KMI because it is more conservative than the other.7 This report utilizes formula for the analysis. 17
  • <Table 7> WiBro users, service revenue and handset sales (in tens of millions of KRW) First year Second year Third year Froth year Fifth yearAccumulated subscriber 221,046 1,763,880 3,649,963 5,771,838 8,071,188 (user) Revenue 91 2175 5,278 9,046 13,193 Handset 854 6,525 8,698 14,258 17,063 salesSource: ROA ConsultingConsumption encompasses service revenue and handset sales. Investment is evaluated withnetwork construction cost. Mobile service revenue is assumed based on projected operatingrevenue appeared on the income state of KMI. KMI expects that it will generate KRW 9.1billion for the first year of the business and increase the figure to 1.3 trillion for the next 5years.In line with the KMI’s prediction on its subscriber number for the first year of the service,handset shipment in 2011 will be 0.22 million units. And the figure is expected to increaseto 4.27 million in 2015. 8 Handset sales are evaluated by multiplying the shipment andhandset prices. As a result, projected handset sales amounts to KRW 85.4 billion in 2011 andwill grow to KRW 1706.3 billion in 2015.9 B. Market demand of LTE-TDD‘Study on WiBro Promotion Policies (Lee Yong-seok et al. 2011)’ suggested five policies(including provision of voice communications service, expansion of service coverage,introduce of new comers, diversified handset line-up, launch of more reasonable servicerate), based on a preliminary study and conducted dynamic simulation on changes in8 From 2009 to 2011, handset shipment was around from 22.60 million to 25.04 million. Andhandset replacement cycle was 2.12, 2.20 and 2.13 years (handset sales and subscribernumber was assumed based on Gartner 2012 Q1 and KCC data, respectively).9 Handset price was calculated with Gartner 2012 Q1 and foreign exchange rate of USD 1142.00 as of July 10, 2012. 18
  • subscriber number in a accordance with the policy implementation. <Table 8> Research analysis by Lee Yong-seok et al. (2011) 1) WiBro users will stand at 2 million in 5 years if current level is maintained. 2) But subscribers are expected to be 15 million if the suggested policies are Research implemented.analysis by Lee 3) Among them, 13 million will be net subscriber increase thanks to theYong-seok et al. policies. (2011) 4) One million users or 8.33% new users will be added with diversified handset line-up and net subscriber increases with other 4 policies will be 12 million.Source: ROA ConsultingThe simulation shows that diversification of WiBro handsets will be difficult in and out ofKorea. Against this backdrop, the 4th mobile carrier is expected to attract 8.3% moresubscribers when it pursues both WiBro and LTE-TDD based on the assumption that thelicense for the 4th mobile service is same as that for the new comers. As the 4th mobilecarrier is expected to secure 8.07 million users based on WiBro for five years after thelaunch of the service, net subscriber increase caused by LTE-TDD will amount to 0.67 million. 19
  • <Table 9>Assumptions for prediction on LTE-TDD user number 1) based on the assumption that the license for the 4th mobile service is same as that for the new comers 2) Lee Yong-seok et al. (2011) predicts that diversified handsets will add 8.3% Assumption users 3) WiBro devices are difficult to be diversified10 4) LTE-TDD devices can be diversified and that is the only difference between WiBro and LTE-TDD users can acknowledge.Source: ROA ConsultingCustomers consider functions, price, brand image and design when they purchase a handset.Mobile service operators will be faced with difficulties in appealing to users with limitedhandset line-up. Based on the assumption that LTE-TDD can diversify handset line-up, theusers will reach 8.74 million 5 years after the launch of the service. <Table 10> Service revenue based on LTE-TDD (in tens of millions of KRW) First year Second year Third year Forth year Fifth yearAccumulated subscriber 239,467 1,910,870 3,954,127 6,252,825 8,743,787 (user) Revenue 99 2,356 5,718 9,799 14,292 Handset 925 7,069 9,423 15,446 18,485 salesSource: ROA ConsultingLTE-TDD Handset sales are expected to amount to KRW 92.5 billion during the first year ofthe business and increase to KRW 1.8 trillion in 5 years.10 According to the ROA Consulting report in 2011, LTE-TDD is expected to account for 37.4%out of total LTE market in 2015, which is 4 times larger than WiBro. 20
  • LTE-TDD is better positioned to add subscribes compared to WiBro thanks to diversifiedhandset line-up, which will help operating revenue to increase KRW 0.99 billion during thefirst years of the service and to KRW 142.92 billion in 5 years. Operating revenue of LTE-TDDwas evaluated by multiplying that of per one WiBro user (operating revenue / accumulatedsubscribers) and accumulated subscribers of LTE-TDD.4. Analysis of economic ripple effectsAs for the market demand, consumption during 5 years (revenue + handset sales) after thelaunch of WiBro was added to the investment on network construction which will amount toKRW 102.2 trillion. In case of LTE-TDD, the amount is calculated at KRW 108.6 trillion.11Production inducement by WiBro for the 5 years stands at KRW 42.4 trillion and the addedvalue of the service will reach KRW 6.1 trillion. On the other hand, WiBro will hire 40,000jobs. Mobile communication is a backbone business with production inducement effectsencompassing forward and backward effects. Our analysis finds out that it has higherforward effect worth KRW 22.8 trillion than the backward effect.11 Market demands are composed of consumption + investment + export. Consumption, in turn,is composed of mobile service revenue and handset sales. Investment is assumed at KRW2.5 trillion which is the average of the plans by KMI (KRW 2.7 trillion) and IST (KRW 2.3trillion) for network construction. In detail, we assumed that 50% of the investment will bespent during the first year, 20% in second year and 10% after that. The export is calculatedas 0 based on the assumption that introduction of the service will bring about no change tothe export of facility vendors in Korea. 21
  • <Table 11> Analysis of the economic ripple effects by WiBro (in tens of millions of KRW) First year Second year Third year Forth year Fifth year Total Forward 30,012 30,580 36,778 57,599 73,118 228,087Productioninducement Backward 25,882 26,372 31,717 49,672 63,055 196,697 Added-value 7,990 8,142 9,792 15,335 19,467 60,726 Import 5,455 5,558 6,684 10,469 13,289 41,455 Job creation (post) 5,244 5,343 6,426 10,063 12,775 39,850Source: ROA ConsultingLTE-TDD-based service will result in production inducement effect worth KRW 45.1 trillionfor 5 years and added value of KRW 6.4 trillion. Job creation with the business will become42,000. <Table 12> Analysis of the economic ripple effects by LTE-TDD (in tens of millions of KRW) First year Second year Third year Forth year Fifth year Total Forward 30,187 32,198 39,378 61,933 78,746 242,443 Production inducement Backward 26,033 27,767 33,959 53,410 67,909 209,078 Added value 8,037 8,573 10,484 16,489 20,965 64,548 Import 5,487 5,852 7,157 11,256 14,312 44,064 Job creation (post) 5,274 5,626 6,880 10,821 13,758 42,359Source: ROA ConsultingThe 4th mobile carrier is found to provide higher economic ripple effects by pursuing bothWiBro and LTE-TDD. Production inducement effects is KRW 2.3 trillion higher, and addedvalue reaches KRW 382.2 billion. As for job creation, 2,509 jobs will be created. 22
  • <Table 13> Differences of WiBro and LTE-TDD (in tens of millions of KRW) First year Second year Third year Forth year Fifth year Total Forward 175 1,618 2,600 4,334 5,628 14,356Productioninducement Backward 151 1,395 2,242 3,738 4,854 12,381 Added value 47 431 692 1,154 1,498 3,822 Import 32 294 473 787 1,023 2,609 Job creation (post) 30 283 454 758 983 2,509Source: ROA Consulting 23
  • Part V. Strategic suggestions: in pursuit of realistic alternativesThis report analyzes economic ripple effects of WiBro and LTE-TDD service which can bedelivered by the 4th mobile carrier. Although WiBro service has been suffering in the marketmostly because of a lack of handset line-up, LTE-TDD will provide a solution to the problemwith dual-mode chipsets for TDD and FDD.The preliminary report written by Lee Yong-seok et al. (2011) suggested 5 WiBro promotionpolicies (provision of voice communication service, cheaper service rate, expansion of servicecoverage, diversified handset line-up and introduction of new comers). In relation to the fivepolicy suggestions, we assumed that the only difference between WiBro and LTE-TDD lies indiversification of handset line-up. With the assumption, the report found out that LTE-TDDwill add 0.67 million to WiBro users, totaling 8.07 million according to the prediction ofKMI.12The net subscriber addition with WiBro will generate economic impact worth KRW 102.2trillion in terms of GDP for five years since the launch of the service. However, LTE-TDD willadd the amount by KRW 6.5 trillion to KRW 108.6 trillion for the same period. Besides, LTE-TDD is expected to generate production inducement effects of KRW 45.1 trillion, addedvalue of KRW 6.5 trillion and 0.42 million jobs for 5 years. Compared to WiBro, it will provideKRW 2.3 trillion of production inducement effect, KRW 382.2 billion of added value and2,509 jobs more during the period.Strategy Analytics found out that Samsung and Apple have a combined market share of 52.4%in the smartphone market in Q2 2012. Their share is expected to increase in the futurebecause the market is being more and more dominated by only a few device vendors andproducts. For instance, Samsung sold 10 million units of Galaxy S3 in only 50 days after theintroduction of the model. Against this backdrop, net subscriber addition and economicimpacts of LTE-TDD will become larger if WiBro fails to secure dedicated devices.12 KMI’s prediction was applied because it is the most conservative data among the sources (IST expects that subscribers will be 4.5 million in 2 years. Compared to the IST’ data, KMI has more conservative perspective). As for the investment on network construction, the average between calculation KMI (KRW 2.7 trillion) and IST (KRW 2.3 trillion) was utilized. 24
  • However, securing the chipset for WiBro Advanced KMI and IST are preparing is impossibleas no device vendors are manufacturing the product.On top of the economic ripple effect, following analysis and suggestions are made.  Rising dominance of LTE technology. Major mobile carriers in the world are adopting 4G rapidly, and LTE is the dominant format. According to the related research, the share of LTE and WiBro will be 8:2 or even 9:1 from 2014 to 2016. More and more research are predicting that share of LTE will increase further. If the 4th mobile carrier offers only WiBro, it will have difficulties in attracting users, delivering international roaming and expanding service.  Expansion of LTE-TDD, which utilizes unpaired spectrum like WiBro(WiMAX) More and more WiMAX service operators in the world are moving to LTE-TDD network. In Korea, KT, the WiBro service operator, officially announced that transition to LTE-TDD needs to be considered. WiBro which started in 2006 has yet to be vitalized and secured only 0.8 million users as of end of 2011. There are a number of reasons behind the failure of WiBro in the market such as a lack of adequate policies of the government, passive investment strategy by the mobile carriers, and absence of dedicated devices. Among the three, absence of dedicated devices is picked the biggest obstacle preventing growth of WiBro. In particular, WiBro Advanced which KMI and IST are preparing seems impossible to secure dedicated devices as none of the chipset vendors are developing a product for the service.The analysis made in the report has some limits in quantifying the advantages of LTE-TDD interms of investment and export.  in terms of investment This report considers investment of WiBro is similar to that of LTE-TDD. However, LTE-TDD will have an advantage in investment over WiBro because expansion of LTE-TDD market will drive down the cost of its devices. 25
  •  in terms of export If commercialization of LTE-TDD is advanced in the Korean market, devices and handset vendors will have better chance to export their LTE-TDD products. Then, LTE-TDD market will be much larger than WiBro. Accordingly, LTE-TDD is better positioned in terms of export. But, the report can’t include factors in relation to the export due to limited data.In conclusion, LTE-TDD is a better option for the 4th mobile carrier than WiBro because ofthe global trend, handset procurement, and economic ripple effects. In addition, LTE-TDD isevaluated to have an upper hand in terms of investment and export compared to WiBro. 26
  • <Bibliography>1. Kim Chang-wan, Kim Sa-hyeok, Hyeong Tae-geun (2011), Study on Methods to Vitalize WiBro in the Korea’s Mobile Market, KCC2. Seok Wang-heon, Song Yeong-geun (2011), Current and Future WiBro Market, Mobile Communication Analysis Vol.26 No.43. Lee Sang-hee (2008), Trend of Next-generation Communication, 4G and WiBro, Institute for Information Technology Advancement4. Lee Yong-seok, Jeong Jae-rim, Park Sang-hyeon, Kim Sang-uk (2011), Study on WiBro Promotion Policies, Korea System Dynamics Study, Vol.12 No.25. Korea Institute of Patent Information(2012), Trend Report on Technology Standard -LTE6. Bank of Korea (2011), Inter-industrial Relations Table 20097. Korea Electronic Association (2007), WiBro Market Trend8. ABI Research, Infonetics Research(2011), “2G/3G/4G(LTE and WiMAX) Infrastructure and Subscribers Quarterly Market Size, Share, and Forecasts,” 2011. 3.9. Berge Ayvazian(2011), LTE TDD Operator Business Case & Adoption Forecast, HEAVY READING10. GSA(2011), “Evolution to LTE Report,” August 31, 2011.11. iGR(2011), “4G Worldwide Market Forecast, 2010,” June 201012. iSuppli(2011), “LTE to Overcome WiMAX and Dominate 4G Shipments,” February 8, 2011.13. Maravedis(2011), “17.25 million BWA/WiMAX and 320 thousand LTE subscribers reached in Q1 2011,” April 6, 201114. MOTOROLA(2010), TD-LTE : Exciting Alternative, Global Momentum 27
  • 15. ROA Consulting Strategy Report(2011), Global TD-LTE Market Status and Prediction: Transition to TD-LTE and Strategic Suggestions 28