How to succeed in the WLAN

How to succeed in the WLAN - a Lesson from Wired ADSL in KOREA Jae-Kyung Kim(kjkyung@kt.co.kr) KT, Republic of KOREA I. Introduction Transition from wired to wireless is an irreversible trend, and the Internet can not be an exception. Korea is the most developed country in the field of wired broadband Internet services and is now attempting to maintain the fame in the wireless Internet field as well. The number of subscribers for broadband Internet services using DSL (Digital Subscriber Line) and cable modem is well over 10 millions as of July 2003, which construes that about 70% of households are connected to the broadband Internet. Further, Wireless LAN (WLAN) has become an important sector of wireless broadband Internet recently. KT, the dominant broadband Internet service provider in Korea, started to provide the WLAN service (NESPOT) since February 2002, accommodating more than 10,000 hotspot zones and hosting over 260,000 subscribers using the WLAN service at the end July 2003. However, the transition speed from wired 1

to wireless in the Internet is not as rapid as it originally was expected. As a result, there arises skepticism that WLAN will be confined as a complementary service rather than a substitution for wired broadband service. The objective of this paper is to explore the future evolutionary path of the WLAN service in Korea conjectured upon the existing successful experience of the broadband in Korea. For this purport, we will first review the success factors of the fixed broadband Internet in Korea, followed by the general Wi-Fi strategy adopted in the leading Internet countries. Then the current status of WLAN in Korea will be critically analyzed with a view to extracting factors for the outcome of the current staggering status of the service. We will also add up the specific business strategy and policy recommendations for the successful implementation of the WLAN services in Korea. 2

II. Success Factors in ADSL Services in Korea In July 2002, Brunel university in collaboration with DTI (Department of Trade and Industry) in the UK issued a report of Investing Broadband Technology Deployment in South Korea. The report pointed out six factors for the successful implementation of broadband service in Korea. Specifically they are: Geography and dense population Government Vision, Strategy and Commitment Facilities Based Competition The PC bang Phenomenon Relatively Low Price Clear User Benefits Arguably but concisely, these factors can be classified into three broader factors. Firstly, on the supply side, Korea has a distinctive feature of high population density. About 80% of the population resides in the urban areas, i.e., big cities, which enables the swift reach to the critical mass in the broadband industry. Secondly, on the demand side, the foundation of a large portion of the Internet accustomed population trippered an internal desire for a faster Internet with broader content. Meeting these demands from potential customers naturally produced a prominent progress in the field of Internet content in both quantity and quality. Accordingly, the existence of the Internet content also transformed the passive content import country to the content export country. As a result, for example, Internet traffic into Korea from overseas has surpassed that of out of Korea. 3

Thirdly, on the policy side, Korean government drove the development of broadband Internet at least at the initial stage. The government pushed the requirement of Internet use for educational purpose, which resulted in the adoption of Internet as a prerequisite tool for school. In addition, Korean government suggested the future milestone for the development of new IT services such as digital TV, next generation mobile services, post PC, digital content, etc. One additional issues which should be recognized for tracking the key success factors for the fixed broadband industries in Korea is the change of attitude of government towards embrace of competition after the take-off of the broadband industries. The introduction of competition should be regarded as a key success factor for the world-leading broadband industries in Korea. 4

II. What is the Wi-Fi? 1 Now let us turn our eye to the Wireless Internet sector. WLANs usually use IEEE(Institute of Electrical and Electronics Engineers) s 802 series technology standards. Public WLAN referred in this paper is limited services using Wi-Fi as an access technology. Wi-Fi, or Wireless Fidelity, refers to a technology standard for WLAN, which provides users with high-speed mobile Internet access without wireline connection. Wi-Fi is based on the 802.11b 2 platforms developed and supported by the Institute of Electrical and Electronics Engineers (IEEE). Wi-Fi wireless technology works like a cordless phone, transmitting a wireless signal from a base station to the device. Wi-Fi has become popular because it uses a wireless frequency available without resorting to the grant of a license from the state regulatory agencies such as the FCC (Federal Communication Commission), similar to the cordless telephone. At the beginning, Wi-Fi was mainly adopted for military function, however, it gradually became complied with the standards to accommodate mass market. 3 1 William Lehr and Lee W. McKnight (2003), Wireless Internet Access: 3G vs. WiFi?, Telecommunications Policy 27, 351-370. 2 The IEEE 802.11 specifications are wireless standards that specify an "over-the-air" interface between a wireless client and a base station or access point, as well as among wireless clients. The 802.11 standards can be compared to the IEEE 802.3 standard for Ethernet for wired LANs. The IEEE 802.11 specifications address both the Physical (PHY) and Media Access Control (MAC) layers and are tailored to resolve compatibility issues between manufacturers of Wireless LAN equipment. Source: IEEE, 802.11 Working Group for Wireless Local Area Networks, www.ieee.org. 3 As the commercial use of Unlicensed spectrum was allowed by FCC in1989, vendors of military wireless equipments such as Proxim, Symbol launched wireless LAN service. 1n 1999, IEEE 802.11b suggested by Lucent Technology and Harris Semiconductor(now Intersil) was authorized by IEEE as wireless LAN standard and WLAN service was supplied on a large scale. 5

Wi-Fi adopts unlicensed spectrum in the 2.4GHz band. 4 The current generation of WLANs supports up to 11 Mbps data rates within 100m of the base station. 5 Typically, WLANs are deployed in a distributed way to offer last-hundred-meter connectivity to a wireline backbone corporate or campus network. Although each base station can support connections within a range of only one hundred meters, it can provide contiguous coverage over a wider area through establishing multiple base stations. The base station is then connected either into the wireline LAN or enterprise network infrastructure, then to a carrier s backbone network, eventually to the Internet. Wi-Fi is becoming increasingly meaningful method for both a home LAN technology and a public wireless broadband Internet access technology in the hotspot zones. 4 The two most important 802.11x standards are 802.11b which operates at 11 Mbps in the 2.4GHz band and 802.11a which operates up to 54 Mbps in the 5GHz unlicensed spectrum band. Other 802.11x standards include 802.11g which is expected to offer 22.54 Mbps in the 2.4GHz band; 802.11e which adds quality-of-service support to manage latency which is important for supporting voice telephony; and 802.11x which adds security features. See as Lehr and McKnight(2003). 5 The speed of the connection you receive on your Wi-Fi device will vary and is affected by several factors including: the number of active users at a hotspot, the distance your device is from the access point, any obstructions that are blocking your signal, the model of Wi-Fi card and software you are using on your device, and the speed of the wired line that connects to the access point. Generally, Wi-Fi signals transmit reasonably well through glass and many wall types, but they do not transmit well through metal, concrete or buildings. See http:// http://www.verizon.net/wifi/faqs/. 6

III. Business Models of WLAN Business models of WLAN have evolved from hotspot-oriented service into individual users market. At the start, WLANs were mainly installed in corporate or university environment where users need for wireless Internet was intense. In these markets, end-user customers purchase the equipment, self-install it, and interconnect it to their enterprise network facilities. As corporate and University campus environments are basically LAN based where the provisioning costs of wireless access is subsidized by the firm or university, the users of Wi-Fi networks are not charged directly for access. The plan to provide the WLAN service for the public was initiated by the attempts of some operators such as wireless Internet service providers (WISP), which recognized that public WLAN could be a lucrative business. Upon the recognition, they initiated the integration and resale of the WLAN services in the hotspot zones. The business model of WLAN services initiated by the WISPs can be categorized into four domains; First, commercial WLAN service led by independent WISPs Second, complementary WLAN service led by fixed telcos Third, complementary WLAN service led by mobile telcos Fourth, commercial public WLAN service led by fixed telcos. Commercial WLAN service means that it can constitute an independent service sector with its own subscribers and revenue streams distinguished from other services such as telephone, DSL, cable modem, etc. On the other hand, in the case of 7

complementary WLAN service, it is regarded as supplementary service with less potential for subscribers and revenues to incumbent customers. In general, WISPs have supplied WLAN services commercially to customers in such hotspot zones as hotel, airports, café, and so forth. However, gradually many telcos started to recognize the possibility that WLAN could become a new cash cow for their stagnant revenue growth and attempted to transform business model of WLAN services from free of charge service into paid service. In this context, the fact that fixed telcos in Korea took the lead for the supply of the WLAN service for the commercial use on a large scale is to be regarded as experimental attempt and will constitute a good example to diagnose for the success in the WLAN business. Commercial WLAN service model led by WISP Instead of deploying its own network infrastructures, wireless Internet service providers (WISPs) purchase the network on a wholesale basis from Wi-Fi hotspot operators, integrate these networks together, and sell service to customers. Boingo is a precursive operator in the U.S. providing access to its customers using leased Wi-Fi public networks. It is the first wireless broadband Internet service provider with a wide coverage and has the easiest-to-use wireless broadband footprint in the world. Instead of building Wi-Fi networks, Boingo focuses on the complex integration of hundreds of APs around the world into a single service of its own. Boingo, as a integrated service provider, also performs marketing activities, provides customer supports, and bills the end users. As the market expands and evolves, Boingo also plans to make new broadband wireless technologies such as 802.11a and Ultra Wide Band available to its customers. 8

Wayport is another provider, providing high-speed Internet access in more than 565 hotels and 12 airports in the US, and in approximately 75 McDonald's locations in the San Francisco Bay Area. Compared with the Boingo, Wayport focused more on hotspotoriented WLAN service providing; Wi-Fi (802.11b) wireless Internet access in airports and hotels (including guestrooms, meeting facilities, and public spaces such as lobbies and lounges). Wired Internet access in hotel guestroom and meeting facilities. High-speed Internet access and business services <Prices of WLAN Service of Boingo and Wayport > WISP Unlimited Pay-as-you-go Others Boingo Wayport US$ 21.95 per month, with a one-year agreement Regularly US$ 39.95 per month US$ 29.95 per month, with a one-year agreement US$ 49.95 per month, with no contract initial charge of US$ 7.95 includes two connect days additional usage is only US$ 7.95 per connect day Prepaid connection cards (US$ 25~100) Single hotel connection (US$ 9.95~) until hotel check-in time or midnight Single airport connection (US$ 6.95) Source: Each company homepage,http://www.boingo.com; http://www.wayport.com 9

Complementary WLAN service model led by fixed telcos Verizon, the first fixed-wireless operator in the U.S., provides Verizon Broadband Anytime, or Verizon Wi-Fi.. Verizon Wi-Fi is currently offered at no additional charge to the Verizon Online customers. When customers use a Verizon Online DSL or dial-up service for the Internet, they can access Verizon Wi-Fi with their Verizon Online User Name and Password without additional charges. This complementary WLAN service model is not unique in the US. For example, in the UK, BT provides the public WLAN service under the name of BT Openzone. It provides a high-speed, wireless, secure internet connection, enabling employees to use their laptops or PDAs to access the corporate Internet, send and receive e-mails and browse the web. Based on the Wi-Fi public WLAN standard, BT Openzone is available from selected hotspots which will soon be extended to motorway service stations, airports, rail stations, conference centers, hotels and cafes. BT plans to improve and enlarge the public access WLAN network through the deployment of around 400 hotspots by June 2003. BT advocated that it will build 4,000 sites by June 2005 and announced the strategic alliance with equipment manufacturers such as Motorola and Cisco to develop the new network. 6 Complementary WLAN service model led by mobile telcos T-Mobile HotSpot in Germany provides high-speed Wi-Fi Internet access in public locations such as airports, Starbucks coffeehouses and Borders Books & Music stores. 6 See BT s homepage, http://www.bt.com. 10

T-Mobile s WLAN network is so robust that it can support a full T1 connection at all locations. By either a laptop or PDA which are Wi-Fi 802.11b wirelessly-enabled, users can download email attachments, watch a live webcast, or listen to streaming audio. There are a total of 2,745 T-Mobile hotspots and the number of hotspots is continually increasing. Subscribers with the Local Unlimited rate plan in the existing mobile tariff plan are able to use T-Mobile hotspot services for unlimited minutes within their local area. When customers intend to use WLAN services outside of their local area, they are obliged to pay US$ 0.15 per minute. 11

IV. Implementation of WLAN in Korea Korea, with one of the highest fixed broadband penetration in the world, is at the forefront of WLAN service as well. Fixed telcos such as KT and Hanaro commercially supply the public WLAN service. Especially KT, which view the WLAN as a new cashcow, is making an effort to extend the WLAN market. KT launched Wi-Fi WLAN service in February 2002. KT s business model has evolved from independent hotspot-oriented model to a business model focusing on the existing individual users of wired DSL service. KT aims to commercialize the WLAN services by attracting more customers and raising the usage rates. As a result, the number of KT s hotspots and subscribers increased to 10,000 and 261,000 respectively, as of July 2003. These growths are one of the most brilliant figures in the world but well below than its original target. The name of KT s WLAN services is NESPOT. NESPOT series are composed of; 1) NESPOT Family: bundled with DSL services 2) NESPOT Swing: bundled with CDMA-1x mobile services 3) NESPOT Solo: hotspot-oriented service, used only in hotspot zones, not at homes 4) NESPOT Biz: customized wireless LAN service for business solutions. Pricing schemes of the NESPOT services are categorized into two types: pay-asyou-go and unlimited usage. The NESPOT price bundled with DSL is US$ 9 per month for one ID, but the total bundled price ranges from US$ 34~39 per month (including US$ 25~30 per month for DSL services). Price for hotspot-oriented service, 12

or NESPOT Pop is US$ 9 (5hours) ~ US$ 12.5 (one month) for regular customers and US$ 2.5 (one hour) ~ US$ 10 (one day) for one-time usage. <KT s NESPOT service prices> Service Name Details Price Nespot Family With DSL services US$ 9/month (excluding US$ 25~30 DSL charge) AP rental charge US$ 9/month Nespot Solo Able to use Nespot at home without DSL US$ 6/month (excluding US$ 25~30 DSL charge) AP rental charge US$ 9/month Nespot Biz Business customized service Varies with services Nespot Pop Nespot Swing Hotspot-oriented services, only able to use in hotspot zone not at home To use NESPOT in the hotspot zone and cdma-1x in the move US$2.5/hour, US$12.5/day US$9 for 5hour/a month Swing Family: US$ 9/month (excluding AP rental charge US$ 9/month and AP installation fee US$ 9) Swing Pop: US$ 12.5 Source: KT Nespot homepage, www.nespot.com Substitutes vs. Complements InStat/MDR, an IT research Group, predicted that public WLAN subscribers would increase 12,235 in 2002 into 145,417 by the year of 2007 and most of the hotspot zones would be located in cafés, hotels and so forth. However, InStat/MDR expected that the number of hotspots increased from several hundreds into tens of thousands for the last 3 years, but that of the subscribers didn t increase at the same rate. This means that the demand can not follow the supply at the initial stage of WLAN development and oversupply problem will linger in the field of public WLAN. 13

Korea is not an exception in that demand did not follow the supply. Subsequently the increase of the Hotspots did not entail the growth of the WLAN service subscribers. In the following two sections, I would like to explain why the demand did not grow as rapidly as it was originally expected in Korea and suggest the ways to expand the public WLAN market in Korea. 14

V. Factors delaying the WLAN services in Korea: Overly optimistic demand forecast Korea is renowned for the high penetration of broadband Internet service, with DSL as the primary access method for the broadband Internet service. WLAN market was viewed as a niche market after wired fixed broadband market became mature. If WLAN is to be the main stream in broadband Internet market, it was anticipated that a substitution from fixed into wireless in the Internet would occur following the same trajectory exhibited in the voice market. But this expectation was proved too hasty for the Internet if not incorrect. When KT initiated the NESPOT service in the upper half of 2002, the internal forecast for the number of NESPOT subscribers was 50,000 by the end of 2002 and a rapid increase to 20 millions users by the end of 2003. However, the actual number of subscribers one year after the launch of the NESPOT service limited to the disappointing addition 15,000 subscribers. The fiasco in demand forecast in the NESPOT was due mainly to the overly optimistic vision in the wireless Internet market. At the beginning, wireless Internet services based on mobile phones, which were widely adopted at that time, were viewed as a potential customers for the NESPOT services through substituting the mobile handsets to laptops, PDAs and so forth. Moreover, some have argued more aggressively that WLAN would substitute DSL and cable modem, constituting a dominant player in the broadband Internet market. By hindsight, this optimism resulted from misinterpretation of users attitude, i.e. taking wireless usefulness for wireless necessity. Many experts analyzed that the usefulness of wireless would easily and 15

swiftly lead to the transition from wireline Internet to wireless one. However, unlike the wishes of the service providers, most potential customers prove to be satisfied with their wired broadband services, failing to take up the wireless Internet services. The works of Hong (2003) explained the delay of the transition of the Internet users from wireline to wireless. His research revealed that 51% of respondents in the survey were using Internet at home, 25% at work, and 17% at school. Most people considered speed the most important factor and location a relatively less important factor to them. 78% of total respondents regarded wireless Internet access as a useful tool, but smaller percentages of people (46%) expressed that wireless Internet access was necessary to them. In spite of their acknowledgement to the usefulness of WLAN services, they indicated that fixed broadband Internet service was sufficient for their Internet use (42%), resulting in that WLAN was not a necessity for their Internet life (25%). Only small percentage of these people (15%) criticized the high service charge of WLAN service for the reason not to use. 16

VI. Recommendations for the successful implementation of WLAN in Korea The less successful implementation of WLAN service, in stark contrast to the miraculous adoption of fixed broadband services in Korea, leads to the pending issues of the successful positioning of the WLAN services. The key success factor in the WLAN service market is finding how to transform customer s usefulness into necessity. I will propose two-pronged approaches for the key triggers for the WLAN era in the foreseeable future. The supply side: Proper pricing and cooperation with market players In order to expand the WLAN market and increase the demand, service providers is ought to have the potential customers realize the usefulness of the WLAN service by providing with a reasonable price. The price of DSL in Korea is one of the lowest in the world, and additional charge for NESPOT is charged at a third of the DSL price. While customers using the bundled service receive benefit from low price, service providers can lock-in their customers by providing bundled services with wired and wireless broadband Internet. Keeping the WLAN service charges low to the wireline broadband service will be the most important factor for the development of the burgeoning WLAN services. The other factor is the penetration of the equipment embedded with WLAN card. In March 2003, WLAN card embedded PC, or Intel s Centrino, was put into the market. According to the related companies, the percentage of laptop PCs with WLAN cards 17

embedded ranges from 20% to 50%. IDC, a market research company, predicted that adoption rate of WLAN card in the mobile PCs will be 43% at the end of 2003, and will rise 66%, 89% in 2004 and 2005 respectively. In KT s NESPOT case, the number of subscribers was 126,000 before the Centrino PCs appeared to the market, but it increased more than double to 260,000 after the debut of the WLAN card embedded PCs to the market. In addition, the increase of PDA sales promoted the demand for WLAN service. Thus in order to increase the demand for WLAN, the cooperation between service providers and equipment providers is essential. The Policy side: giving service providers incentives to invest Korean government, MIC (Ministry of Information and Communication), has made an effort to activate the WLAN market. Like wired broadband Internet market, MIC had hand-off policy to the 2.4GHz market. MIC opened 2.4GHz spectrum band for commercial usage for diverse players including KT. This hand-off policy generated incentives for service providers to exert capital expenditure in the new WLAN market and to commercialize public WLAN services aggressively. In addition, MIC announced a plan to reallocate 2.3GHz spectrum for the use of mobile Internet use under the name of Portable Internet and disclosed its intention to facilitate 5GHz spectrum for the high-speed wireless Internet access network. As shown in the examples of the successful fixed broadband implementation in Korea, the embrace of competition after the government-led initiation of the wireline broadband produced unprecedented success of the high speed Internet in Korea. The 18

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