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Release Date: 2012. 8. xxx Gyeong-hyeon LEE (Senior Consultant, [email protected]) Jinyeong Kim (CEO, Head Consultant, [email protected]) Is introduction of a 4th mobile carrier a distant dream? -Economic ripple effects of a new mobile service based on LTE-TDD Executive Summary

[Special report]korean 4th mno is a distant dream lte tdd_20120828

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This report provides strategic suggestions in relation to the 4th mobile service based on following three questions and answers.  What network technology the new mobile carrier (4th mobile carrier) must consider for strategic reasons? - As of now, major mobile operators in the global market are migrating from 3G to 4G rapidly. The 3G market is divided into various network technologies which are CDMA EVDO, WCDMA and WiMAX. But, in terms of 4G, LTE is the dominant technology. For the success of the 4th mobile carrier, it is required to offer not 3G but 4G service with reasonable prices.  What could be the methods to deliver new and reasonably-priced 4G services? -3GPP defined that LTE encompasses FDD (Frequency Division Duplex) and TDD (Time Division Duplex). Among them, TDD (LTE-TDD) in unpaired spectrum just like WiBro has a high chance to be in line with the mainstream trend in the global mobile market.  What economic ripple effects are expected when the 4th mobile carrier conducts LTE-TDD? - The 4th mobile carrier is required to analyze possible economic ripple effects if it provides mobile service (including handsets) based on LTE-TDD in accordance with the definition of 3GPP.

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Page 1: [Special report]korean 4th mno is a distant dream lte tdd_20120828

Release Date: 2012. 8. xxx

Gyeong-hyeon LEE (Senior Consultant, [email protected])

Jinyeong Kim (CEO, Head Consultant, [email protected])

Is introduction of a 4th mobile carrier a distant dream?

-Economic ripple effects of a new mobile service based on LTE-TDD

Executive Summary

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< Table of Contents >

Part I. What challenges a 4th mobile carrier has?------------------- 1

Part II. History and problems with the policy -------------- 4

1. History --------------------------------------------------- 4

2. Problems with the policy ------------------------------------- 4

Part III. ‘WiBro(WiMAX)’ vs ‘LTE-TDD’, which is the mainstream?--8

1. WiBro(WiMAX) market is suffering ---------------------------8

2. LTE-TDD operators will account for 37% of LTE in 2015 ----------- 10

Part IV. Economic ripple effects of a 4th mobile carrier----------- 16

1. Method --------------------------------------------------------------- 16

2. Industry inducement coefficient-------------------------------------- 16

3. Market demand----------------------------------------------------- 17

A. Market demand of WiBro------------------------------------ 17

B. Market demand of LTE-TDD--------------------------------- 18

4. Analysis of economic ripple effects ---------------------------------- 20

Part V. Strategic suggestions: in pursuit of realistic alternatives-- 24

< Bibliography > ---------------------------------------------------- 25

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Part I. What challenges a 4th mobile carrier has?

In 2011, one of the hottest issues in the Korea’s mobile market was the policy of the Korea

Communications Commission (KCC hereafter) to allocate a fourth mobile license. KCC came

up with the plan to introduce price-competitive services compared to current mobile carriers,

which are SKT, KT and LG U+, with a view to promoting market competition based on

reasonably-priced and high-quality services catered to mobiles users. Up until now, the

Korea’s market has witnessed excessive subsidiaries and marketing activities.

However, the policy has yet to be implemented because all bidders failed to meet the

required standards. In particular, the Korea Mobile Internet (KMI hereafter), which submitted

the first application in November 2010, was rejected by KCC for three times in total. In

December 2011, both KMI and Internet Space Time (IST hereafter), the other bidder for the

service, failed in achieving the license.

As concern is rising in the market, KCC tried to provide a breakthrough by revising the

application process and qualification standards for the bidders in May 30, 2012. The revision

is focused on financing capacity of the bidders and lowered the standards (or minimum

evaluation point) of quantitative evaluation1 from 60 to 40 points. In addition, evaluation on

the application and that on the bidder’s qualification will be extended from 2 months to 120

days and from less than 1 month to 60 days, respectively. It seems that KCC is dedicated to

identifying the best candidates by lengthening examination period, considering financing

capacity as top priority, and lowering other standards because they are newcomers in the

market. KMI and IST are expected to submit the application in the late half of this year and

a 4th mobile carrier is likely to be announced within this year.

The Korean government has been pursuing the policy for following two goals: first, to

encourage market competition by introducing differentiated and low-priced mobile

communications services compared to current ones and second, to promote WiBro which is

a type of WiMax technologies developed by Korea. The government was poised to achieve

1 Profitability (pre-tax return in assets), Stability (ratio of liabilities to assets), Future Growth

(Increases in revenue), Credit rating

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the goals with introduction of a 4th mobile communication service.2

KMI and IST are known to submit their application later this year in line with the new

standards of KCC. According to media report, both of them are in preparation for 4G WiBro

Advanced, the upgraded version of WiBro.

However, there is a growing concern that the 4th mobile carrier might fall short of customers’

expectation for cheaper but better mobile handsets and services. It is safe to say that there

has been no competitive WiBro handset and service in the market although KT and SKT

introduced the business 7 years ago in 2005. On March 16, 2012, they made a failed

attempt to revitalize the business with newly allocated spectrum.

For that matter, the 4th mobile carrier is required to assess the business opportunity before

it launches WiBro later this year.

This report provides strategic suggestions in relation to the 4th mobile service based on

following three questions and answers.

What network technology the new mobile carrier (4th mobile carrier)

must consider for strategic reasons?

- As of now, major mobile operators in the global market are migrating

from 3G to 4G rapidly. The 3G market is divided into various network

technologies which are CDMA EVDO, WCDMA and WiMAX. But, in terms of

4G, LTE is the dominant technology. For the success of the 4th mobile carrier,

it is required to offer not 3G but 4G service with reasonable prices.

What could be the methods to deliver new and reasonably-priced 4G

services?

-3GPP defined that LTE encompasses FDD (Frequency Division Duplex) and

TDD (Time Division Duplex). Among them, TDD (LTE-TDD) in unpaired

spectrum just like WiBro has a high chance to be in line with the

mainstream trend in the global mobile market.

2 This report does not distinguish between ‘WiMAX’ and ‘WiBro.’ But the term ‘WiBro’ is

mostly utilized in the context of Korean mobile market because it is the WiMax

technology dedicated to the country.

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What economic ripple effects are expected when the 4th mobile carrier

conducts LTE-TDD?

- The 4th mobile carrier is required to analyze possible economic ripple

effects if it provides mobile service (including handsets) based on LTE-TDD in

accordance with the definition of 3GPP.

About the terms, ‘LTE-TDD’ and ‘TD-LTE’

- 3GPP which announces global communications technology standards

designated FDD and TDD for LTE specifications. FDD is often referred to as

LTE-FDD and TDD is being called LTE-TDD. They have a lot in common as both

are based on LTE technology, but there are some differences. The biggest

difference lies in uplink and downlink transmission. FDD utilizes difference

frequencies for transmission. As for TDD, uplink and downlink are on the same

frequency but time separated.

- Most mobile carriers in Korea are utilizing FDD, and LTE-TDD is emerging as

the alternative to ease congestion on network or to make full use of bands

allocated for WiBro. The terms, ‘TD-LTE’ and ‘LTE-TDD,’ are being utilized in the

industry and have the same meaning. However, this report utilizes the term

LTE-TDD, as 3GPP defines it as one of the standard LTE technologies. (The ROA

Consulting used the term TD-LTE in its report ‘current and future market of TD-

LTE released in April 2012, but will use ‘LTE-TDD’ in this and future report in

line with the policy of 3GPP.)

Analysis model for economic ripple effects

- The report evaluates economic ripple effects of a new mobile service is

provided based on LTE-TDD with Input-Output Analysis. Professor Choi Yong-je

from Hankuk University of Foreign Studies provided consulting for the analysis

model.

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Part II. History and problems with the policy

1. History

The government’s effort to announce a WiBro service operator has yet to achieve a

substantial result because all bidders failed to meet required standards. In 2011, KMI and IST

consortium was rejected by KCC by recording 65.790 and 63.926 point, respectively. Then,

the mandatory limit was 70 point.

Both the consortiums suggested WiBro as well as WiBro Advanced, which can be interpreted

that they would play an important role in promoting WiBro. However, WiBro business has

been stalled as all applications for the 4th mobile service were rejected and the gap between

WiBro and LTE is widening.

On May 30 this year, KCC revised the application process and qualification standards for

bidders to provide a solution to the problems appeared up until now. The revision is

designed to find out bidders with determination and actual capacity for the service. It is

expected to KMI and IST will submit their applications for the service and new mobile

carriers will be announced later this year.

2. Problems with the policy

The latest academic paper about WiBro was written by the Korea Information Society

Development Institute researcher Kim Chang-hwan et al. in December 2012, with the title of

‘Study on Methods to Vitalize WiBro in the Korea’s Mobile Market.’ According to the study,

WiBro is failing in the market with less than 0.8 million users as of end of 2011. They

pointed out three causes behind disappointing performance of WiBro: first, a lack of

administrative policies to promote the mobile internet market, second, passive investment

strategy of the current mobile carriers and third, absence of attractive handsets. Detailed

information is as follows.

1) A lack of administrative policies to promote the mobile internet market

The Korean government failed to provide the market with effective policies because it

didn’t identify rising trend of mobile internet service in the world. As a result, WiBro

wasn’t fully capitalized in 2009 when mobile internet usage soared due to

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5

introduction of iPhone in Korea.

2) Passive investment strategy of the current mobile carriers

KT and SKT were reluctant to make an investment in relation to WiBro due to the

concern that it might erode the market of conventional mobile service. As a result,

development of a nation-wide network and dedicated services has been sluggish.

3) Absence of attractive handsets

WiBro service has been mostly provided with USB-style modem, router, laptop, and

netbook. Up until now, WiBro-enabled mobile phones are not available in the market.

The three factors behind the failure of WiBro present potential challenges the 4th mobile

carrier will face in the future, as follows.

1) Shrinking share of WiBro in the world

According to the related research, the share of LTE and WiBro will be 8:2 or even 9:1

from 2014 to 2016. In other words, LTE will dominate the market. In addition, LTE will

post a faster growth than 3G. ROA Consulting analyzes that LTE subscribers in Korea

will reach 42 million, occupying 73% of total mobile users in 2013. In addition, 7 out

of 10 new smartphones will be LTE devices. Not only in Korea, but also in the world,

expansion of LTE will take place very rapidly, limiting growth of WiBro. WiBro or

WiMax is likely to obtain less that 10% of the global market. Against this backdrop,

the 4th mobile carrier will face challenges in attracting subscribers, delivering

international roaming and developing new services.

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<Table 1> LTE/WiBro market in 2015

(in tens of thousands of people, %)

Analysis Firm

LTE WiBro Note

Subscribers Market Share Subscribers Market Share

OVUM 30,000 82.9 6,170 17,1

ABI Research 29,000 83.0 5,900 17,0

Maravedis 30,500 85.9 5,000 14,1 as of 2016

iSuppli 33,100 90.8 3,340 9.2 As of 2014

Source: Excerpt from the Study on Methods to Vitalize WiBro in the Korea’s Mobile

Market, Kim Chang-wan et al. (2011)

2) A lack of WiBro-enabled devices

WiBro posted a disappointing performance in the US market and a lack of WiBro-

enabled devices was pointed out as the biggest obstacle. The 4th mobile carrier is

expected to be face with a similar challenge when the service is launched. Securing

WiBro-dedicated devices is one of the most important factors to promote the service.

In case of LTE, introduction of LTE devices such as Samsung Galaxy and LG Opimus

allows LTE subscribers to reach 1 million in a couple of months.

As of now, Korea’s major handset vendors such as Samsung, LG and Pantech have no

plan to develop WiBro handsets. If the 4th mobile carrier can’t create enough market

demands, handset vendors will continue to be focused on WCDMA and LTE

smartphone, turning their blind eyes to WiBro devices. Then the 4th mobile carrier will

be mired in a vicious circle because a lack of WiBro-enabled handsets will make

attracting WiBro subscribers even more difficult.

Although KMI and IST are preparing WiBro Advanced, there is no handset vendor is

developing or considering development of chipset, which is the key part of handset.

As of now, supplying handsets dedicated to WiBro Advanced is anything but

impossible.

On top of that, rapid growth of LTE is a proof of shrinking WiBro (WiMax) market.

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Part III. ‘WiBro(WiMAX)’ vs ‘LTE-TDD’, Which is the mainstream?

1. WiBro(WiMAX) market is suffering.

WiBro was launched in 2006 in Korea but failed to attracting attention in the market

because then, mobile internet service didn’t fully take off. Before the introduction of iPhone

in late 2009, mobile data and internet service was mostly for web browsing with laptop or

others in Korea, contributing to the disappointing business results of WiBro. However, KT

added more WiBro users over the past year compared to the previous years because KT

promoted WiBro service to overcome its weakness in the LTE market caused by belated

introduction of the service. KT lagged behind others in introducing LTE because it needed to

ditch 2G service. On the other hand, SKT’s WiBro users have decreased since 2010 because

it has been focused on LTE without making additional investment on and attracting users of

WiBro since 2011 when the mandatory service period determined by the government was

completed.

As for the network, WiBro connected 82 cities and main highways of Korea in 2011, 5 years

after the launch of service in 2006. Combined investment of KT and SKT on WiBro network

amounted to KRW 1.9205 trillion by March 2011 but their WiBro service network can’t offer

a nationwide coverage. KT offers service coverage to 88% of the 82 cities with 54,834

facilities and SKT delivers 72.4% with 24,348 facilities. .

<Table 2> WiBro subscribers and sales

Operator

Subscribers

Y2006 Y2007 Y2008 Y2009 Y2010 Y2011

Sales (in

100

millions of

KRW)

KT 950 103,266 156,900 285,040 365,393 743,033 1,729

SKT 447 995 11,051 31,840 89,601 55,330 258

Total 1,397 104,261 167,951 316,880 454,994 798,363 1,987

Source: Excerpt from the Study on Methods to Vitalize WiBro in the Korea’s Mobile

Market by Kim Chang-wan et al. (2011) and KCC report

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WiBro has been subscribed by 0.8 million users and recorded KRW 198.7 billion in

accumulated revenue as of 2011, which is disappointing compared to other technologies.

Over the past year, the number of WiBro users was climbing as KT introduced Egg and other

WiBro-enabled devices to overcome its weakness in the LTE market with WiBro. But, KT’s LTE

was launched in January 2012, hinting that further increases in WiBro users are off the table.

On the other hand, SKT introduced LTE in July 2011 and its WiBro decreased 34,271 in 2011

from the previous year.

WiBro market has been posting disappointing results despite continuous efforts of the

government to encourage the service and investment on it. The Korean government ordered

the mobile carriers to speed up investment on the technology in October 2009, and

announced 3 policy directions and 8 tasks3.

However, it is a foregone conclusion that WiBro has failed in achieving substantial results. In

addition, investment on the technology has been slowed due to uncertainty over the service.

To make matters worse, introduction of LTE is happening in the world much faster than

expectation and large mobile markets in the world including US, Russia and India are

announcing introduction of or transition to LTE. Against this backdrop, there is a growing

argument that LTE will dominate the 4G market and WiBro is on the verge of crisis in the

global market.

According to the WiMAX Forum, mobile WiMax is being provided in 70 countries by 123

operators as of August 18, 2011. Among them, 60% is internet service operator or ISP rather

than major mobile service operators. Besides, mobile WiMax is available mostly in emerging

markets such as Africa, East Europe and Latin America.

On the other hand, major mobile service operators are announcing their plans to launch LTE,

3 The three policy directions include ‘creating conditions to vitalize market competition,’

‘constructing a nation-wide network,’ and ‘bettering WiBro business profitability.’ To

implement the policies, 8 tasks were suggested: ① adjusting bandwidths of conventional

service operators, ② creating conditions for new comers to enter the market (for the

national and local service) ③ introducing MVNO progressively ④ expanding network to

connect the entire nation ⑤ considering measures for an effective international roaming (for

new comers) ⑥ promoting mobile internet ⑦ creating an environment for better

profitability, and ⑧ vitalizing public WiBro service.

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in a row. Yota, the leading WiMax service provider, announced in April 2010 that it will stop

development of WiMax and move to LTE4. Clearwire in the US is following the trend by

revealing its plan to pursue LTE by building 5,000 base stations by June 2013, placing more

pressure on WiMAX front. Besides, WiMax devices are mostly modem types including USB

dongle, PC card, laptop or netbook types. As of December 2011, only 13 voice

communications handsets including smartphone are available in the market.

LTE-TDD operators will account for 37% of LTE in 2015 As of July 12, 2012, 89 service operators have commercialized LTE in the world. Among

them, 9 mobile carriers in 8 countries are offering commercialized LTE-TDD, which account

for more than 10% among total LTE service operators.

<Table 3> Countries with commercialized LTE service

Country Operators Launching Country Operator Launching

Norway TeliaSonera 2009 Kuwait Viva 2011

Sweden TeliaSonera 2009 Armenia Vivacell-MTS 2011

Uzbekistan MTS 2010 Bahrain Viva Bahrain 2012

Uzbekistan UCell 2010 Hungary T Mobile 2012

Poland Aero2

(LTE FDD and TDD) 2010 South Korea KT 2012

USA MetroPCS 2010 Russia Yota 2012

Austria A1 Telekom 2010 Canada TELUS 2012

Sweden TeleNor Sweden 2010 USA Peoples Telephone Co-op 2012

Sweden Tele2 Sweden 2010 Japan Softbank Mobile XGP

/LTE TDD 2012

Hong Kong CSL Limited 2010 Portugal TMN (Portugal Telecom) 2012

Finland TeliaSonera 2010 Portugal Vodafone Portugal 2012

Germany Vodafone 2010 Portugal Optimus 2012

USA Verizon Wireless 2010 Japan eMobile 2012

Finland Elisa 2010 USA US Cellular 2012

Denmark TeliaSonera 2010 Croatia T Mobile/T-Hrvatski Telekom 2012

Estonia EMT 2010 Croatia VIPNet 2012

Japan NTT DoCoMo 2010 USA Panhandle (PTCI) 2012

Germany Deutsche Telekom 2011 Belarus Yota Bel 2012

4 In this report, LTE includes LTE-FDD and LTE-TDD.

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Philippines Smart Communications 2011 Australia NBN Co (LTE TDD) 2012

Lithuania Omnitel 2011 India Bharti Airtel (LTE TDD) 2012

Latvia LMT 2011 Angola Movicel 2012

Singapore M1 2011 Puerto Rico Open Mobile 2012

South Korea SK Telecom 2011 Moldova IDC 2012

South Korea LG U+ 2011 Sweden 3 (LTE FDD and TDD) 2012

Germany O2 2011 Hong Kong China Mobile HK 2012

Canada Rogers Wireless 2011 Hong Kong PCCW 2012

Austria T-Mobile 2011 USA Cellcom 2012

USA Mosaic Telecom 2011 USA Pioneer Cellular 2012

Canada Bell Mobility 2011 Netherlands Vodafone 2012

Saudi Arabia Mobily (LTE TDD) 2011 Hong Kong Hutchison 3 HK 2012

Saudi Arabia STC (LTE TDD) 2011 Netherlands Ziggo 2012

Saudi Arabia Zain 2011 Netherlands Tele2 2012

USA AT&T Mobility 2011 Netherlands KPN 2012

UAE Etisalat 2011 Netherlands T-Mobile 2012

Australia Telstra 2011 Namibia MTC 2012

Denmark TDC 2011 USA BendBroadband 2012

Austria 3 2011 Tanzania Smile 2012

Puerto Rico AT&T Mobility 2011 UAE Du 2012

Puerto Rico Claro 2011 Colombia Une-UPM 2012

Kyrgyzstan Saima Telecom 2011 Azerbaijan Azercell 2012

Brazil Sky Brazil (LTE TDD) 2011 Czech Rep Telefonica O2 2012

Finland DNA 2011 Mauritius Orange 2012

Uruguay Antel 2011 UK UK Broadband (LTE TDD) 2012

USA Cricket 2011 Dominican R. Orange Dominicana 2012

Singapore SingTel 2011

Source: GSA 2012. 7. 11.

As of now, 31 service operators in 23 countries including US and China are planning to

commercialize LTE-TDD. In February 2011, China Mobile founded GTI (Global TD-LTE

Initiative) to promote LTE-TDD, in cooperation with Bharti Airtel in India, Softbank in Japan,

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Vodafone in Europe and Clearwire in the US.

<Table 4> Countries and operators planning LTE-TDD

Country Operator Country Operator

Australia Optus Russia Megafon

Austria 3 Russia Base Tel

Canada Xplornet Russia Enforta

China China Mobile Singapore IDA

Croatia Velatel South Africa 8ta

Denmark 3 Spain COTA

France Orange Taiwan CHT

France Bollore Taiwan FarEasTone and China Mobile

Germany E-Plus Taiwan Global Mobile Corp

Hong Kong China Mobile & 3 HK Taiwan Fitel (PHS, WiMAX™)

Malaysia Packet Networks (P1) Thailand AIS

Malaysia Asiaspace Uruguay Dedicado

Montenegro Velatel USA Clearwire

Russia Rostelecom USA Xplornet Communications

Russia Voentelecom Venezuela Movilmax

Russia MTS

Source: GSA 2012. 7. 11.

China Mobile has been leading the trend of LTE-TDD. It conducted the first phase of R&D

technology test to commercialize LTE-TDD with major system and chipset vendors by

utilizing 850 base stations located in 6 cities. The test continued until September 2011. Now,

the second phase of test is being conducted with a goal to set up a pilot service network in

three cities of Beijing, Tianjin and Chin Dao. China Mobile will construct as many as 20,000

base stations to cover 500 million users by end of 2012 and expand them to 200,000 by end

of 2013. At first, the service will be provided with data card type, and then ten LTE-TDD

smartphones will be released in the market in the first half of 2013. In 2014, more than 100

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devices will hit the market according to the plan. China Mobile is pursuing the service

progressively with a large scale pilot service and commercialization is expected to begin in

2013~2014.

Bharti Airtel commercialized the service in April 2012, which was the first time in India.

Ericsson, Nokia and Siemens announced that they would provide India with LTE-TDD

network equipment. As WiMAX fell short of expectation at the broadband auction

conducted by BWA (Broadband Wireless Access) in June 2010, India became more than

ready for LTE-TDD. Before the auction, WiMAX had been regarded as the most adequate

technology for the nation. Infotel obtained the license to offer LTE-TDD in 22 districts at the

auction and revealed its plan to utilize 2.3GHz spectrum. Later, Reliance, the largest mobile

carrier in India, took over Infotel, and has been pursuing LTE-TDD progressively. Reliance is

expected to launch LTE-TDD in 2012, and Samsung Electronics signed a contract worth USD

1 billion to provide the company with LTE-EDD devices. The contract outlines that Samsung

and Reliance will build LTE-TDD network in 700 cities including Mumbai and Delhi. Aircel is

in provision of pilot service of LTE-TDD and Tikona Digital is preparing the service too. BSNL

and MTNL are expected to jump on the bandwagon in the future.

In Japan, Softbank Mobile started LTE-TDD on February 12, 2012 with AXGP spectrum5 of

Willcom, which had filed for bankruptcy protection. In November 2011, commercialization of

AXGP was realized through cooperation between ZTE and Huawei. AXGP is fully compatible

with LTE-TDD thanks to the technological similarity. As of now, the first phase of

commercialization has been completed with 2,000 base stations. The goal of the second

phase of the plan is to build over 10,000 base stations to cover 99% of population of Japan

by end of 2012. As of now, Softbank boasts the largest scale of commercialized LTE-TDD.

On the other hand, former WiMAX operators are adopting LTE-TDD in a row. Among them

are Vivid Wireless in Australia and P1 in Malaysia. Asiaspace is also planning to launch LTE-

TDD with 2.3GHz spectrum. Clearwire in the US announced that it would provide LTE-TDD in

31 cities in 2013 despite that the company introduced WiMAX faster than any others in the

world. For the plan, its largest shareholder, Sprint Nextel, invested USD 1 billion in April

2011. In December 2011, a contract was signed for Sprint Nextel to utilize LTE-TDD network

5 AXGP is a type of high-speed data transmission technology that Willcom was poised to

pursue as the next-generation PHS using 2.5GHz. AXGP inherits microcell which is one of

the characteristics of PHS, and is compatible with TD-LTE.

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of Clearwires and to provide additional investment worth USD 1.6 billion. Clearwire, on the

other hand, strives to build 5,000 base stations in June 2013, and add 3,000 more towers to

the network in the near future.

As both former WiMAX operators and new LTE service providers are pursuing LTE-TDD, it

will grow to 37.4% of total LTE market.

[Figure 2] Increases in LTE-TDD users in the world

(in millions of users)

Source: Excerpt from Pyramid Research and Heavy Reading, ROA Consulting

The main differences between LTE-TDD and LTE-TDD are around the duplex method used.

FDD utilizes separate channels for uplink and downlink. On the other hand, TDD utilizes one

variable channel for downlink and uplink but at different time slots. Due to the variability,

LTE-TDD technology is more adequate to asymmetrical data communications. Because the

end users are more likely to download contents rather than upload them, LTE-TDD is able to

allocate data in a more efficient way. Many service operators in the world are utilizing both

LTE-FDD and LTE-TDD to ease the pressure on the network in case of asymmetrical

applications such as video and M2M.

0

100

200

300

400

500

2011 2012 2013 2014 2015

LTE LTE-TDD

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<Table 5> Comparison of LTE-FDD/TDD

LTE-FDD LTE-TDD

Definition

- Frequency division duplex

- Utilizes different frequency for

upload and download

- Paired

- Time division duplex

- Utilizes same frequency but time

separated

- Unpaired

Characteristic

- Fitted to symmetrical

communications such as voice

communication

- D/L: 70 Mbps

- U/L:35Mbps

- Fitted to asymmetrical data

traffic

- D/L:70Mbps

- U/L:35Mbps

Major operator

- Verizon Wireless

- NTT DoCoMo

- 90% of operators planning LTE

- China Mobile

- Bharti

- Softbank

- Combined users of the three

operators above account for

39% of global population

Source: Excerpt from press release and analyzed ROA Consulting

LTE-TDD and WiMAX have a lot in common as both of them utilize TDD protocol. Thanks to

the similarity, unpaired spectrum obtained for WiMAX business can be operated for LTE-TDD.

In addition, facilities including base stations of WiMAX can be converted for LTE-TDD service

with a small investment. As for the mobile carriers, the facilities for LTE-FDD can be

operated for LTE-TDD. One of the biggest strengths of LTE-TDD lies in handsets

development. Because dual chipset enables LTE-FDD handsets to support TDD technology,

companies are saved from the necessity to develop and pursue different types of devices.

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Part IV. Economic ripple effects of a 4th mobile carrier

1. Method: Inter-industry relations (Input-Output Analysis)

This chapter provides analysis of economic ripple effects caused by the introduction of 4th

mobile carrier based on inter-industry relations table released by the Bank of Korea in July

2011.

2. Production inducement coefficient

The 28 industry types in the inter-industry relation table released by the Bank of Korea don’t

include the mobile industry. To analyze inter-industry relations in relation to the 4th mobile

carrier, following industry types in the table must be integrated.

<Table 6> Industry types to be integrated

Industry type Item

Mobile Service

Network

Electric wire and cable(244), mobile communications system and

broadcasting equipment(261)

Communications facility (318)

Handset Mobile handset(260)

Service Voice call(342) 6 , additional communications (344), information

service(345), development and supply of software(366)

Source: ROA Consulting

Note: 1) numbers in the bracket refers to industry classification code of 2005.

When the 4th mobile carrier enters the market, not only new communications will be

provided but also network must be laid and handsets should be procured. As a result, the

industrial structure encompassing communications network-service-handset will be created.

6 ‘Voice call’ includes both wireless and wired voice communications. As for the mobile

service, only mobile communication service must be considered. But entire voice call item

was considered because the table released by the government doesn’t provide them

separately.

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Accordingly, this report defines that the mobile service industry includes communications

service, network and handset segments7

3. Market demand

Market demand is composed of consumption, investment and export. To predict future

market demand, assumption on future revenue of the 4th mobile carrier, subscribers and

network construction costs must be made. This report analyzes the three factors of WiBro as

well as those of LTE-TDD. And those results are compared to find out economic ripple

effects of the 4th mobile service. There must be some differences in variables of WiBro and

those of LTE-TDD. However, we assumed that all factors in relation to subscribers including

service rate, coverage, and voice communication service are same. But LTE-TDD is assumed

to have an upper hand compared to WiBro in terms of handsets.

(Y: Market demand, C: Consumption, I: Investment, EX: Export)

A. Market demand of WiBro

KMI is expected to secure 0.22 million users for one year after the launch of the service. Its

accumulated users are likely to increase 145.8% every year to reach 8.07 million. IST expects

that it will start the service at the end of 2012 and secure 4.5 million in 2 years. This report

utilizes projection of KMI because it is more conservative than the other.

7 This report utilizes formula for the analysis.

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<Table 7> WiBro users, service revenue and handset sales

(in tens of millions of KRW)

First year Second year Third year Froth year Fifth year

Accumulated

subscriber

(user)

221,046 1,763,880 3,649,963 5,771,838 8,071,188

Revenue 91 2175 5,278 9,046 13,193

Handset

sales 854 6,525 8,698 14,258 17,063

Source: ROA Consulting

Consumption encompasses service revenue and handset sales. Investment is evaluated with

network construction cost. Mobile service revenue is assumed based on projected operating

revenue appeared on the income state of KMI. KMI expects that it will generate KRW 9.1

billion for the first year of the business and increase the figure to 1.3 trillion for the next 5

years.

In line with the KMI’s prediction on its subscriber number for the first year of the service,

handset shipment in 2011 will be 0.22 million units. And the figure is expected to increase

to 4.27 million in 2015.8 Handset sales are evaluated by multiplying the shipment and

handset prices. As a result, projected handset sales amounts to KRW 85.4 billion in 2011 and

will grow to KRW 1706.3 billion in 2015.9

B. Market demand of LTE-TDD

‘Study on WiBro Promotion Policies (Lee Yong-seok et al. 2011)’ suggested five policies

(including provision of voice communications service, expansion of service coverage,

introduce of new comers, diversified handset line-up, launch of more reasonable service

rate), based on a preliminary study and conducted dynamic simulation on changes in

8 From 2009 to 2011, handset shipment was around from 22.60 million to 25.04 million. And

handset replacement cycle was 2.12, 2.20 and 2.13 years (handset sales and subscriber

number was assumed based on Gartner 2012 Q1 and KCC data, respectively).

9 Handset price was calculated with Gartner 2012 Q1 and foreign exchange rate of USD

1142.00 as of July 10, 2012.

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subscriber number in a accordance with the policy implementation.

<Table 8> Research analysis by Lee Yong-seok et al. (2011)

Research

analysis by Lee

Yong-seok et al.

(2011)

1) WiBro users will stand at 2 million in 5 years if current level is maintained.

2) But subscribers are expected to be 15 million if the suggested policies are

implemented.

3) Among them, 13 million will be net subscriber increase thanks to the

policies.

4) One million users or 8.33% new users will be added with diversified handset

line-up and net subscriber increases with other 4 policies will be 12 million.

Source: ROA Consulting

The simulation shows that diversification of WiBro handsets will be difficult in and out of

Korea. Against this backdrop, the 4th mobile carrier is expected to attract 8.3% more

subscribers when it pursues both WiBro and LTE-TDD based on the assumption that the

license for the 4th mobile service is same as that for the new comers. As the 4th mobile

carrier is expected to secure 8.07 million users based on WiBro for five years after the

launch of the service, net subscriber increase caused by LTE-TDD will amount to 0.67 million.

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<Table 9>Assumptions for prediction on LTE-TDD user number

Assumption

1) based on the assumption that the license for the 4th mobile service is same as

that for the new comers

2) Lee Yong-seok et al. (2011) predicts that diversified handsets will add 8.3%

users

3) WiBro devices are difficult to be diversified10

4) LTE-TDD devices can be diversified and that is the only difference between

WiBro and LTE-TDD users can acknowledge.

Source: ROA Consulting

Customers consider functions, price, brand image and design when they purchase a handset.

Mobile service operators will be faced with difficulties in appealing to users with limited

handset line-up. Based on the assumption that LTE-TDD can diversify handset line-up, the

users will reach 8.74 million 5 years after the launch of the service.

<Table 10> Service revenue based on LTE-TDD

(in tens of millions of KRW)

First year Second year Third year Forth year Fifth year

Accumulated

subscriber

(user)

239,467 1,910,870 3,954,127 6,252,825 8,743,787

Revenue 99 2,356 5,718 9,799 14,292

Handset

sales 925 7,069 9,423 15,446 18,485

Source: ROA Consulting

LTE-TDD Handset sales are expected to amount to KRW 92.5 billion during the first year of

the business and increase to KRW 1.8 trillion in 5 years.

10 According to the ROA Consulting report in 2011, LTE-TDD is expected to account for 37.4%

out of total LTE market in 2015, which is 4 times larger than WiBro.

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LTE-TDD is better positioned to add subscribes compared to WiBro thanks to diversified

handset line-up, which will help operating revenue to increase KRW 0.99 billion during the

first years of the service and to KRW 142.92 billion in 5 years. Operating revenue of LTE-TDD

was evaluated by multiplying that of per one WiBro user (operating revenue / accumulated

subscribers) and accumulated subscribers of LTE-TDD.

4. Analysis of economic ripple effects

As for the market demand, consumption during 5 years (revenue + handset sales) after the

launch of WiBro was added to the investment on network construction which will amount to

KRW 102.2 trillion. In case of LTE-TDD, the amount is calculated at KRW 108.6 trillion.11

Production inducement by WiBro for the 5 years stands at KRW 42.4 trillion and the added

value of the service will reach KRW 6.1 trillion. On the other hand, WiBro will hire 40,000

jobs. Mobile communication is a backbone business with production inducement effects

encompassing forward and backward effects. Our analysis finds out that it has higher

forward effect worth KRW 22.8 trillion than the backward effect.

11 Market demands are composed of consumption + investment + export. Consumption, in turn,

is composed of mobile service revenue and handset sales. Investment is assumed at KRW

2.5 trillion which is the average of the plans by KMI (KRW 2.7 trillion) and IST (KRW 2.3

trillion) for network construction. In detail, we assumed that 50% of the investment will be

spent during the first year, 20% in second year and 10% after that. The export is calculated

as 0 based on the assumption that introduction of the service will bring about no change to

the export of facility vendors in Korea.

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<Table 11> Analysis of the economic ripple effects by WiBro

(in tens of millions of KRW)

First year Second year Third year Forth year Fifth year Total

Production

inducement

Forward 30,012 30,580 36,778 57,599 73,118 228,087

Backward 25,882 26,372 31,717 49,672 63,055 196,697

Added-value 7,990 8,142 9,792 15,335 19,467 60,726

Import 5,455 5,558 6,684 10,469 13,289 41,455

Job creation (post) 5,244 5,343 6,426 10,063 12,775 39,850

Source: ROA Consulting

LTE-TDD-based service will result in production inducement effect worth KRW 45.1 trillion

for 5 years and added value of KRW 6.4 trillion. Job creation with the business will become

42,000.

<Table 12> Analysis of the economic ripple effects by LTE-TDD

(in tens of millions of KRW)

First year Second year Third year Forth year Fifth year Total

Production

inducement

Forward 30,187 32,198 39,378 61,933 78,746 242,443

Backward 26,033 27,767 33,959 53,410 67,909 209,078

Added value 8,037 8,573 10,484 16,489 20,965 64,548

Import 5,487 5,852 7,157 11,256 14,312 44,064

Job creation (post) 5,274 5,626 6,880 10,821 13,758 42,359

Source: ROA Consulting

The 4th mobile carrier is found to provide higher economic ripple effects by pursuing both

WiBro and LTE-TDD. Production inducement effects is KRW 2.3 trillion higher, and added

value reaches KRW 382.2 billion. As for job creation, 2,509 jobs will be created.

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<Table 13> Differences of WiBro and LTE-TDD

(in tens of millions of KRW)

First year Second year Third year Forth year Fifth year Total

Production

inducement

Forward 175 1,618 2,600 4,334 5,628 14,356

Backward 151 1,395 2,242 3,738 4,854 12,381

Added value 47 431 692 1,154 1,498 3,822

Import 32 294 473 787 1,023 2,609

Job creation (post) 30 283 454 758 983 2,509

Source: ROA Consulting

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Part V. Strategic suggestions: in pursuit of realistic alternatives

This report analyzes economic ripple effects of WiBro and LTE-TDD service which can be

delivered by the 4th mobile carrier. Although WiBro service has been suffering in the market

mostly because of a lack of handset line-up, LTE-TDD will provide a solution to the problem

with dual-mode chipsets for TDD and FDD.

The preliminary report written by Lee Yong-seok et al. (2011) suggested 5 WiBro promotion

policies (provision of voice communication service, cheaper service rate, expansion of service

coverage, diversified handset line-up and introduction of new comers). In relation to the five

policy suggestions, we assumed that the only difference between WiBro and LTE-TDD lies in

diversification of handset line-up. With the assumption, the report found out that LTE-TDD

will add 0.67 million to WiBro users, totaling 8.07 million according to the prediction of

KMI.12

The net subscriber addition with WiBro will generate economic impact worth KRW 102.2

trillion in terms of GDP for five years since the launch of the service. However, LTE-TDD will

add the amount by KRW 6.5 trillion to KRW 108.6 trillion for the same period. Besides, LTE-

TDD is expected to generate production inducement effects of KRW 45.1 trillion, added

value of KRW 6.5 trillion and 0.42 million jobs for 5 years. Compared to WiBro, it will provide

KRW 2.3 trillion of production inducement effect, KRW 382.2 billion of added value and

2,509 jobs more during the period.

Strategy Analytics found out that Samsung and Apple have a combined market share of 52.4%

in the smartphone market in Q2 2012. Their share is expected to increase in the future

because the market is being more and more dominated by only a few device vendors and

products. For instance, Samsung sold 10 million units of Galaxy S3 in only 50 days after the

introduction of the model. Against this backdrop, net subscriber addition and economic

impacts of LTE-TDD will become larger if WiBro fails to secure dedicated devices.

12 KMI’s prediction was applied because it is the most conservative data among the sources

(IST expects that subscribers will be 4.5 million in 2 years. Compared to the IST’ data, KMI

has more conservative perspective). As for the investment on network construction, the

average between calculation KMI (KRW 2.7 trillion) and IST (KRW 2.3 trillion) was utilized.

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However, securing the chipset for WiBro Advanced KMI and IST are preparing is impossible

as no device vendors are manufacturing the product.

On top of the economic ripple effect, following analysis and suggestions are made.

Rising dominance of LTE technology.

Major mobile carriers in the world are adopting 4G rapidly, and LTE is the

dominant format. According to the related research, the share of LTE and WiBro

will be 8:2 or even 9:1 from 2014 to 2016. More and more research are

predicting that share of LTE will increase further. If the 4th mobile carrier offers

only WiBro, it will have difficulties in attracting users, delivering international

roaming and expanding service.

Expansion of LTE-TDD, which utilizes unpaired spectrum like

WiBro(WiMAX)

More and more WiMAX service operators in the world are moving to LTE-TDD

network. In Korea, KT, the WiBro service operator, officially announced that

transition to LTE-TDD needs to be considered. WiBro which started in 2006 has

yet to be vitalized and secured only 0.8 million users as of end of 2011. There

are a number of reasons behind the failure of WiBro in the market such as a

lack of adequate policies of the government, passive investment strategy by the

mobile carriers, and absence of dedicated devices. Among the three, absence of

dedicated devices is picked the biggest obstacle preventing growth of WiBro. In

particular, WiBro Advanced which KMI and IST are preparing seems impossible

to secure dedicated devices as none of the chipset vendors are developing a

product for the service.

The analysis made in the report has some limits in quantifying the advantages of LTE-TDD in

terms of investment and export.

in terms of investment

This report considers investment of WiBro is similar to that of LTE-TDD. However,

LTE-TDD will have an advantage in investment over WiBro because expansion of

LTE-TDD market will drive down the cost of its devices.

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in terms of export

If commercialization of LTE-TDD is advanced in the Korean market, devices and

handset vendors will have better chance to export their LTE-TDD products. Then,

LTE-TDD market will be much larger than WiBro. Accordingly, LTE-TDD is better

positioned in terms of export. But, the report can’t include factors in relation to

the export due to limited data.

In conclusion, LTE-TDD is a better option for the 4th mobile carrier than WiBro because of

the global trend, handset procurement, and economic ripple effects. In addition, LTE-TDD is

evaluated to have an upper hand in terms of investment and export compared to WiBro.

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<Bibliography>

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Methods to Vitalize WiBro in the Korea’s Mobile Market, KCC

2. Seok Wang-heon, Song Yeong-geun (2011), Current and Future WiBro

Market, Mobile Communication Analysis Vol.26 No.4

3. Lee Sang-hee (2008), Trend of Next-generation Communication, 4G and

WiBro, Institute for Information Technology Advancement

4. Lee Yong-seok, Jeong Jae-rim, Park Sang-hyeon, Kim Sang-uk (2011),

Study on WiBro Promotion Policies, Korea System Dynamics Study, Vol.12

No.2

5. Korea Institute of Patent Information(2012), Trend Report on Technology

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Infrastructure and Subscribers Quarterly Market Size, Share, and

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13. Maravedis(2011), “17.25 million BWA/WiMAX and 320 thousand LTE

subscribers reached in Q1 2011,” April 6, 2011

14. MOTOROLA(2010), TD-LTE : Exciting Alternative, Global Momentum

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15. ROA Consulting Strategy Report(2011), Global TD-LTE Market Status and

Prediction: Transition to TD-LTE and Strategic Suggestions