Partners and Pioneers
By Maurie Dobbin
CDMA was a gamble for Korea. Today, with more than 4.36 million Korean CDMA subscribers and millions of dollars in revenues flowing to Korean CDMA manufacturers, that gamble has paid off. Maurie Dobbin
In 1991 the Korean Electronics and Telecommunications Research Institute (ETRI) took the brave step of backing a little-known US company to help it develop a digital cellular solution to meet Korea's burgeoning mobile communications needs.
That agreement with Qualcomm resulted in the world's first commercial CDMA network and the positioning of Korean manufacturers at the forefront of CDMA developments worldwide.
The key to the decision was not just the technical excellence of CDMA, although
ETRI was impressed with its claimed spectral efficiencies. What also mattered
was the willingness of Qualcomm to work with ETRI to develop a solution.
ETRI had been given $55 million in 1989 by the Ministry of Communications (MOC) to develop a digital solution for Korean cellular operators. The task was to look at digital cellular models that had been adopted in other countries and decide on an approach suitable for the Korean market. This project accelerated in 1991 when it was realized that customer numbers were growing much faster than had been expected. The original plans provided for trials in 1996 and commercial service in 1997 but the MOC was becoming worried that this would be too late. The result was a decision to import a solution from North America IS-95 CDMA, now called cdmaOne and a plan to bring the trials forward to 1994.
The Korean mobile telecommunications market has experienced remarkable growth in past decade, with wireless penetration rates, including cellular, PCS and CT-2, expected to reach 14.7% by the end of 1997. By the end of July there were 4.36 million cellular customers on Korea's two 800 MHz CDMA networks almost double the number of cellular customers expected back in 1993.
The result was the creation of a duopoly for cellular service provision with a new operator to be licensed for nationwide coverage. In the same period, shares in Korea Mobile Telecom (KMT), the cellular subsidiary of Korea Telecom, were floated and in the resulting sell-down of equity, the Sunkyong group emerged as the largest single shareholder. Korea Telecom has since been rebranded as SK Telecom (SK).
SK, with 70% of the Korean CDMA subscribers and 3.2 million cellular customers overall, credits the decision to back CDMA with helping speed the conversion of its analog customers and opening up opportunities for SK in international markets. A joint venture with Thailand's Wireless Communications Services is planned and SK is working on the standardization of CDMA systems in Japan, India and Vietnam. Most recently SK has been trying to break into the South American market teaming up with Samsung Electronics and Korea Telecom to win a `B' band license in Brazil.
Back in 1992, however, when there were just 270,000 customers, 170,000 of them in the Seoul area, SK had an analog network and problems with congestion. As an initial step the government granted a further 5 MHz of spectrum to SK in addition to the 10 MHz it already held in the A-band. The remaining 10 MHz in the B-band was reserved for the new operator.
The competition 1992 was meant to bring did not happen. The tendering process fell in a heap when the successful bidder ended up returning the license. Curiously, the company at the center of allegations of impropriety was Sunkyong which was later to emerge as the major shareholder in SK. The result was a year of delay during which SK was able to continue to build its analog subscriber base without interference. It took until February 1994 before Shinsegi Telecommunications emerged as the winner of the new license.
During this period, ETRI and four Korean manufacturers continued to work on the development of a CDMA standard. ETRI and Qualcomm divided the task so that mobile switching and many parts of the Base Station Controller (BSC) were being implemented under ETRI's initiative, while the Mobile Station (MS) and Base Transceiver (BTS) were being developed by Qualcomm.
Lee Hyuckjae, ETRI's Director Radio Technology said at the time: "The capacity limits of CDMA have now been extensively tested and are projected to be between 15 and 20 times that of existing FM analog systems. These improvements are due to improved coding gain/modulation density, voice activity gating, sectorization and reuse of the same spectrum in each cell. We believe CDMA is a cost-effective technology that requires fewer, less expensive cells and no costly cell reuse planning. CDMA has improved call quality by taking advantage of multi-path enhancing performance in urban areas and virtually eliminating multi-path fading. However, we believe the current Qualcomm system is vulnerable for indoor use and may require modification possibly with the use of distributed antennas".
ETRI wanted the system design to take into account requirements such as interoperability with the AMPS service as well as providing a path for network evolution, the modularization of hardware to meet system capacity and new feature implementations including redundancy for system failure. Some of the development activities centered on the implementation of data service and a short message service. ETRI's development of an SMS capability for CDMA was a world first, duplicating the success of SMS in GSM networks.
Specific modifications to suit the Korean market included the development of the Base Station (BS) and MS to satisfy the Korean Common Air Interface Standard, and the use of KCELP (Korean Code Excited Linear Prediction) coded speech. KCELP is a QCELP-based algorithm modified to fit Korean voice data processing needs.
Pre-commercial field tests were carried out during 1995 with the aim of providing for commercial deployment in early 1996. Three 3-sector cells and one omni cell were established by three Korean manufacturers across three different dense urban areas. The results obtained showed that it was able to achieve around 75% of the capacity that Qualcomm had estimated during an August 1993 trial in San Diego.
As no additional spectrum was allocated for SK's CDMA service, it was necessary
to create some space by replanning its AMPS network. Channels were cleared from
the B' band first with FA20 used as the first CDMA channel. On 3 January 1996
SKT launched its first CDMA service in Inchon. This was followed by Taejon on
1 April and Seoul on 12 April. In this initial phase, SK was able to achieve
between 70% and 80% site colocation with its AMPS network.
SK's focus on high usage customers for migration meant that the average air time for migrated customers was about three times that of those that remained on the AMPS network. This enabled them to retain the same quality of analog service even with reduced spectrum. What SK found was that it needed only 73% of the AMPS cell sites to obtain similar coverage of the Seoul Metropolitan Area. Because 52% of its CDMA cell sites were colocated with AMPS, it was able to have a rapid build-out and its site acquisition costs were reduced.
In January 1997 SK reported that it had 13 MSCs in service and a total of 874 BSs divided among its three Korean suppliers: LGIC, Samsung and Hyundai. By the end of this year, it expects that the number of BSs will have more than doubled to 1,907 and that it will have achieved 95% coverage of the population. At present, SK is achieving a call completion ratio in excess of 60%. Call drops are at less than 3% with more than 10,000,000 calls per day on the network. Its soft hand-off success rate is more than 98% but for hard hand-offs today it is only about 90%.
SK has been faced with customer complaints over this issue, specifically those describing a pause in the speech during the hand-off or the call dropping altogether. SK is currently implementing a modification to correct the problem. This involves better control of the BS's transmit power with the objective of equaling the soft hand-off success rate.
The spectral efficiency objectives held by ETRI are of 15 to 20 times improvement
over analog, but the results to date have been somewhat less. In tests carried
out by SK between April 1996 and February 1997, it reported that it was able
to achieve a 4:1 improvement in terms of the number of subscribers per MHz per
BS. Using traffic capacity as the basis for comparison, it reported an improvement
of between six and eight times depending on the percentage of soft hand-offs
in the sample.
FIRST FOREIGN CONTRACT
Shinsegi began to make its presence felt in the market when in August 1996 it cut its airtime charge from W30 (US$1= 892 Won) per ten seconds to W24 and began to subsidize handsets by 50%.
SK's share price had fallen in preceding weeks with the market anticipating the cut and expecting that a price war would develop. This expectation was met when SK followed suit with handset subsidies and implemented a 12.5% cut in air time charges. The result was that by the end of 1996 SK shares had slumped by more than 50% from its high in May. Price-based competition may intensify from October when Shinsegi and the PCS providers will be able to lower prices without seeking government approval.
But competition had a bright side as well, with Shinsegi's promotions in October and November 1996 causing subscriber growth to rocket from 1,000 to 6,000 per day. Competition was also good news for the customers with security analysts Salomon Brothers noting recently that total initial costs including handsets, activation fees and deposits had dropped to W520,000 in June 1997 from an annual average of W802,000 in 1996. On July 28, 1997 SK gave the customers further good news by lowering the US$225 (W200,700) deposit fee on cellular service to just US$22.
New service features have also begun to appear. On June 17 1997, SK announced its `Voice Touch' voice-activated dialing service. The service, which allows customers to place hands-free cellular calls using voice will cost approximately US$3 (W2,500) per month. Customers simply say the desired destination of the call, such as `home' or `office' in either English or Korean and the call is automatically connected.
The cloud on the horizon for both SK and Shinsegi is the looming competition from three new PCS service providers. In 1996, three companies, Korea Telecom, LG Telecom and Hansol PCS were each awarded a nationwide PCS service license with 10 MHz of spectrum in the band 1750-1780 MHz. Like SK and Shinsegi they are required to use CDMA technology and each have begun the deployment of extensive networks.
Freetel has stated that its target is business customers and the company has declared the intenion of acquiring 800,000 customers by the end of 1998. LG Telecom is also planning to launch trial services this year and has targeted the acquisition of 860,000 customers by the end of 1998. Hansol PCS, meanwhile, is reported to have laid claim to achieving a massive 37 per cent of the total mobile market by 2002.
Salomon Brothers has a more conservative view, predicting that the PCS service providers will hold around 30% of the market between them by 2002. The biggest PCS winner in its opinion is likely to be Freetel with an estimated 2.4 million subscribers, more than the other two together.
The Korean market, based on the use of CDMA technology, is already one of the leading wireless markets in Asia Pacific. With analyst predictions of a 39% penetration of cellular and PCS services by 2007, it will provide a benchmark for other countries in the region, and a firm launching pad for the international aspirations of Korean industry.