Analysis: S.Korea's high-speed 5G mobile revolution gives way to evolution

SK Telecom Co

13/05/2022 09:27

(Adds that Ku was referring to mmWave in paragraph 11)
    By Byungwook Kim
    SEOUL, May 13 (Reuters) - South Korea was the first country
to launch a fifth-generation mobile network in 2019, heralding a
warp-speed technological transformation to self-driving cars and
smart cities.
    Three years on, the giddy promises are unfulfilled.
    Some 45% of the country's people are now on 5G, one of the
highest rates globally, after some $20 billion in spending on
network upgrades that have boosted connection speeds five-fold.
But telecommunications companies have not been willing to invest
in the fancier technology that would ramp speeds by 20 times
over 4G technology.
    That is because the demand is not there yet. App makers have
not brought to mass market services like autonomous driving that
would require more firepower. Customers can watch Netflix and
surf the net well enough with existing 5G technology.
    Telcos have adapted by diversifying. To make the quantum
leap to the highest-speed 5G will require the roll-out of
essential services that need such fast connections.
    "When households begin to have robots at their homes, for
instance, telcos would then start ramping up infrastructure
investments, so the highest-speed 5G will be partially available
around 2025," said Kim Hyun-yong, an analyst at Hyundai Motor
Securities. 
    The lesson for other countries racing toward 5G may be: curb
your enthusiasm. The new technology holds great promise, but for
now there will still be as much evolution as revolution in the
high-speed internet future.
    In April 2019, South Korea’s three mobile carriers - with a
PR campaign featuring K-pop stars and an Olympic gold medallist
- as well as Verizon Communications of the United States -
rushed their commercial 5G launches ahead of schedule, all keen
to claim first spot in the high-profile wireless technology.
    Asia's fourth-biggest economy has remained the 5G pioneer,
but the hype had begun to fade even before COVID-19 slammed
demand for 5G devices. Companies have baulked at investing the
estimated $370 billion needed to set up the fastest 5G, and
revenue growth has stalled.
    "Rolling out 5G that is 20 times faster is nearly
impossible, even in Seoul,” said Ku Hyun-mo, CEO of South
Korea's top telecoms operator, KT Corp  030200.KS .
    “Establishing nationwide coverage just can’t be done," Ku
told Reuters. The fastest version millimetre wave (mmWave)
spectrum "travels straight and it can’t go around obstacles. It
can’t deliver the same speed once it travels a few hundred
metres."
    The ultra-shortwave mmWave would require 15 to 20 base
stations per square kilometre (40-50 per square mile), compared
with just two to five for 4G, according to a McKinsey report. 
    
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    South Korean telcos have built around 215,000 5G base
stations, but only 2% of them can handle mmWave. Other countries
that have introduced 5G, such as the United States and China,
also largely rely on the slower mid-band spectrum.
    As of March, South Korea had 22.9 million 5G subscribers,
just under half the number of its 4G users. By contrast, when 4G
celebrated its third birthday, its users had more than doubled
those of its predecessor.
    "When 4G was first rolled out in 2011, data demand exploded
to watch YouTube and Netflix, and users aggressively switched to
4G," said analyst Kim. Now, though, "telcos currently lack a
killer service that can generate heavier data demand" that would
justify paying up for 5G he said.
    In the first two to three years of 4G, carriers' average
revenue per user (ARPU) climbed 5% to 12% annually. By contrast,
KT's ARPU rose 3.7% in the first quarter from a year earlier,
while that of SK Telecom Co  017670.KS  edged up 0.6% and
third-ranked LG Uplus Corp  032640.KS  saw a 4.2 decline.
    "If telcos stick with the current connectivity business,
they will plateau," said KT's Ku. 
    Mobile carriers are increasingly turning their eyes to new
businesses. KT is developing artificial intelligence to power
call centres, hoping that business will double this year, while
SK Telecom has seen a jump in revenues for cloud services and
data centres.
    Diversification is paying off with investors so far. SK
Telecom and KT shares have risen some 26% since 5G rolled out,
beating the broader market's 18% rise even as ARPU growth
slowed.
    "From 3G to 4G, data demand increased exponentially. But at
the moment, data demand is growing linearly," said Hyundai's
Kim. "Mid-band 5G would facilitate the popularisation of 5G and
serve as a bridge to the next step."   
     
($1 = 1,275.6400 won)
    

 (Reporting by Byungwook Kim and Joyce Lee; Editing by Miyoung
Kim and William Mallard)
 ((Byungwook.Kim@thomsonreuters.com;))