KOREA: Operators argue over Internet speed

Powercomm introduces new high speed Internet service Xspeed, enabling rapid transfer of digital information

The Korea Times
Monday, September 5, 2005  

By Kim Tae-gyu

Seoul -- Powercomm has ventured into Korea’s broadband market by launching this month a blazingly fast Internet service with a speed of 100 megabits per second (Mbps).

Under the banner of "Xpeed," Powercomm now offers a 100Mbps service in apartments with optical local area network (LAN) and a slower 10Mbps in houses.

The optical LAN-based speed of 100Mbps is like lightning, enabling customers to download a two-hour high-definition video file in less than 5 minutes. With a current 10Mbps-class connection, the video download would take more than 30 minutes.

Powercomm insists the new high-speed Internet service will make a splash in the market because it will retail at a price lower than the 4Mbps feature of other broadband operators such as KT and Hanaro Telecom.

The carrier will charge 30,800 won a month for the 100Mbps service while other operators charge monthly fees of more than 31,000 won for 4Mbps Internet connectivity.

"We aim to attract 500,000 customers this year and raise the user base to one million next year. In 2007, we will be able to reach a break-even point by signing up 600,000 more," Powercomm president Park Jong-eung told last week’s press conference.

It is an ambitious target considering that Korea’s high-speed Internet business has already hit saturation point amid stiff rivalry in the overstuffed market.

Korea boasts the world’s highest per capita penetration of broadband with up to 12 million out of the country’s 15.5 million households hooked up to the always-on Internet.

Established players downplay Powercomm’s scheme, contending the company is misinforming potential customers and saying that the new service would not hit a speed of 100Mbps.

"The 100Mbps is a theoretical maximum speed. When multiple subscribers use the same network, the real-world speed will halve to below 50Mbps," Hanaro vice president Doo Won-soo said.

Doo added that the more clients share the line, the lower the data transmission speed would be.

When contacted, Powercomm admitted the speed will decrease when many clients use the same pipeline, but it argued the average data transmission speed would be around 70Mbps.

The firm said that to secure an optimal speed, the concurrent users of a single optical LAN pipeline would not exceed 24 customers with proper investment.

Evolution of Internet throughout

The conflicting arguments are based on different understanding on Web connections and associated technologies.

When people log on to the Web, digital data are transferred to the home computer through two sorts of pipelines: backbone networks and subscriber networks.

The backbone network refers to the central infrastructure that connects the country as a whole while the subscriber network is the equipment that hooks up the main network to corporate and household end-users.

The backbone network is made of fiber optics while Korea has three kinds of subscriber pipelines - optical LAN, telephone lines and coaxial cable.

In 1998, Thrunet that was acquired by Hanaro Telecom early this year embarked on the country’s first broadband service with coaxial cable.

A year later, Korea’s runner-up broadband carrier Hanaro resorted to telephone lines to commercialize asymmetric digital subscriber line (ADSL) that pumps data at an average speed of 2.5Mbps.

KT upgraded the telephone line-based services to 8Mbps very fast digital subscriber line (VDSL) in 2001 for the first time anywhere in the world. Currently, the maximum VDSL speed is 50Mbps.

In December of the same year, Hanaro introduced the optical LAN that promises a speed as high as 100Mbps and KT followed suit a month later.

This means Powercomm is not the first to launch the optical LAN service. KT has about 630,000 subscribers for the service while Hanaro has 330,000 users.

Overall, KT now accounts for about half of the 12.2-million market followed by Hanaro with 2.8 million users and Thrunet with 950,000 subscribers.

Super-fast speed for what?

Experts divide into the opposing camps as to whether the real-life speed of Powercomm’s optical LAN offerings would exceed the 50 Mbps mark.

Greg Roh, a telecom analyst at Dongwon Securities, says the speed would be higher than the plateau while Meritz economist Jeon Sang-yong predicted the contrary.

However, they both agree that there is no quality of service (QOS), or guarantee of minimum service for the optical LAN.

"The practical speed depends on how many users share the line at the same time and what contents they are using. If 20 customers use a bandwidth-devouring movie downloading service, the speed might drop to just several Mbps," Roh said.

"For ADSL or VDSL, the speed hardly fluctuate below a certain preset level because the customer uses a specific telephone line. That is the reason why some prefers 20Mbps VDSL to 100Mbps optical LAN," Jeon said.

They also claimed operators are barking up the wrong tree by chasing speed, which they say should not be the bottom line.

"If you can get 100Mbps, what will you do with it? Most people don’t need such a broad bandwidth at the moment so the top priority should not be the speed," Jeon said.

"Do you have problems with your current 10Mbps Internet? I don’t think so. Then, why do you try to add extra speed if you are already satisfied?" Roh asked.

They caution that the speed competition could revive the specter of the kind of all-out marketing war that almost dismantled the broadband market several years ago.

Due to open-wallet competition among broadband operators in the early 2000s, Hanaro Telecom almost went under in 2003 while Thrunet and Onse Telecom went through court receivership starting 2002.

The market showed signs of stabilization last year after Hanaro escaped the doldrums by obtaining a $1.1 billion foreign investment from American International Group and Newbridge Capital in late 2002.

Hanaro acquired Thrunet early this year and Onse is still under the control of the court.

But the tranquility did not last long. Powercomm decided to start a high-speed Internet business and gained government approval in July.

Affiliated with the country’s third-largest fixed-line telecom operator Dacom, Powercomm has been providing its broad-based networks to Internet service providers so far.

"The wrangling over speed demonstrates that operators are ready to channel funds to attract customers or lock them in. I’m afraid the upcoming excessive speed competition might lead to a second-round debacle of Internet service companies," said Stan Jung, an analyst at Woori Securities.

Date Posted: 9/5/2005