The role of standards in innovation and diffusion of broadband mobile services: The case of South Korea

Transcription

1 Journal of Strategic Information Systems 14 (2005) The role of standards in innovation and diffusion of broadband mobile services: The case of South Korea Youngjin Yoo a, *, Kalle Lyytinen a,1, Heedong Yang b,2 a Weatherhead School of Management, Case Western Reserve University, Euclid Avenue, Cleveland, OH 44106, USA b College of Management, Ewha Womans University, 11-1 Daehyun-dong, Sodaemun-gu, Seoul , South Korea Abstract We explore the evolution of the mobile infrastructure in South Korea through the lens of actor network theory. In particular, we analyze the roles of standards in promoting, enabling and constraining innovation in broadband mobile services over a 10-year period. During this period, Korea moved from the position of a follower to the forefront of the mobile computing revolution by erecting one of the world s most advanced broadband mobile infrastructures. Our study shows how CDMA standards shaped specific configurations of actor networks that enabled the fast and aggressive development and deployment of 2G mobile infrastructures and a rapid transition to 3G services. These actor networks span three separate and critical realms of activities: the regulatory regime, the innovation system, and the market place. Our in-depth case analysis shows how specific connections and events across these three realms promoted the rapid expansion and deployment of mobile services in Korea. Our study suggests that successful innovation and diffusion of broadband mobile services are collective achievements and firms need to deploy strategies that enable them to mobilize broad socio-technical networks that include technological, institutional, political and financial resources. At the heart of such strategies, standards play critical roles as they mediate different interests and motivations among participating actors. q 2005 Elsevier B.V. All rights reserved. Keywords: Mobile phones; Innovation; Infrastructures; Standards; Actor network theory; IT policies * Corresponding author. Tel.: C addresses: youngjin.yoo@case.edu (Y. Yoo), kalle@case.edu (K. Lyytinen), hdyang@ewha.ac.kr (H. Yang). 1 Tel.: C Tel.: C /$ - see front matter q 2005 Elsevier B.V. All rights reserved. doi: /j.jsis

2 324 Y. Yoo et al. / Journal of Strategic Information Systems 14 (2005) Introduction Broadband mobile services require integration of diverse technological and organizational resources that are not typically found within a single firm. Knowledge necessary to build such complex services is often developed concurrently in several locations and cuts across the boundaries of firms, industries and countries. It thus involves multiple actors who are embedded in different technological, social and economical contexts and whose interests are not necessarily aligned with one another. For example, the interests of device manufacturers who operate in the global market will not be the same as those of the domestic mobile operators. Similarly, the interests of operators who want to provide exclusive data and service content to their users may not be aligned with those of content providers who want to maximize the reach of their content through multiple operators. Yet, the innovation and diffusion of broadband mobile services require coordination among these heterogeneous actors who have specialized knowledge and resources that can be integrated into broadband mobile services. Van De Ven (2005) argues that the innovations in complex technology systems such as broadband mobile services are collective achievements. As such, he further notes, traditional theories of innovation and diffusion that emphasize the entrepreneurial actions taken by individual firms are inadequate in explaining the innovation and diffusion of complex technology systems. He proposes that the firms competing in such complex technology domains should pursue a running in packs innovation strategy and need to be politically savvy. Although Van de Ven (2005) and Van De Ven et al. (1999) and other scholars (Garud and Rappa, 1994; Ruttan, 2001) have made important conceptual contributions in further developing our understanding of the complexity and the problematic nature of innovation and diffusions of complex technology systems (such as broadband mobile services), it is not yet clear how individual firms can pursue the suggested running in packs strategy in order to develop innovations in broadband mobile services. In this study, we examine the role of standards in aligning the interests of different actors and coordinating actions among them in order to mobilize the resources that are necessary for successful innovation and diffusion of broadband mobile services. Of particular interest to us are the ways in which standards enable specific configurations of actor networks that become the socio-technical context for successful innovation and diffusion of broadband mobile services. Drawing on an in-depth longitudinal case study of the evolution of South Korean mobile services over a decade, we examine how strategies and actions of individual actors (whether they are government bodies or private companies) are mediated and coordinated through standards as they each pursue their own strategies in the process of building new infrastructures that are necessary to offer novel mobile services. The evolution of mobile services in Korea 3 offers a unique opportunity to study the successful innovation and diffusion of broadband mobile services. At the beginning of 3 We will use the terms Korea and South Korea interchangeably in the text when there is no danger of confusion with North Korea.

3 Y. Yoo et al. / Journal of Strategic Information Systems 14 (2005) the 1990s, Korea had only one mobile phone operator with less than 5% of the population having access to mobile phone services and with most of them using phones and network devices predominantly manufactured by foreign companies. A little over a decade later, however, South Korea has become one of the hotbeds of innovation in mobile services, with over 75% of the population with mobile phone services and several companies (e.g. Samsung Electronics, LG Electronics, and SK Telecom) emerging as powerhouses in the global mobile industry. In the world of 3G (third generation) mobile services that promise a seamless marriage between the Internet and traditional voice mobile services, South Korea has been one of the few bright spots that have experienced successful diffusion of 3G and the less-advanced 2.5G (two and one-half generation) mobile services. Within a year after the launch of its 3G services in 2001, about 7% of the mobile phone subscribers had signed up for 3G services in Korea. At the same time, the average revenue per user (ARPU) for these users is nearly three times higher than that of 2G (second generation) users. Taken together, in many measures of innovation and diffusion, Korea is one of the most successful cases when it comes to the broadband mobile services. While one might look for reasons for such rapid diffusion of innovation in broadband mobile services in Korea in national policy, clever strategies crafted and executed by individual companies, or socio-cultural forces that created huge demands for such services, our study focuses on how individual firms actions and strategies were mediated and coordinated through standards, which led to the successful construction of a broadband mobile infrastructure. By a standard, we mean any written artifacts that enable effective coordination of activities between independent developers, manufacturers or users of telecommunication technologies including manufacturers, operators, service providers and mobile service users. We then define broadband mobile infrastructure as the constellation of specific technological components and subsystems with associated technical and business communities and specific sets of policies and governance mechanisms that enable high-speed mobile data service (O64 Kbps bandwidth) on a national basis. Building such infrastructures is not easy and poses tantamount challenges because: (1) actors incentives are not aligned, (2) the development of such infrastructures is inherently complex and technically challenging, (3) the level of investment needed to develop such infrastructures is high and depends on the creation of a market base, which in turn cannot be created without having infrastructure, (4) the technology choices for the infrastructure are inherently path dependent, and (5) the uncertainty of adopting and benefiting from such services is high. The specific research question we ask is: How do standards mediate and coordinate the strategies of multiple actors in developing a national infrastructure for mobile broadband services? In answering this question, we draw upon and extend recent studies on the role of standards in the wireless revolution that have examined the dynamic realignment of actor networks during the reconfiguration of the value networks (Fomin, 1999; Funk, 1998; Lyytinen and King, 2002) due to an emerging mobile broadband infrastructure. In what follows, we provide a short overview of the evolution of mobile technology standards in order to describe its complex and path dependent nature, followed by a short review of the past research on mobile technology and the diffusion of IT innovation. We then outline an analytical framework based on actor network theory that guided data collection and analysis. Subsequent to the exploration of the evolution of mobile services

4 326 Y. Yoo et al. / Journal of Strategic Information Systems 14 (2005) in Korea and the roles of standards in shaping the broadband mobile infrastructures, we discuss the implications for innovation strategies for broadband mobile services and future research. 2. Background 2.1. Mobile service infrastructures as complex technology systems As shown in Fig. 1, mobile infrastructures consist of several subsystems. These include the handsets (terminals), the base station (the radio access method), and the switching platforms (the wired data transmission system). Critical connections between these systems are governed by a host of interface and interoperability standards. Two critical sets of standards in any mobile phone infrastructure are: (1) air interface standards, and (2) network interface standards. Air interface standards specify how a mobile handset interacts and operates within a cellular infrastructure that consists of cells monitored and controlled by base stations and their control mechanisms (base station switches). Likewise, the network interface standard specifies how the cellular infrastructure (and the connections, i.e. calls originating within the infrastructure) interacts with the (existing) fixed-line (currently) circuit-switched telephone network. Since Bell Labs invented cellular technologies in 1947, mobile phone technologies have been classified into separate generations (with variants within each generation) based on technical choices made within each sub-system and the nature and type of connections among subsystems. Each mobile generation has advanced air and network interface standards by adding new features that enable additional service capabilities normally with lower cost and better quality features. Fig. 2 outlines evolutionary paths of main wireless standards that have specified typical features across generations of each technical Air Interface Standard Cell Base Station Base Station Base Station Base Station Network Interface Standard Mobile Switch Existing Fixed-line Telephone Network Mobile Switch Fig. 1. Structure of Mobile Phone services.

5 Y. Yoo et al. / Journal of Strategic Information Systems 14 (2005) G 2G 2.5 G 3 G AMPS GSM GPRS EDGE W-CDMA TACS TDMA CDMA xEV-DO NIMT CdmaOne IS-95A, IS-95B CDMA x CDMA xEV-DV CDMA x Fig. 2. The evolution of mobile services. (The picture is purposefully simplified as we do not present PDC or D- AMPS for 2G and the Chinese version TDMA/W-CDMA for 3G which has been proposed for the IMT-2000 family.) subsystem and their connections. It also shows principal evolutionary paths between generations. Appendix A provides a more detailed description of each generation. The evolution of mobile infrastructures forms a growth of a complex ecology of technologies with multiple competing standards and alternative subsystems and components. The number and complexity of these subsystems has increased over time, and in order to offer seamless mobile voice and data service, they all need to be effectively coordinated. As data services over mobile phones became possible, mobile infrastructures needed to be connected to a growing number of external systems such as Internet services ( , chat), or portals. Given that these components and subsystems are often designed and manufactured by complex value (webs) networks of heterogeneous manufacturers, software vendors, and system integrators, mobile service providers face the challenge of how to deal with this increasing heterogeneity of terminals, network devices, software systems, and gateways. At the same time, mobile services are becoming increasingly malleable and uncertain in that the meaning of mobile telephony has radically changed over time from a car-mounted service to universal digital service offered through multiple platforms. The convergence includes not only mobile phones but also personal digital assistants, music and video players, gaming devices and digital cameras among others, which all need to be integrated with the mobile infrastructure. Each time a new layer of technology is added, mobile services gain new meaning, inviting yet more opportunities for other actors to join the network. As such, the meaning of mobile services is socially constructed over time (Bijker, 1995) as actors interact with increasingly complex technology and invent new ways of using the technologies in everyday experiences. Therefore, in order to understand the dynamics of innovation of mobile services, one needs to consider how actors with different strategic incentives and motivations work together to develop and implement complex technological systems and shape the sociotechnical context in which different services can be offered. Furthermore, the evolutionary trajectory of standards needs to be explicitly considered as we study the role of standards in the diffusion of mobile innovations. Next, we review past research on the diffusion of IT innovation.

6 328 Y. Yoo et al. / Journal of Strategic Information Systems 14 (2005) Past research on the diffusion of IT innovation Drawing on the work by Rogers (1995), past IS research on diffusion of innovation has sought to explain adoption of innovation at the individual level based on the adopter s characteristics, their social network, the communication process, the promoters characteristics, and the attributes of the innovation itself including triability, relative advantage, compatibility, observability, and complexity (Cooper and Zmud, 1990; Davis et al., 1989; Fichman and Kemerer, 1997; Zmud, 1984). Typically, a sequential diffusion model consisting of adoption and implementation phases is assumed (Cooper and Zmud, 1990; Fichman and Kemerer, 1997). These studies treat an innovation as a distinct and discrete activity performed by individual entrepreneurial firms with measurable features (Rogers, 1995). Here, innovations are characterized as unproblematic, complete, uncontested, and unambiguous entities that only expect to be diffused in a linear sequence. Such theories have provided many useful insights on how the diffusion of technologies takes place at the individual level or how individual firms innovate. A string of recent studies on complex technology innovation and diffusion, however, points out the limitations of this line of research. The studies of innovations of network computing standards (Garud et al., 2002), Internet web browsers (Faraj et al., 2004), Linux open source standards (Tuomi, 2002), medical devices (Garud and Rappa, 1994), and personal digital assistance (PDA) (Allen, 2004) all suggest that the innovations in complex technology systems are collective achievements by many actors. They have found that technology innovations are often contested among many different alternatives, and that actors who are involved in the innovation process are partisan in the sense that they participate from their own technological frames (Allen, 2004; Bijker, 1995) and often have different and conflicting interests (Van De Ven, 2005). Therefore, developing new infrastructures for complex technology systems such as broadband mobile services is a political process as much as it is a technical one. Past research on standards development of early generations of mobile services (Bekkers et al., 2002; King and West, 2002; Lyytinen and Fomin, 2002; Palmberg, 2002) concludes that through such a political process: (a) alternative technology frames are contested, negotiated and integrated; (b) necessary new competencies are created; and (c) effective alignments of interests among key actors are established. The meanings of complex technology systems, then, are shaped through a negotiation process as new layers of technology are added to the existing mix of technological components and capabilities, making the innovations of broadband mobile services inherently ambiguous, problematic, and malleable with high interpretive flexibility (Bijker, 1995; Orlikowski, 1992). As actors who belong to different communities construct meanings around technologies, these technologies become socially constructed and simultaneously community shaping (Hughes, 1987). Consequently, the study of innovation and diffusion of complex technological systems such as mobile broadband infrastructures must also cater to multiple realms of activity in which innovation and diffusion take place including scientific, public and economic activities (Van De Ven, 2005; Van De Ven et al., 1999). Studies must string together observations of the pollination of technological ideas, formulation of theories and technologies in laboratories, changes in industrial policy and regulation, and explorations of marketing strategies and consumer behavior. Such analyses should focus not only on

7 Y. Yoo et al. / Journal of Strategic Information Systems 14 (2005) the technological and rational strategic choices by firms, but also political juggling and negotiations that take place among them. Such perspectives should allow us to see technological innovations as contested; that is, things could have been otherwise. Actor network theory has emerged as a powerful theoretical lens that integrates technological, political and institutional factors into consideration (Hanseth et al., 2004). It has been shown to be effective in analyzing the innovation and diffusion of complex technology systems (Hughes, 1983). As such, we will develop a research framework that draws on actor network theory. 3. Research framework 3.1. Actor network theory Drawing on actor network theory (ANT), we conceptualize the diffusion of complex technology systems such as mobile infrastructures as a configuration and re-configuration of actor networks around the technology being diffused. Such networks connect both social and technical elements that are needed to enable, diffuse and sustain mobile infrastructures. Because we want to understand the dynamics of the infrastructure evolution, we are particularly interested in tracking and investigating specific configurations of actor networks at specific stages. 4 The main impetus of ANT is to overcome the distinction of the social world and the natural (technological) world by symmetrically viewing the actors in the social world and the artifacts in the technological world. In order to emphasize the symmetrical treatment of both human and non-human elements in the actor network, its proponents use the term actants instead of actors and artifacts (Akrich and Latour, 1992). An actant is any technical or social element that becomes enrolled in a network through its properties behaviors and/or interests. Examples of actants in mobile infrastructures are antennas, speech codecs, air interface standards and associated chip sets, formatting standards (i.e. CHTML), regulators, operators, manufacturers, users, etc. The actor network is configured over time through the enrolment of allies (both human and non-human) by means of a process called translation (Callon, 1986). Translation refers to a variety of ways by which actors seek to persuade others and enroll them into an alignment with an existing or prospective network whereby the actors become mobilized and thus the relationships between actors and the network as a whole become stable and irreversible. During translation, the actors must win support of the others and make themselves indispensable by enrolling the others. Such situations are called obligatory passage points (Callon, 1986), which define overall conditions for increased network stabilization and expansion. The resulting outcome of such a process is denoted closure whereby the technology and its relationships become black-boxed or taken for granted. Standardization then can be 4 A complete introduction of actor network theory is beyond the scope of this paper and we will only focus on those aspects which enable us to explore the configuration of networks (not how they are built over time). Readers are encouraged to examine Howcroft et al. (2004) for uses of ANT in the IS field, as well as Callon (1986) and Latour (1987, 1996, 1999) for general introductions.

8 330 Y. Yoo et al. / Journal of Strategic Information Systems 14 (2005) viewed as a process where technological artifacts are created and aligned with other actors to the extent that, if the process is successful, the standard and the underlying technology become closed and the associated network irreversible. Thus, standards as general agreements among the actors regarding the nature and the shape of the technology form a set of critical translations necessary to diffuse a mobile infrastructure. The success or failure of this diffusion process can be identified in terms of a sequence (or its lack thereof) of translations in an actor network whereby certain technology become selected and associated with a set of actors over time. Another critical aspect of ANT is inscription. Inscription refers to the way technical artifacts embody patterns of use and channel actors behaviors when they enter into a relationship with other actors (or an actant) in a network. Actants in a network thus embed scripts for future action and behavior in the network. In line with this, standards embody powerful inscriptions for mobile infrastructures in that they command a central place in the actor networks in which they participate because they dictate how key technical artifacts in the network will or must embody specific patterns of use that will constrain the uses of such artifacts (Fomin, 1999). At the same time, different standards can offer inscription with different degrees of salience to other actors that will results in different configurations of the network Actor networks in the construction of mobile infrastructures ANT does not offer any detailed guidelines on how to analyze and build descriptions of actor networks and how to use these descriptions to explain innovation outcomes such as the success or failure of technological initiatives (Latour, 1993, 1995). Therefore, we will adopt a more specific framework to analyze the evolution of mobile infrastructures and associated actor networks. We conceptualize the translations necessary for the development of mobile infrastructures as a dynamic alignment of actors and artifacts in three separate realms that govern the growth of a mobile infrastructure. These three realms define specific types of passage points through which the actor network must pass during the innovation and diffusion process related to a mobile infrastructure. These three realms are: (1) the innovation system, (2) the market place, and (3) the regulatory regime (Lyytinen and King, 2002). Together they establish a complex national socio-technical network what we call an innovation and diffusion system for mobile infrastructures. Each of these realms can be viewed as a specific domain that consists of distinct types of actor networks which are largely separate and independent of one another when technologies related to mobile infrastructures are closed and seen as unproblematic. The point we want to make is that all these actor networks must be (re)-configured in specific novel ways during a successful innovation process around a mobile infrastructure in order to reach closure and offer specific new services. The actors in each realm continually interact with those in the other two either through feed-forward (e.g. market and service anticipation in the innovation system) or feedback loops (exploitation of market experiences) that affect proactive design and enrollment of actors. By an innovation system, we mean actor networks that consist of the interconnected sites, competencies, ideas and resources which are able to develop new solutions and capabilities over time for mobile service based on research, experimentation

9 Y. Yoo et al. / Journal of Strategic Information Systems 14 (2005) and development activity. In the innovation system, standards form obligatory passage points in that standards embody enrollments of actors behind one technological alternative vis-à-vis others. Notably, only some of the alternative innovations become standardized when specific connections are created between certain technological features and other actors in the networks. This happens, for example, when (a) new features at the air or network interface are introduced or (b) new capabilities that utilize those interfaces are agreed upon as general inscriptions for all actors involved and written down as technical specifications. A path dependent process generated by the innovation system is called an innovation cycle. Through this cycle, new features are projected into the technological world and become established as candidates for future mobile services, enabling actors to relate to other actors and artifacts in new ways. As noted above, innovations cycles in mobile infrastructures are typically organized through generations of standards and their variations. By market place, we mean the constitution of actor networks that produce telecommunication services or their underlying technologies by exploiting technological capabilities defined within telecommunication standards. In the market place, standards define obligatory passage points by identifying alternative technological choices and creating new capabilities that must be accepted by the users. The process generated within the market place is called a diffusion cycle which covers the willingness and propensity of the actors to adopt and utilize services. Through the diffusion cycle, the actors associate themselves with technologies and related actor networks that are enabled by and built around the mobile standards and related infrastructures. Thus, the concept of market place also involves understanding changes in consumer behaviors as a response to introducing new services, sources and means of competition due to the transfer and channeling of innovations in specific actor networks. Finally, by a regulatory regime, we mean any type of authority (industrial, national or international), that can influence, direct, limit or prohibit any activity in the innovation and diffusion realm and thus imposes a set of constraints and associated inscriptions on how actor networks can be organized. In the regulatory regime, standards form an obligatory passage point for any specific type of service and associated licensing policy vis-à-vis other types of services that could be offered with the same available resources (radio waves, for example). Thus changes in the regulatory regime can have a deep impact on other realms in terms of innovation or services through specific measures such as promoting a specific industrial policy, supporting market liberalization or changing licensing policies. The regulatory rights are normally endowed through the concepts of statehood and public control to regulatory state bodies. Such bodies can constrain or enable specific economic or innovation activities in the innovation system or the market place. The process generated by the regulatory regime can be organized into regulatory cycles through which specific ways of associating with actors are allowed or prohibited in other regimes. The cycle normally results in regulatory decisions concerning the mobile service features or the specific content (or their lack of) of the technical subsystems. A regulatory cycle includes regulatory interventions such as licensing and frequency allocation decisions for specific standards that move standards from mere technological innovations into candidates for elements of mobile infrastructures. Another important aspect of the regulatory cycle is regulatory monitoring including pricing and quality

10 332 Y. Yoo et al. / Journal of Strategic Information Systems 14 (2005) Actor networks Innovation Systems Market Place Standards Actor networks Actor networks Regulatory Regime Fig. 3. Research framework. assurance which define properties of inscriptions that go with the mobile technologies in the market place. As shown in Fig. 3, we view the evolution of mobile infrastructures to be critically dependent on the specification, implementation, choice and adoption of standards in the form of obligatory passage points for each separate realm (Funk, 2001; Funk and Methe, 2001; Haug, 2002; Lehenkari and Miettinen, 2002). Standards are important because they permeate activities in all three above realms and mediate their interactions. Standards demand new connections be established between these realms during the innovation process as many relationships within stabilized actor networks are critically dependent on the recognition and adoption standards. Yet, as noted above, many of the existing accounts of the innovation and diffusion of complex technological IT systems do not adequately analyze these critical interactions. To summarize, we argue that interactions among key actors, resulting enrollments, and their changes are the key to understanding the development and evolution of advanced mobile infrastructures. This also suggests that innovation of mobile infrastructures is nonlinear as any part of the complex actor network can become problematic and unstable at any point of time, and begin a disruptive change that gains momentum (Hughes, 1987) which in turn demands sweeping responses in the other parts of the current network. Thus, we explore innovation within and around mobile infrastructures as an intertwined, ongoing technical and social negotiation within multiple actor networks. 4. Case study design To understand the rapid development and diffusion of mobile phone services in Korea, we conducted an in-depth case study based on the analytic framework in Fig. 3. We focused on the role of standards in shaping actor networks as technology evolved from 2G to 3G. There are a few reasons for choosing Korea as our case study site. First, in the world of 3G mobile services, it represents an interesting case as Korea has been a latecomer in the global competition of mobile services, which was dominated solely by Northern European and the US companies in the 1990s. Despite its late start, however, Korea has

11 Y. Yoo et al. / Journal of Strategic Information Systems 14 (2005) Table 1 Penetration of Mobile Phone Ownership in Korea Year % of ownership Source: Ministry of Information and Communication (2002). experienced rapid market penetration (see Table 1) and the development of new technologies (see Table 2). Therefore, an investigation of the rapid evolution of mobile services in Korea over such a short period of time offers a unique opportunity to understand how complex technology gets accepted fast on a large scale. Second, Korea has the highest penetration rate in the world of fixed-line broadband Internet. The simultaneous high level penetration of both mobile and fixed-line broadband data services in Korea defies the conventional belief that the success of mobile data services in Europe and Japan was due in part to their low penetration levels of fixed-line Internet. Therefore, the explanations of Korea s success must be looked at deeper and must explore the specific features of the actor networks that were organized around mobile service development during the last decade. Our objective was to use systematic data analysis to offer observations on the roles of standards in the coordination of actors who are involved in innovations and diffusion broadband mobile services. We attempt to gain such insights through a naturalistic inquiry through interpretive means (Lincoln and Guba, 1985). The aim of our study is to generalize from a case to a theory rather than from a sample to a population (Yin, 1994). This is done through hermeneutic iterations between data and emerging theoretical constructs until a theoretical saturation is reached (Strauss and Corbin, 1990). Data for our case analysis came from two primary sources: (a) 23 in-depth interviews with key actors of all three realms (the regulatory regime, the innovation system, and the market place), and (b) a collection of archival data from various sources including eight major newspapers, white papers published by the National Computerization Agency, technical reports published by research institutions focusing on telecommunication and information technology policy, and transcripts from the congressional hearing. We traced the actor networks from their surface appearances (Latour, 1987) which were the specific services introduced and/or specific standards and decisions which preceded or enabled those services. We began our trace with the known actors, and expanded our interview list while we tracked down different actors in the network. Table 2 Evolution of Mobile Phone Service Operators in Korea 1G IS-95a CDMA IS-95b CDMA CDMA x CDMA x EVDO SKT July 1988 January 1996 (World s first) August 1997 (World s first) October 2000 (World s first) November 2002 KTF April 1984 October 1997 July 1999 May 2001 May 2002 (World s first) LGT NA October 1997 NA May 2001 NA

12 334 Y. Yoo et al. / Journal of Strategic Information Systems 14 (2005) The interviewees included three major mobile service operators (SK Telecom, KT Freetel, LG Telecom), manufacturers of both handset and network equipment (Samsung Electronics, LG Electronics), a leading landline telephone company (Korea Telecom), a leading research institute in the area ETRI (Electronics and Telecommunications Research Institute), the primary regulator and policy maker in the area Ministry of Information and Communication (MoIC), a content and solution provider (Witcom), and a middleware developer (FEELink). We also interviewed a senior R&D manager at Qualcomm who had been deeply involved in the commercialization of the CDMA standard in Korea. All the interviewees were directly involved in the development or operation of mobile services in Korea. Interviewees were asked to clarify if their personal view differed from the positions taken by the organizations that they represented. The focus of our interviews was on examining each actor s role in the development of mobile services in Korea and their relationship with others competing actors, technologies and standards. We also asked for each actor s role in the establishment of specific standards that specified deployed mobile services. Through this, we attempted to deepen our understanding of the dynamic and reciprocal patterns of interrelationship among actors over time as mobile services in Korea gained their momentum during the late 1990s. Since our focus was on understanding how the innovation and diffusion system operated as constitutions of actor networks, we sought to reveal the pattern of connections of actor networks as the technology evolved. Hence, in this study, we did not focus on specific instances of particular applications (such as ERP or a specific payment application) or their power of inscriptions around which a specific network was stabilized (Latour, 1987). The interviews followed a semi-structured interview format. Most interviews were conducted face-to-face and audio taped, except the interview with MoIC that was conducted via . All interviews were conducted in Korean for 2 3 h per interview and in most cases, several interviewees were interviewed by at least two of the authors if not all, which allowed careful note-taking and clarification. All interviews were fully transcribed. The interviews were summarized and then translated into English by the first and the third authors who are fluent in both Korean and English. We corroborated our findings from the interviews through archival data. We identified 633 events related to mobile services from 1989 through the first quarter of 2004 from the archival data. We then classified these events in terms of the major actors involved and the realm in which the events took place. This archival data analysis provided valuable triangulating information regarding the development of mobile services in Korea and allowed us to see the changing dynamics among the actors in different realms over time in a visual way. It also offered important additional insights regarding the impact and relationships of periphery innovations in Korea including the Internet, the digital entertainment industry, landline telephony, personal computers, and other mobile technologies such as wireless local area networks. We repeatedly read both the interviews and the archival data in order to map events, the actors and their relationships according to the analytic framework presented in Fig. 3. The hypothesized pattern of roles and relationships were then triangulated with other data points in order to validate the specific relationships emerging from our analysis. Through this exploration, we developed tentative constructs and hypotheses that seemed pertinent to our research question. We readily abandoned and modified our tentative constructs

13 Y. Yoo et al. / Journal of Strategic Information Systems 14 (2005) and hypotheses and kept those that had better validity. This process led us to insights regarding the role of standards in coordinating and mediating the relationships among actors with conflicting goals and motivations. We develop these insights in the remainder of the paper. 5. Development of broadband mobile infrastructure in South Korea 5.1. The Korean economy and mobile market before 2G The Korean economy has traditionally been a government-led export driven economy (Kim, 1997). Since the early 1960s, elite bureaucrats in the South Korean Government have set major industrial policies to achieve specific economic goals of growth and competitiveness. Over time, the focus of the industrial policy has shifted from low-tech labor-intensive industries such as textiles, to capital-intensive heavy industries such as shipbuilding and steel. Since the late 1980s, however, the Korean government began focusing on high-tech industries including semi-conductors and telecommunication equipment as major targets of industrial policy (Cho, 1998; Kim, 2003a, 1997, 1998). Another characteristic feature of the Korean economy has been the dominance of chaebols. These are large industrial conglomerates which consist of a family of large companies owned and managed by family (clan) and their relatives (Cho, 1987, 2002). Unlike business conglomerates found in some other advanced industrial countries (e.g. Japan or Sweden), chaebols in Korea are unique in that their governance structure does not include central financial institutions. Moreover, they heavily influence and are influenced by the government s industrial policy through tight social networks. Chaebols are extremely competitive in their domestic market and they compete with each other in virtually all major market segments. It is not unusual to see a chaebol enter into a new market just to counter the dominance of a rival chaebol. In 1995 and 1999, chaebols accounted for 16.9 and 12%, respectively, of Korean GNP but their dominance in exportoriented industries (steel, car manufacturing, semiconductors, telecommunication equipment ship building) or critical domestic markets (e.g. construction or telecommunication services) was much higher. Korea launched its first mobile phone service in 1984 when Korea Mobile Telecomm Service Co. (KMTS, which later became Korea Mobile Telecommunication Corp or KMT), a spin-off of Korea Electricity and Telecommunication (KET, which later became Korea Telecom or KT) started its AMPS based service. KMT enjoyed a government monopoly during the entire 1G era until it was acquired by SK Telecom (SKT) in All the necessary network equipment was imported from AT&T and Motorola. Likewise, the handset market was dominated by imported handsets from Japan and the U.S. The service remained a limited high-end market and the penetration rates were in low single digits (less than 4%) after 10 years of service. The lack of technology transfer from these foreign partners eventually resulted in motivating the Korean government and several technology firms to develop their own technologies during the 2G era (Lee and Han, 2002).

14 336 Y. Yoo et al. / Journal of Strategic Information Systems 14 (2005) Development of 2G CDMA infrastructure The development of CDMA based 2G infrastructure in Korea was primarily enabled by a tight collaboration among actors in the regulatory regime and innovation systems. During this era, the actors in the market place figure out what is possible with new digital mobile phone technology. Fig. 4 shows the configuration of the actor networks in this era that was essential to the rapid development of 2G digital mobile services in the Korean market. Below, we first discuss the key actors involved and their relationships in this configuration. We then discuss the role of CDMA standards in shaping the configuration of the actor network as shown in Fig. 2. In the regulatory regime, the Korean government played a significant role during the early stages of CDMA development through its industrial policy, standard selection, and support of the creation of an industry consortium of companies to work with Qualcomm. First, the Korean government influenced the development of 2G infrastructures through its industrial policy toward the telecommunication industry. In the late 1980s, the primary driver of the South Korean government s policy toward the telecommunication industry changed from national security to economic development (Kim, 2003a). This change in policy resulted in gradual deregulation of telecommunication services, particularly in mobile phone and broadband Internet services. As a part of this deregulation effort, the KMT was privatized and later became SKT in Then, the government organized an auction for the four additional 2G licenses in By creating five operators in a relatively small, fast growing and virgin market, the government set the stage for fierce competition in the market place among chaebols and enabled fast learning and effective market feedback between the market place and the innovation system. A more direct role by the government was its decision to adopt untried but a potentially more efficient CDMA technology over the proven European GSM standard. Since GSM had already been established as a global standard with international roaming capability, operators and manufactures in Korea preferred GSM over CDMA (Song, 1999). Innovation System KT, ETRI, Qualcomm, manufacturers, and operators completed Provided novel ideas adopted Market Place Operators, content providers, consumers, chaebol competition - mandated CDMA - initiated consortium - set industry policy Standards CdmaOne IS-95A, IS-95B selected Regulatory Regime Government s focus on Telecommunications - License allocation - Policy towards deregulation Fig. 4. The configuration of actor networks in 2G era.

15 Y. Yoo et al. / Journal of Strategic Information Systems 14 (2005) The government, however, pushed the adoption of CDMA because it offered the possibility of handling larger call volumes than GSM for the same spectrum. Moreover, Qualcomm s willingness to share advanced mobile technologies with Korean firms a sharp contrast to the GSM community s reluctance to share its intellectual property rights (IPR) with an outsider who did not bring its own to share of IPR to the existing members was an important factor that influenced the Korean government s decision to adopt CDMA. An executive of Samsung Electronics who participated in the standard selection discussions recalled: At that time, the industry favored GSM. We have to give credit to the [Korean] government for the fact that they overcame that opposition from industry and pushed forward with CDMA. ETRI made the case for CDMA solely based on technological merit. If there was no drive from the Ministry of Information and Communication, there would have been no CDMA even with the efforts by ETRI. (Interview at Samsung) Finally, the Korean government played an important role in the development and commercialization of CDMA technologies by working closely and neutrally with all industry partners. In 1993, the government set up a research fund for the development and implementation of CDMA technologies. It was financed from the funds obtained from the license fees of five CDMA operators and managed by IITA (Institute of Information Technology Assessment) whose board consists mainly of executives from operators. The government also arranged collaboration among ETRI, SKT, KT and manufacturers from the beginning so that the time lag between the technology development and commercialization could be minimized. In the innovation realm, a consortium of Korean companies (Samsung Electronics, LG Electronics, Hyndai Electronics and Maxon) along with KT and ETRI collaborated with Qualcomm to develop, design, implement and field-test main components of the network infrastructure and terminals from 1989 through Qualcomm had been developing spread spectrum radio technologies since the late 1980s as a challenger for GSM and TDMA, and by the late 1980s it already had 53 patents on radio protocols and MSM (mobile station modem). However, it lacked a test site and credible case for its untried technology (West, 2002a,b). At the same time, for Korean firms and ETRI who could not find willing collaborators in the GSM community, Qualcomm provided an opportunity to gain access to mobile technology. Meanwhile, foreign manufacturers did not participate in this consortium because they primarily focused on the growing GSM market in Europe and the Far East and worked on the next phase of services for the US. A senior project manager at Korea Telecom who led the CDMA commercialization consortium recalled the situation as follows: We began talking about the development of mobile communication technology in the 1980s. It was the late 1980s, probably Korean companies did not even have basic protocols for mobile communication. Since the demand for mobile communication was rapidly growing, we travel all around the world to acquire development technology beginning with Motorola. However none of them were willing to transfer the technology. They did not even talk about it. Then, people at

16 338 Y. Yoo et al. / Journal of Strategic Information Systems 14 (2005) Qualcomm offered. They said that since they had technology, why don t you try it? (Interview with KT) Korea Telecom (KT) played a significant role in managing the project, drawing upon its extensive experiences in managing large-scale development and commercialization of domestic TDX digital switching systems in the mid-1980s. It was also involved in the system architecture design and negotiated with Qualcomm for the royalties and IPR contracts. According to the senior project manager who led the efforts, KT played a leading role:.because there were no other companies in Korea who had experiences with such a large project. Although they had used it, since they did not know the system and network, it required a significant amount of engineering know-how not only to develop but also to operate it. We had KMT and then also developed TDX and fiber optical networks. The mobile network is fundamentally similar to the voice network. You add more computer parts and add roaming capabilities from one cell to another. (Interview with KT) ETRI also played an important role as a mediator and arbitrator among participating companies. All participating companies dispatched their researchers and engineers to ETRI and closely collaborated together with engineers from Qualcomm. ETRI acted as the main interface between Korean firms and Qualcomm in technology transfer concerning the CDMA radio interface. In the process, ETRI researchers knowledge of developing domestic TDX digital switching systems in the 1980s provided a pivotal basis for commercializing CDMA. They modified the existing TDX architecture in order to adapt it to CDMA network architecture on a large-scale (including cell management, transfer and roaming). Fig. 5 shows a simplified representation of the final architecture of the CDMA network and the specific roles Qualcomm and ETRI had in developing its separate parts. The resulting set of standards is known as a family of IS-95 CDMA standards. In the realm of the market place, SKT successfully launched the world s first commercial CDMA service in Four other operators joined SKT (Shinsegi Telecom, KTF, LGT, and Hansol) by October All operators added data services function in 1998 (14.4 Kbps), and upgraded their network to IS-95B CDMA in 1999 which offered 64 Kbps access rates. During this era, these operators, in particular SKT, played a significant role in the development process. SKT organized a special taskforce for CDMA services by conducting field tests and these tests provided critical feedback to Terminals Base station Base station Controller MSC (Mobile Switching Center) Qualcomm - Air interface ETRI and its domestic partners - Network interface and architecture Fig. 5. CDMA wireless network architecture and development responsibilities.

17 Y. Yoo et al. / Journal of Strategic Information Systems 14 (2005) the commercialization process. In particular, Samsung Electronics and SKT developed tight relationships by offering its latest handset models only to SKT. A senior engineer of LG Electronics who participated in the project recalls: The engineers of SKT provided a lot of feedback from the field. Therefore, I think that SKT s field engineers contributed significantly to the commercialization of CDMA. Nobody in the world tried it before, but SKT did. It was a tremendous gamble. The idea that we would dare to try to commercialize a technology that nobody in the world did is something that can happen only in our country. Typically telecom operators are very conservative. Even though the reliability was very critical, they deployed the untested products in big cities. (Interview with LG Electronics) An important aspect of the market place during this time was the fierce competitions caused by the relatively small market size, fast growth and the oligopoly market structure among operators. Since each operator was backed by a chaebol, it could engage in steep price competition through large subsidies to the consumers for the handsets and low call rates. All the operators aimed at the first mover advantage, and consequently subsidized consumers with almost the full cost of a handset purchase. This competition also facilitated rapid market penetration of CDMA services through reduced prices, which helped change the public image of mobile services from a luxurious item only for wealthy people to a handy replacement of a public payphone for everyone. Once having penetrated these new markets through low prices, operators had to differentiate themselves from their competitors by continuously offering new services. As a result, operators constantly experimented with new data services and successful data services were quickly copied by other operators. During this period, the popular content services were short-messaging service (SMS) and Caller ID. During this era, CDMA emerged as a key factor that aligned the interests of diverse actors. An outside actor, Qualcomm, was enrolled as a critical creator and owner of core technology capabilities. At the same time, in the early 1990s, Qualcomm needed manufacturers and operators who would be willing to take the risk of deploying unproven technology to the field. They also needed complementary innovations in the network architecture that would connect mobile devices to the telephone backbone network. The Korean government wanted to establish the mobile communication industry as a key strategic area for future economic growth and needed a partner who would help transfer key know-how in digital wireless communication technologies. ETRI and KT had experiences in developing network technology, which was complementary to Qualcomm s air interface layer of CDMA technology, and were looking for a willing partner who would transfer core technology for digital mobile communication. SKT, along with Korean manufacturers, provided key knowledge from the field as they deployed unproven technology on a large scale. If Qualcomm s CDMA technology covered the implementation of entire layers of mobile wireless infrastructure including both air interface and network interface (like GSM), KT and ETRI s role would have been greatly reduced and it is not clear if they would have been able to coordinate the consortium as effectively as they did. Through this enrolment, Korean manufacturers were motivated to acquire new technology capabilities and expand their operations into new business areas

18 340 Y. Yoo et al. / Journal of Strategic Information Systems 14 (2005) that were enabled by a growing and fast exploitation of CDMA technologies in the Korean market place and beyond. Similarly, if the Korean government was simply driven by the operators need to upgrade their mobile infrastructure without learning the core technology, they would have licensed GSM technology. In summary, CDMA standards, in its narrow focus on air interface and relatively weak market position, allowed key actors to align their key interests which allowed them to collaborate effectively within a very short period of time A rapid transition to broadband mobile infrastructures The broadband mobile services in Korea officially began in October 2000 when SKT started offering CDMA x service for the first time in the world. 5 KTF followed by offering the world s first CDMA2000 1xEV-DO service in May According to the MoIC (2002), by the end of 2002, the subscriber base in Korea for mobile Internet services (2.5G and 3G) had reached 23 million, which is 81% of the mobile phone services. Furthermore, during the same time period, about 40% of new handsets being sold had a digital camera (Kim, 2003b). A transition from 2G to 3G is not a simple technological upgrade. Instead, it is a reconfiguration of actor networks that enables mobilizations of new technological, organizational, and financial resources. At the heart of such re-configurations of the actor network, CDMA standards played critical roles. When compared to the European GSM standard, CDMA standards offer a much weaker form of standardization (inscription) by only specifying the radio interface and leaving much of the network management and other service specifications open. As a result, the original span of the actor network shaped by the CDMA standards during the 2G era was much narrower than the one dictated by GSM standardization. This in turn provided more room and flexibility for technological and market experiments with new technological features and opportunities to enroll new actors (for example, various content providers and m-commerce solution providers) as necessary. These new actors created a fertile ecology of experimentations with new service models and ideas, without being constrained by CDMA standards. Therefore, 2G CDMA standards with its narrow specification allowed coordination of interests and innovation activities between the actors in the market place and innovation systems. During this period, operators led the innovations in mobile broadband services by introducing new multimedia data services like Video on Demand (VOD), Multimedia Messaging Service (MMS), mobile broadcasts, downloading musical dial tones and ringtones, animation characters, location-based services and m-commerce applications. They actively sought to build alliances with new actors such as financial institutions, broadcasting companies, content providers, and middleware solution providers in order to experiment with new types of value-added mobile services to the customers. Through 5 The world s first commercial 3G service was offered by Japanese DoCoMo in the form of FOMA, a variant of the W-CDMA standard in October, For comparison, Verizon Wireless in the US started trials for a similar technology in Washington D.C. and Seattle in Spring, 2003.

19 Y. Yoo et al. / Journal of Strategic Information Systems 14 (2005) their knowledge of the market s response to new services, service operators had significant influence on the development of new standards. As operators continued seek new experiments, domestic handset manufacturers responded to those new ideas by pushing the innovations in new features of handsets with new functionalities such as color screens, digital music players, polyphonic ring tones, and digital cameras, although they still relied on core technologies developed by Qualcomm. As a result, a few Korean manufacturers emerged as global players in CDMA markets. Samsung Electronics became the world s largest CDMA handset manufacturer and the third player in the global handset market next only to Nokia and Motorola. Samsung also developed its own CDMA 2000 chipset early in Similarly, LG Electronics gained substantial footing in the global handset market, and became the second largest CDMA handset manufacturer. Combined, these two firms reached over 60% market share of the global CDMA handset market. These companies also leveraged their reputation in CDMA in order to penetrate the much larger GSM and W-CDMA market. Globally, Samsung s GSM and W-CDMA phone sales exceeded those of its CDMA sales. A senior executive of Samsung Electronics commented on this: Although we started GSM later and CDMA was mostly in Korea, our reputation in Europe was surprisingly good. For example, our GSM phones are about 50% more expensive than those from Nokia and Sony Ericsson. This proves that our high-end strategy is working and Samsung phones are accepted globally. (Interview at Samsung Electronics) An important sign of the increased influence of manufacturers and operators is their active participation in the global 3G standardizations, thus creating another layer of linkage to the actor networks in the regulatory regimes. Korean manufacturers and operators are actively involved in critical global standard organizations, including 3GPP (the third Generation Partnership Project), 3GPP2 (the third Generational Partnership Project 2), and ITU. They also actively engaged in the domestic standardization process through a domestic standardization body TTA (Telecommunications Technology Association). A shift of the locus of innovation activities from government-led coalitions to marketbased experimentations can clearly be seen in Fig. 6, which shows the number of events related to the evolution of mobile services in Korea from the end of 1992 through the second quarter of It shows the breakdown of the events over time across the three different realms. It clearly shows that actors in the regulatory regime played significant roles in the early phase of the 2G era and their importance diminished over time. On the other hand, the actors in the innovation systems displayed a significant amount of activity from the third quarter of 1994, when the second phase of CDMA commercialization began. Activities in the innovation realm peaked again from late 1999 through 2002, as they tried to evolve into 2.5G and 3G systems. During the same period, we see a similar pattern of activity in the market place, which suggests a tight connection between the innovation systems and the market place through feedback and feed-forward loops between the two realms. The activities in the market place continued to grow from the beginning of the 2.5G era, which indicates that actors in the market place play important

20 342 Y. Yoo et al. / Journal of Strategic Information Systems 14 (2005) Regulatory Innovation Market Total 40 Event Q1 1993Q3 1994Q1 1994Q3 1995Q1 1995Q3 1996Q1 1996Q3 1997Q1 1997Q3 1998Q1 1998Q3 1999Q1 roles in the innovation of mobile broadband services. This also indicates that the innovations in the 3G era are as much a business innovation as a technical one. The integration of Internet data service with mobile phone service also required the emergence of new actors. In particular, the value-added solution providers for multi-media content have emerged as an important group of actors in the innovation system. They connect content providers to mobile operators networks. While operators want to maintain exclusive relationships with these solution providers, most of them deal with all three operators, which reflect their growing bargaining power. At the same time, a new set of standards that govern the mobile Internet data access, content delivery and transactions also emerged as critical obligatory passage points. This part of the protocol stack forms a key technological component and obstacle for the successful implementation of universal mobile data services. During the late 1990s, an open, limited and not very successful WAP (Wireless Application Protocol) and a proprietary but successful i-mode emerged as standards that govern significant parts of this protocol stack. As service providers and content providers began offering more advanced data services enabled by the increased transfer speed and lowering costs, all three operators in Korea implemented their own proprietary platforms to run internet-based applications (see Table 3). In order to develop a general standard that supported all three operators, the Korea Wireless Internet Year 1999Q3 2000Q1 2000Q3 2001Q1 2001Q3 2002Q1 2002Q3 2003Q1 2003Q3 2004Q1 2004Q3 Fig. 6. Frequency of events related to mobile services innovation in Korea ( ).