Why South Korea Won't Bite the Apple

South Korea is proud of its electronics makers and tech-savvy consumers. Samsung and LG won't roll out the welcome mat for the new iPhone 3G

Despite the buzz generated by the June 9 unveiling of the first major makeover of Apple's (AAPL) iPhone, there's one place on the planet the U.S. brand isn't likely to generate much buzz, at least in the near future: South Korea. The country is one of the most advanced mobile Internet markets in the world, and electronics companies have worked hard to make sure tech-savvy Korean consumers don't fall for foreign brands.

This is a place where Nokia (NOK) is virtually absent. Google (GOOG) has struggled in Korea too. Its six-year-old Korean-language search service lags far behind market leader NHN. And while consumers in other countries have embraced the iPod, most Koreans are just not that into Steve Jobs and the work of his Apple designers. Many analysts say the iPhone 3G, the next-generation iPhone (BusinessWeek.com, 6/9/09) with faster Internet access that will sell for as low as $199 (half the current entry-level price), probably won't do the trick either. "Apple can't expect to be acclaimed as a premium brand in Korea," says Thomas Kang at market researcher Strategic Analytics.

The big problem for Apple is simple. Koreans are more attracted to phones made by local consumer-electronics powerhouses Samsung Electronics and LG Electronics, both of which roll out scores of sleek multimedia handsets featuring leading-edge technologies every year. The Big Two together control nearly 80% of the Korean handset market.

Samsung's Answer to the iPhone
Eager to play up their innovation bona fides, the Korean companies are determined not to take a back seat to Apple. For instance, less than 24 hours before Apple CEO Steve Jobs announced details of the new iPhone, Samsung unveiled a new touchscreen smartphone, called Samsung Omnia, its answer to the new iPhone. LG, for its part, last year actually beat the original iPhone by three months in the race to introduce a touchscreen model, (BusinessWeek.com, 5/1/08) offering the Prada phone, the outcome of LG's joint efforts with the Italian fashion house.

Like the iPhone, Samsung's Omnia works like a small handheld PC. It runs on Windows Mobile 6.1 and features Word, Excel, Powerpoint, and Opera 9.5 as its Web browser. It also sports a 16 GB memory, a five-megapixel camera with antishake technology, music and video players, 3G capability, Bluetooth, WiFi, an FM radio, and GPS functionality. It will go on sale in Southeast Asia later in June and in Europe in July, though pricing has yet to be announced. "Although the iPhone boasts intuitive user interface, it doesn't really outshine Korean phones in functions and technologies," says telecom analyst Yang Jong In at brokerage Korea Investment & Securities.

Special Software for Internet Access
LG is working on a slew of new smartphones too. In the past two years, LG has changed into a trendsetter (BusinessWeek.com, 5/8/08) from a second-tier phonemaker by launching models with a distinct look and feel. In April it rolled out the Secret, which used carbon fiber and tempered glass for the first time in a phone—a design meant to preserve the model's sleek style from wear and tear. It is also equipped with a five-megapixel camera, Movie Maker software enabling the user to mix music with videos, and a Google package allowing access to the Internet, Gmail, Google Maps, and YouTube videos.

Korea's regulatory requirements could also discourage the iPhone's debut in the market. To help smaller companies develop Internet-related applications at lower costs, the Seoul government in 2005 made it mandatory for all mobile-phonemakers and content providers to use a software standard for Internet access, called WIPI, or Wireless Internet Platform for Interoperability, in Korea. "I doubt Apple will be bothered to develop a new WIPI-enabled phone just for the Korean market," says spokesman O Young Ho of KT Freetel, Korea's second-largest mobile carrier, known as KTF, that is in talks with Apple to sell the new iPhone.

A Little Crack in the Armor?
Little wonder the three Korean operators aren't in a hurry to forge a partnership with Apple. Both SK Telecom, the country's largest wireless carrier, with a 50.5% market share, and LG Telecom (with 18%) have made it clear they have no plans to offer the iPhone. O says Apple is one of many phone manufacturers that KTF (with 31.5% share) is in contact with for its future handset lineup but admits there are big gaps in their negotiation terms.

Some industry-watchers bet KTF will eventually strike a deal with Apple, probably within a year. "KTF has been desperately trying to offer differentiated services to narrow its gap with SK, and the iPhone could be one option," says Stan Jung, telecom analyst at brokerage Woori Investment & Securities. Meanwhile, the Korean government says it will review its policy requiring WIPI for all Internet-capable phones now that business environments have changed in the past three years.

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Why South Korea Won't Bite the Apple

Koreans stay at home and go to school

SEOUL: You can spend thousands of dollars and endless hours in crowded lecture halls to gain a South Korean real estate agent's certificate.

Or you could study for the license in the comfort of your own room with a broadband connection to a television for a fraction of the cost.

For companies selling interactive television over the Internet, soaring demand in Asia for high-quality education for children, as well as demand from people looking to change careers, offers a potentially lucrative market and the chance to lure customers away from cable television and the computer.

South Korea, where children spend hours studying in a gruelling battle to enter the top schools that can guarantee a job at the big conglomerates, is at the vanguard of educational television over the Internet in Asia.

Tuition is expensive, with spending on after-school tutoring estimated to be the equivalent of 2.6 percent of the country's gross domestic product.

Private tutors, who are highly sought after, can earn a salary similar to a banker's pay.

South Korean companies, like KT, which plan this year to upgrade their Internet-powered television services to full Internet protocol television, known as IPTV, are spearheading the move.

KT says online education for children ranks among the most successful programs on its "MegaTV" system, which also offers after-school tutoring and adult education courses.

"The response is strong for kids' programs in which they learn by playing games and solving puzzles using a remote control," said Yang Jae Geon, KT's director of media.

Young Choi, an analyst at Mirae Asset Securities in Seoul, said educational programs generated about 20 percent of IPTV revenue.

"Education is one area they can make users pay extra money," Young said. "The key is to increase the portion of paid programs."

Young said he expected IPTV use in South Korea to rise to five million subscribers by the end of 2009 from an estimated three million at the end of 2008. The overall market for IPTV could reach more than 55 million worldwide by the end of 2011, from an estimated 10 million last year, according to the research firm Ovum.

IPTV, with its immediacy, interactive features and easily navigable menus, bypasses the process of having to start up a computer and surf the Internet.

Across Asia, quality education is in constant demand and short supply. Students often fight for places at the best schools, workers pin their hopes on English skills to lift their careers and parents look for new ways to teach their youngsters.

"Game content and educational programs have big potential because both target a very important group of people - that's the young generation," said Rocky Li, marketing director at BesTV, the IPTV unit of Shanghai Media Group.

Most IPTV companies have focused on popular television shows and sports events for growth. In Europe, operators like BT in Britain gained market share by offering customers free access to digital terrestrial television. PCCW of Hong Kong has the exclusive right to broadcast popular English Premier League soccer.

But operators, many of which are fixed-line carriers muscling in on broadcasters' territory, hope that IPTV's interactive features give them an edge in the potentially lucrative teaching market.

On IPTV, lectures can be repeated at any time and they allow students to take quizzes or pose questions in real time.

In China, where history and geography programs are already offered, education is set to become the fastest-growing part of BesTV's business, Lee said, referring to the IPTV unit of Shanghai Media Group.

"In traditional TV, it's difficult to find these programs," Lee said, because of inconvenient times and limited slots. He expects overall IPTV users in China to reach two million by the end of 2008 from 600,000 now.

IPTV companies are also trying to add popular video games, from simple board games and racing to multiplayer online games, to attract computer users away from their computers.

But some analysts say a television in the living room is not the best platform for interactive programming.

"TV is something shared by the entire family," said Suran Seong, a senior analyst at Ovum. "Some parents are not comfortable with the idea of kids studying in front of a TV."

On the financial side, operators will also need to strike the right balance between subscription fees and payments to content holders.

"Big players will remain hesitant until IPTV starts to make money," said Lee Sun Kyoung, an analyst at Goodmorning Shinhan Securities. "Operators, on the other hand, are under pressure to keep fees low to expand the market."

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Koreans stay at home and go to school