Telecommunications In Korea Essay, Research Paper
Telecommunications is a tool providing information services to both private and public sectors. It is highly involved in society and helps a society grow and flourish. It affects the ideals and trends of a society and, thus, is a very important factor in a growing country. With an area of 99,019 square kilometers, and a current population of 44.6 million people, the Republic of Korea is a great challenge to connect through telecommunication tools and projects.
Even with such a great expanse of land and peoples, Korea has succeeded in becoming the eighth most advanced country in telecommunications. There are 337 telephones per 1000 people with an annual growth rate of 15.6% for residential subscribers, 10.1 % for commercial subscribers and 245 for leased line data services. Thus, the question of how Korea accomplished this in just a little over a decade comes to mind.
In this paper, I will give an overview of the developments of the Korean telecommunications industry. Then through other literary sources along with the telecommunications background information, I will show how the Korean Government’s practice of deregulation and liberalization has spurred on competition and, henceforth, progress in the Korean telecommunications industry.
History of Telecommunications
The first form of telecommunications in Korea began in 1885 with the first telegraph which linked Seoul and Inchon which were located 35 km apart. The periods of telecommunication development can be divided into three stages. In the first stage, 1885 to 1961, there was limited telegraph and telephone service available. They were mainly for official business service. The Japanese occupation from 1910 to 1945 and the Korean War from 1950 to 1953 stagnated telecommunication progress (Lee et.al 1). Only 120,000 telephone lines were installed in this period, supplying a minimal fraction of 0.4 phones per 100 persons.
In the second stage, 1962 to 1981, significant progress in telecommunications occurred. The government improved basic communications facilities by connecting rural areas by phone and by creating training centers for telecommunication employees to keep the phone lines running smoothly. Telephone subscriber lines increased to 4.1 million lines offering 8.4 phones per 100 people. More importantly, long-distance telephone calling circuits were boosted from 1,177 to 88,571 circuits, while international calling circuits were increased from 12 to 274 (Lee, et. al 2). During this period, the government installed the micro-wave network in 1967 and the scatter transmission network between Japan and Korea in 1968. The first two satellite earth stations were built during this period. In addition, a coaxial cable was installed to bring an automatic telephone call service between major cities. In 1979, the electronic switching system (ESS) was introduced to aid with the increasing number of phone subscriptions.
The third stage, occurring from 1982 to the present, illustrates a huge and dynamic change in the telecommunications industry. First, in 1982 to 1986 an addition of 6.2 telephone lines were installed. Within this period, the participation of Korea in the Asian Games and the 1988 Olympics placed telecommunications at a high demand. With the 10th Asian Games in 1986, an integrated automatic switching system was introduced. The capability to install telephones immediately upon request became available. The 1988 Olympics brought the idea of launching Korea’s own satellite in mind. Although a satellite was not launched during this period, it made the idea more of a future plan.
Government Policies and Telecommunication Companies
The development of Korea’s information society cannot be separated from the development of the Korean government policies. This is because all telecommunication sources were once controlled by the Korean government. Then as years went on, the government loosened its reigns for other private and publicly owned companies to develop telecommunication products which they could themselves market. This decrease in government control resulted to a more competitive environment where progress prospered.
In the early 1980’s, the Korean government Ministry of Communications (MOC) restructured the public telecommunications sector which led to the transfer of government operated telecommunications to a public corporation, Korea Telecommunication Authority (KTA) (Seo 154). Later in 1982, telecommunication powers were also given to a private company entitled the Data Communications Corporation of Korea (DACOM). This was a turning point for the telecommunications industry. Now the government did not have total control over the industry.
More importantly, later in its existence, KTA gave financial support to other telecommunications industries to create the necessary equipment for telecommunications such as coin telephone sets, a digital switching system, and fiber optical transmission system, etc. (Seo 154). KTA also aided in the development of the Electronics and Telecommunications Research Institute (ETRI), the first step for Korea towards an indigenous and self-reliant technological society (Seo 156). Korea was to begin its own research and development of telecommunication tools instead of relying on other countries’ imports.
In 1984, KTA Research Center (KTARC) was created to build a technology base and to absorb and adapt foreign technology according to the country’s needs. KTARC provided guidance and technical support to network operating group and industry based on the policy set by KTA. Thus, research for telecommunications were now being conducted by the country’s universities, by EERIE, by KTARC, and by other privately owned companies. As the capability of industry grows more and more complex, much of the work performed by EERIE will be taken over by industry, leaving EERIE to move into high risk research and development and advanced technological support. In 1987, the total research and development investment by KTA is around 70 million US dollars. Thus, much has gone to research and development, the base for telecommunications progress and technology.
Besides KTA and DACCA, two more telecommunication carriers were founded in the 1980’s. Korea Mobile Telecom (KMT), was established in 1984 to provide cellular and paging services. The availability of mobile phones in 1993 covers 107 towns and cities, reaching over 80 percent of Korea’s population. Korea Port Telephone Corporation was established in 1985 to provide communications services in the port areas. Furthermore, in 1991, the business relationship between KTA and DACCA was changed so that KTA could provide data communications services and DACCA international telephone services.
Results of Telecommunications Research and Development
Research and development performed by Korea would be lead to progress. First, it would increase the technological capability in a key sector of the economy by providing the necessary infrastructure for the introduction of advanced telecommunications services. Second, technological dependence on foreign sources, and import of technology would diminish. Third, the cost of acquiring technology especially in terms of foreign exchange would diminish at least in the long run, by the substitution of import for local production and by export earnings. Furthermore, “enhanced indigenous technological capability provides Korea with a stronger bargaining power in negotiating with the foreign suppliers, which will ultimately be reflected in better condition of technology transfer and lower cost system acquisition” (Seo 153). Thus, Korea would benefit greatly by performing its own research and developing its own products instead of relying on other countries for its telecommunication tools.
Development of Different Systems to Extend Calling Lines
The first generation of Electronic Switching System (IS) appeared in the early 1960’s. But within a few years these were superseded by the system which reflected new concepts based on the combination of communications and computers. Over the same period, digital transmission techniques have also been greatly improved.
Computer control of exchanges, time divisions switching and the transmission of information in digital form are the basis for the successful large scale telecommunications connections throughout Korea.
The recent development of microelectronics, space and optical fiber technologies made it possible to spread new telecommunications services around the world. Besides voice and text, huge quantities of visual information are being transmitted. Videotex systems connect subscribers to data banks and display economic, financial and scientific information as text or graphics on a television screen. In addition, services such as video-conferencing, teletex and electronic mail are widespread.
All of these services could be integrated into a single global network called Integrated Services Digital Network (ISDN). An ISDEN comprises digital switching, computer control and optical fiber digital transmission.
Telecommunications network consist of subscriber terminals, subscriber lines, local exchanges, toll exchanges and interexchange circuits.
Subscriber terminals have evolved from the simple telephone set designed to provide basic voice telephony. The current trend is toward increasing intelligence in the terminal, enabling subscribers to perform a range of functions which enhance the telephone utility. The terminals associated with other services such as facsimile and data have also become more versatile and sophisticated. Already the concept is emerging of a multipurpose terminal for text, data and other non telephone services as well as being used as a telephone. An ordinary telephone line will be able to carry many of these services and devices of this kind and would make it easier and cheaper to provide non telephone services to rural and remote areas.
Subscriber terminals are normally connected to local exchanges by a physical pair of conductors. The physical conductors are expensive, representing around 30% of the total capital cost of plant in urban areas. However, in highly populated areas, a suitable local network distribution system can be planned and installed that can be expanded economically. Local networks use overhead or buried cables in various size and flexibility points, allowing sufficient capacity to accommodate new subscriber. Various means of concentrating traffic are available so that more than one subscriber may share each physical pair of conductors.
However, local distribution represents the major problem of providing telephone service in rural and remote areas. In rural areas, subscribers may be at a distance over 30 to 50 kilometers from the exchange and the terrain and environment communication transfer even more difficult. Local network cost may represent as much as 70 to 80% of capital plant cost which are themselves normally 4 to 5 times of urban cost.
An alternative to physical conductors, especially in rural areas, is radio telephony. Ultra High Frequency and Super High Frequency systems have direct line of sight paths between transmitter and receiver at a distance of 50 to 70 kilometers. In practice the environment and terrain reduce this distance, Improving the utilization of frequency spectrum is possible by using the cellular radio concept and other methods of dynamic frequency assignment.
Manual systems with operators setting up connections using key plugs and jacks are still used in developing countries. If attended for 24 hours a day, these provide reasonable service with low investment, low consumption of power and simple maintenance.
In automatic analog systems, speech is converted into a electrical signal with varying frequency and amplitude and calls are connected through separate switches in the system. The oldest automatic switching system is the step-by-step system with
electromechanical switches. Although extensively used, it becomes obsolete.
Cross bar systems operate at higher speeds, are less costly to maintain, and give subscribers greater capabilities. But this system also will be obsolete and it is expected to remain in a limited lifetime only to provide for the expansion of existing systems.
The most recent generation of analog ESS have Stored Program Control (SPC). In SPC systems the control functions are performed by a computer, and the switching matrix can use solid state electronic crosspoints. Advantages include extensive remote operation and maintenance facilities, built-in test and signaling units and practically no open contacts, which make them less sensitive to dust and humidity. Normally SPC exchanges are built in compact form and so require air conditioning, especially in hot and humid climates. These systems are not yet obsolete, but most manufacturers are switching their product line to digital ESS.
Digitalization of Telecommunications
It is the digitalization of telecommunications that has accomplished much of its telephone connections. The TDX is a digital system. In digital ESS, voice or signal is converted from the analog signal to a code form consisting of high speed on/off pulses. Pulses of different conversations are separated from each other by discrete time intervals and switched in turn by the time division switching system so that many calls are multiplexed by the same switch. Digital exchanges are cheaper to install and maintain than analog exchanges particularly in the larger sizes. Among the advantages of digital switching are its compatibility with computers and potential cost and space savings when operated in conjunction with digital transmission systems (Lee 27).
The links carrying calls between exchanges may be symmetrical pair cable, quad cable, coaxial cable, optical fiber cabled. The choice of medium depends upon bandwidth or traffic volumes to be carried, the distance and terrain to be covered, the performance required, the distribution of the traffic and the cost. Interexchange transmission system in the past were analog but are now being superseded by digital systems.
Technological developments are reducing cost and improving the quality of service. Optical fiber cable is particularly suited for high capacity routes, leaving longer distances between repeaters, further reducing cost and increasing reliability. Optical fiber cable will be replacing coaxial and quad cable systems as the preferred medium. Microwave systems are particularly suitable for medium and high capacity routes in inhospitable terrain. Coaxial or optical fiber submarine cable is also an economic choice in numerous cases for long distance or international transmission.
There are many advantages of digital switching and transmission. Such a network carries data traffic as easily as voice traffic and therefore is used by many types of service. The result is economies of scale and resilience when traffic on particular services peaks. The computers within exchanges monitor and control the behavior of the network as a whole system and open up new capabilities and techniques of operation. The flexibility of digital systems also simplifies the physical design of networks so that the limitations on serving large areas from a single exchange are reduced. KTA hopes to digitalize all phone lines by the year 2005.
One specific industry that was directly in the reigns of the Korean government was the media. The communications media in South Korea was under the dictatorial governmental press control. This changed in 1987. A major historical Declaration released the media from this tight hold. Future Korean President, Roh Tae Woo, would make the 29 June Declaration explicitly calling for “freedom of the press” (Won 215). With the abolition of regulations that previously limited the number of regional newspapers to one to a province, a large number of newspapers were reopened or newly founded. Religious bodies and other corporations began broadcasting on new radio channels. Now people could express their opinions and publicize topics which were once prohibited by the government. There was also a dramatic increase in the number of periodicals on the market. In addition, with the lifting of the de facto prohibition against the establishment of new newspaper, three general-interest daily newspapers, Hankyoreh Shinmun, Segue Ilbo, and Kookmin Ilbo, began publication in Seoul with nationwide distribution. The effect of the June 29, 1987 Declaration can be seen by the skyrocketing of media sources. Whereas Korea had only 30 national and regional newspapers being published at the time Roe Tae Woo made his famous 1987 liberalization declaration, by the end of 1989, this number had more than doubled to 68. The number of periodicals published daily, weekly, monthly, bimonthly or quarterly increased from 2,241 prior liberalization to 3,441 in December 1988. Another 109 periodicals were registered with the government in January 1989 (Won 217). Furthermore, information Ministry figures for December 1989 show that Korea had 4,400 periodicals, including 68 dailies, two news services and 819 weeklies (Won 217).
Another important result of this 1987 Declaration was its repeal of the Basic Press Law, the government policy which created hierarchy and multiple regulations for the press. The Basic Press Law, effective in January 1981, contained a number of measures that facilitated the government’s control of media. This law contained a number of harmful provisions allowing the government to confiscate media material, such as newspapers and magazines, and which strictly defined the responsibility of the media. In addition, it enabled the government to close a publication in instances where a publication engaged in activity that went against its stated purpose of publication or disturbed the public order by inciting violence or other means (Won 218). Publications could also be closed down if they were found publications were found aiding and abetting or praising North Korea. Thus, the repeal of the Basic Press Law led to a more open media. Journalists now had a broader field to work with and were able to freely inform their audience of public concerns.
On November 10, 1987, at the same time that the government repealed the Basic Press Law, the National Assembly enacted new legislation for the broadcast media and amended the Korea Broadcasting System Law. This legislation established a broadcast committee that would ensure that radio and television stations were managed in the public interest. This committee began operating on August 3, 1988. The committee founded the Seoul Broadcasting System as a privately owned broadcast corporation, bringing Korea’s broadcast industry into a period of dual structure of private and public ownership (Won 219). Legislation also worked further to keep broadcasting monopoly from occurring through the Broadcast Culture Promotion Association which made the environment better for other companies to open up. Thus, government has created a more open environment for other media companies to start business.
Effects of “Freedom of the Press”
With the change in media consumers, from the elite to the general public, and from the general population to the specialists, there has been a trend toward specialization. The trend leads to a specialization according to ideology, political learning, specific consumer state, or outlook on the news. This environment for a “free-press” leads to a wider variety of news, opening up new avenues to express more opinions and more viewpoints in a wider scope. This broadens audience knowledge.
Present State of Telecommunications in Korea
At present, Korea has 20 million lines with 17 million subscribers which adds up to 42.6 lines per 100 people. The number of cellular mobile phone subscribers amounts to 785,000 lines and paging service numbers reach almost 5.5 million (Apt 338). There are some 285,000 public payphones in the country and coin operated units are being replaced with cardphones.
As a result, Korea now has one of the largest telecommunications networks in Asia and is the world’s eight ranking nation in terms of the number of telephones installed.
In 1984, Korea successfully developed the TDX-AA, a domestically developed digital electronic switching system, becoming the 10th nation to develop native switching system. Enhanced systems like the TDX-1B and TDX-10 followed shortly after. In particular, the TDX-10 system which has a capacity of 100,000 circuits and high interoperability, enabled the installation of a large quantity of telecommunication lines.
Currently, Korea deploys about seven million lines with this TDX system, and exports this system to various countries. Now Direct Distance Dialing (DDD), long-distance service and international telephone services are available anywhere in the country, including rural and remote area.
Other services currently available to Korea are E-mail, voice mail, electronic data interchange, on-line data retrieval and database processing, code and protocol change, and enhanced facsimile services.
Presently, KTA is developing the HiTEL data communications retrieval service allowing information to be retrieved by personal computer or HiTEL terminal and facsimile machine for graphics, from various databases covering many subjects. Some 35,000 users are currently linked to this system. In 1993, KTA’s HiNET-P service was expanded to become a national packet switching service offering a Korean interface. A packet leased line service is available plus dial-up database access. A HiNET-C service has also been expanded to become a national service. Value-added services currently offered by KTA include voice information, voice mail, E-mail, Hi-FAX facsimile and HiVICON domestic conferencing, launched in 1993. KTA is also involved in the R-J-K submarine cable project linking Korea, Japan, and Russia, that was due for completion in 1995. KTA is also a part of the Asia-Pacific Cable Network (APCN) project to connect ten Asian countries.
Korea has now been investing in satellite communications. Satellites provide clear and direct connections whether it be for telephones or radio and television broadcasting. Thus, the satellite would be a major forward move into the future for telecommunications. Specifically satellite can be used for long-distance telephone calls, for sending television signals to remote areas in the country, for facsimile transmission of documents that become increasingly important as Korea’s business community continues to expand, for video conferencing, for electronic banking, for electronic classroom instruction, and for sending FM radio programs all over Korea (Lee et.al, 1). These man-made satellites can also be used by the military for defense purposes. Furthermore, a communication satellite will enable Korea to gain instant access to information from other nations, thus narrowing the information gap existing between it and more highly developed countries (Lee et.al 1). Thus, the satellite would actually keep Korea up-to-date on technology and aid Korea in keeping a competitive edge in telecommunications as well as in other social and economical areas. Hence, with the many uses of the satellite, Korea has began its investment for the future.
Korea already receives international maritime satellite communications services among navigation vessels or vessel-to-land communications through the INMARSAT-F3 satellite through its earth station which was completed in December 1990. Since 1989 MOC has considered launching geostationary satellites. In 1992, KTA signed a satellite purchase contract with GE which would be assigned to Martin Marietta, and a launching service contract with McDonnell Douglas for launching two “MUGUNGWHA” satellites with the capability of 3,900 communications circuits, 3 video channels, and 3 broadcasting channels in April and October 1995. As a preliminary step to acquiring satellite operating techniques and creating demands for satellite communications services before the operation of the satellites, KTA leased one set of 72 MHz-level Ku-Band transponders form INTELSAT for five years that began in April 1992. Since September 1992, KTA has been providing VSAT services through the INTELSAT satellites. Furthermore, in August 1992, the Korea Advanced Institute of Science and Technology successfully launched a 50Kg-level scientific experiment satellite, named KITSAT, through Arianespace. Planned satellite services include trunk relay for public telephony, high speed data, VSAT, DAMA/SCPC rural public voice/data, and direct TV broadcasting (Chung 66).
The Telecommunications Basic Law and Public Telecommunication Business Law was amended and the Korea Communication Commission was established to secure fair competition, protect subscriber rights and decide on important telecommunications policies. Korea’s closed market system has been changing to a more open market system. The Korean government has liberalized its regulations on foreign investment and government procurement. The regulatory framework for telecommunications service providers are governed by the Basic Telecommunications Law and the Public Telecommunications Business Law. Under these two laws, the Korean telecommunications service providers are divided into two main categories: network service providers and value added service providers. Network Service Providers are telecommunications service providers who construct or own their own circuits and transmission facilities and must abide by common-carrier obligations, such as universal service. Value Added Service Providers are telecommunication service providers who lease telecommunications circuits from network service providers and use them to provide their services.
Network Service Providers are divided into two categories: General Service Providers, which own nation-wide telecommunications facilities, and specific service providers, whose service provision is limited to the geographically or technically limited sectors, such as mobile telecommunications services.
General Service Providers can provide any or all of the following services upon designation of the MOC: voice telecommunications, telex, lease circuits, lease equipment, telegram, data communications, facsimile, and other miscellaneous services. Specific Service Providers can provide any or all of the following services upon license from the MOC: mobile voice telecommunications, paging, port telecommunications, airport telecommunications, trunk radio communications, wireless data communications, and other miscellaneous services.
On the other hand, Value Added Service Providers can provide the following services upon registration with the MOC: on-line database and remote computing services, computer communications services, data transmission services except voice telephony, telex and facsimile services. Only domestic on-line database and remote computing services do not require registration with the MOC. According to the “Understanding”, policies which were signed by the Korean government, the value added services are defined as “any serviced offered over the telecommunications transmission facilities of General Service Providers which employ such computer processing applications as: conversion of content, code, protocol or similar aspects of a subscriber’s transmitted information, provision of additional, different or restructured information, and computer processing involving a subscriber’s interaction with stored information” (Jeong 4). The Understanding also illustrates the examples of value added services as follows: code or format conversion, protocol conversions, store and forward, facsimile communications which involve store and forward or one of the functions listed above, database, remote computer service, electronic mail, electronic data interchange, message handling service, value-added facsimile service and voice mail.
Business Sectors Open to Foreign Investment
With the enactment of the Basic Telecommunications Law and the Public Telecommunications Basic Law, KTA and DACCA has provided only data communications, lease circuit, and international voice telecommunications services. For any additional services, MOC approval is required. General Service Providers are closed to foreign investment. In addition, no one shareholder may hold more than 10 percent equity interest in General Service Provider companies. Equipment manufacturers are not allowed to own more than a 3 percent equity interest in General Service Provider companies.
Also under the Basic Telecommunications Law and the Public Telecommunications Basic Law, three Korean telecommunications companies, KMTC, KPTC, and KOTIS were licensed as Special Service Providers. Special Service Providers are open to one-third foreign investment. In addition no one shareholder, domestic or foreign, may hold more than a one-third equity interest in any Special Service Provider company. No one equipment manufacturer or government-invested enterprise may hold more than 10 percent equity interest in Special Service Provider company.
In August 1992, the MOC initially issued a preliminary license for mobile telephone services as a competitor of the Special Service company, KMTC. For the license, six consortia associated with eleven foreign concerns such as GTE, Hutchison, Bodafone, Bell Atlantic, U.S. West, Southwestern Bell, Swedish Telecom, Qualcom, Pactel, Mannesmann, Nynex and BT. Since the selected consortium returned the license to the MOC because of political turmoil involving the selected licensee, the MOC will issue another request for proposal within this year. At the same time as the selection of the licensee for mobile telephone services, nine preliminary licenses for regional paging services were issued to nine consortia out of forty-one. Although foreign investment is allowed, no significant foreign service concerns were involved with the forty-one consortia except Millicom.
As of February 1992, there exists 30 value added providers, 13 of which are joint venture companies. AT&T, IBM, EDS, and AMCOR from the United States maintain a minority interest in their joint ventures with Korean partners. Out of 30, only 4 Value Added Service Providers are registered to provide international value and services. These companies are Asiana Air, STM (joint venture between Goldstar and EDS), SDS (joint venture between Samsung and IBM), and Trans World Net (Joint venture with Global Communications).
In contrast to the telecommunications services, foreign investment in manufacturing telecommunications equipment may be freely made without any restrictions on foreign equity ratio, etc. For example, Motorola has maintained a wholly-owned subsidiary for manufacturing equipment in Korea. Such investment, however, must pass through the Ministry of Finance (MOF) approval process under the Foreign Capital Inducement Law (FCIL) that is generally applicable.
One issue related to the value added services is shared use of leased circuits. Currently, while the shared use of Network Service Providers’ domestic leased circuits for data communications is permitted without any restriction on the relationship among the users, the shared use of Value Added Service Providers’ domestic leased circuits for voice communications, international leased circuits for voice communications, and international leased circuits for data communications is permitted only within the group of entities which maintains a close business relationship. The scope of close business relationship includes affiliates with 30 percent equity interest and business partners which account for 20 percent of the total value of transactions. Users of Network Service Providers’ services within the same close business relationship are free to attach exchange equipment. Currently only one end of a domestic leased circuit for data communications is currently allowed to be connected with the public Network Service Provider network.
Requirements for Joint Venture
Like any foreign investment in Korea, a foreign investor must obtain approval from or file a notification with the Ministry of Finance and the Foreign Capital Inducement Law. More specifically, foreign investment for those industrial sectors on the negative list or which are subject to local equity participation requirements need approval from the Ministry of Finance. For such approval, a foreign investor must submit a detailed business plan and a joint venture agreement. The business plan must state the marketing plan, the financial plan and other prescribed items. The joint venture agreement should provide the rights and obligations of each party to the joint venture.
If the amount of investment is three million U.S. dollars or more, the joint venture agreement will be reviewed by the Korean Fair Trade Commission to determine whether it contains any unfair provisions according to the Anti-monopoly and Fair Trade Law. The following terms will be regarded as unfair trade practices: “the joint venture company is unreasonably required to purchase raw materials, parts, equipment, related goods, etc., from the foreign investor or its designee; the joint venture company is prohibited from, or is required to obtain prior approval for exporting any product it manufactures to areas other than those were the foreign investor is engaged in ordinary sales activities or those where the foreign investor has granted exclusive sales rights to a third party; the joint venture company is required to export any product it manufactures only through the foreign investor or its designee, except where the foreign investor or its designee assumes an obligation to accept such product at internationally reasonable prices and conditions at the appropriate time; and in light of the generally accepted practices in international agreements of this nature, the contractual conditions are unreasonably disadvantageous to the domestic investor (Jeong 6). The Korean Fair Trade Commission might regard as unfair such provisions where a foreign investor elects directors in excess of the equity ratio or a foreign investor has the tie-breaking vote in a 50/50 joint venture. The minimum amount of foreign investment is 50 million Korean won (approximately U.S. $60,000). With Ministry of Finance approval, a foreign investor can incorporate a joint venture company in accordance with the Korean Commercial Code.
A joint venture company establishing itself as a value added service provider must register with the Value Added Service Providers by satisfying several requirements under the Telecommunications Business Law. These requirements are as follows: “the financial requirement – the minimum capital is 50 million won;telecommunications facilities requirement – maintenance of certain major telecommunications facilities and satisfaction of the safety and reliability standards; and technical capability requirement – retention of a minimum of two technicians (Jeong 6). Along with an application form, the documentation for registration is limited to those to confirm the above. A registered Value Added Service Provider must notify the MOC of standardized contracts with the customers. An interconnection with networks of Value Added Services’ required a notification to the MOC. Interconnection between a Value Added Service Provider’s network and a Network Service Provider’s network would be governed by a standardized contract of the Network Service Provider. Where no standardized contract of an Network Service Provider is available for the type of interconnection requested by a Value Service Provider, a special interconnection agreement may be made subject to the approval of the MOC. Furthermore, operating agreements between a registered Value Added Service Program in Korea and service providers in a foreign country are subject to MOC approval.
Protection of Technology
Korea has a full range of intellectual property rights: patent, trade secrets, utility model, design, trademark, copyright on literary works and computer software and sui generis right to layout designs. Korea is also relatively effective in enforcing and protecting those rights in the unfortunate event that such rights are infringed in Korea. An invention that meets the industrial applicability, novelty, and the non-obviousness requirements can obtain a patent right for 15 years after the date of registration. Regarding certain medicines and agricultural and technical materials, the Korea Industrial Property Office (QUIP) may extend the term of the patent right for up to 20 years. A device that cannot meet the high level of creativeness needed for an invention is protected under the Utility Model Law for 10 years after the date of registration. A design of shape, pattern, or color, or any combination of these in an article which produces an aesthetic impression on the sense of sight is protected for 8 years after registration.
Regarding the protection of trade secrets, the Korean government promulgated the revised Unfair Competition Prevention Law in December 1991. The Presidential Decree finalized the effective date of the revised Unfair Competition Prevention Law as December 15,1992. Thus any misappropriation of trade secrets can be prevented by an injunctive order. Monetary damage claims can also be filed against the infringer.
A trademark is also protected for 10 years upon registration and such registration is renewable as long as the trademark is used in Korea.
The Copyright Law protects authors’ moral rights during their life and economic rights for their life plus 50 years. Computer programs are also protected by the Copyright Law and the Computer Program Protection Law for a term of 50 years after the creation of the program concerned. Registration or publication is not necessary for the copyright protection of authors’ work and computer programs.
Internationally, after Korea acceded to the World Intellectual Property Organization on March 1, 1979, and the Paris Convention for the Protection of Industrial Property on May 4, 1980, it joined various international treaties: the Patent Cooperation Treaty on August 10, 1984, the Universal Copyright Convention and the Geneva Monogram Convention on October 1, 1987 and the Budapest Treaty on the International Recognition of the Deposit of Microorganisms for the Purpose of Patent Procedure on December 24, 1987.
Regulation of Public Service Providers
Under the Anti-monopoly and Fair Trade Law, market dominant enterprises cannot exercise their market power abusively by, for example, unreasonably determining the market price of their goods or services. Furthermore, this law also regulates unfair concerted activities, and other unfair trade practices in general. However, as long as any enterprise is regulated by other laws, it is exempted from the Anti-monopoly and Fair Trade Law. Since the Basic Telecommunications Law and the Telecommunications Business Law strictly regulate public telecommunications service concerns, the Anti-monopoly and Fair Trade Law would not be applicable to such extent.
Under the Basic Telecommunications Law and the Telecommunications Business Law, in cases where a Network Service Provider competes with a Value Added Service Provider in the provision of value added services, the Network Service Provider is prohibited from engaging in any anti-competitive conduct such as cross-subsidization, predatory pricing, unauthorized disclosure of customer-proprietary network information without the customer’s authorization, undue delay in announcing technical changes to its network or network interface, or discriminatory access to network services of functions. Thus, the MOC is in the process of developing a policy on competition safeguards, including the open network service provision and cost-subsidization.
Under the Basic Telecommunications Law and the Telecommunications Business Law, KTA and DACCA, the two general service providers, are also strictly regulated as common carriers. They must report service rates and standard terms and conditions of their service contracts to the MOC. Although the Law Concerning Standard Terms and Conditions is generally applicable to standardized contracts, it is irrelevant to the extent that such contracts are approved by the MOC. They also cannot refuse to provide their services without justifiable grounds under the Telecommunications Business Law.
Eun-Ju Kim states that “policy determines a nation’s telecommuncations competence” (Kim 118). She states that policy in the field of telecommunications has changed from regulation to liberalization. Government produced policy change “aimed at encouraging managerial efficiency in state-owned industries through reducing government intervention” (Kim 120) She further states that the primary policy in the 1980’s can be summed up as the introduction of liberalization or decentralization through separating the functions of policy making and operating facilities and services in the field of telecommunciations under political economic transformation. These different entities created by the government in turn contributed to the development of basic telecommuncation facilities by making steady investments. Kim refers to the separation of telecommunications responsibilities from direct government supervision to other entities such as KTA, DACOM, and ETRI. Through these entities, research and development was made possible.
To introduce progress and enhance the telecommunication infrastructure, the Korean government encouraged competition. In this regard, the MOC intended to introduce fair competitive policy at various levels from the early 1990s except for local voice services which will still be monopolized by KT. As a first step, KT for the first time began to compete with DACOM to provide international telephone services from December 1991. The MOC is planning to license other domestic and foreign companies to enter the telecommunication competition.
On the basis of the new competition policy, a variety to low-cost services are expected to be developed and provided; small and medium-sized companies will be promoted; and various companies including the government will participate in regional and international organizations through which they can extend cooperation among members. Competition will add to lower-cost and higher quality telecommunications products and services.
The government also restructured its Ministry of Communication (MOC) to mainly monitor and guide the various telecommunications actors as well as setting an overseeing telecommunications policies. Its responsibilities of operating day-to-day telecommunications business was delegated to separate entities. ETRI has gone ahead with globalization of research and development. It has expanded and consolidated technological cooperative relations with both developed and developing countries and established international joint research programs.
Liberalization has enabled KT to promote the domestic telecommunications industry by making maximum use of its procurement power. For example, KT has been installing facilities at the rate of 1 million telephone lines annually since 1980, producing a current total of about 17 million lines. This investment has enabled KT to provide a stable market for local industries, and to help them upgrade their product quality by implementing such measures as demand forecasting system and quality assurance system. All in all, the implementation of its industrial policy reflects Korea’s determination to achieve a suitable mix of high-quality labor-intensive traditional industries and skills-intensive heavy and chemical industries. Such a mix is regarded as allowing Korea to prosper in the 1990’s among the developed or industrialized countries that are moving into high-tech industry and information-intensive activities.
The Telephone Bond Law was enacted in December 1961 in order to raise the capital required for expanding and improving telecommunications facilities (MOC 143). This law was replaced by the Provisional Law for Developing Public Telecommunications Facilities in December 1979, which in turn was repealed in January 1988 when the demand for basic telecommunications facilities was deemed satisfies.
Changing policies and infrastructures go hand in hand with a set of regulatory reforms in the field of telecommunications. The concept of deregulation or liberalization is based on the view that, in a free market, exchange between individuals will lead to an efficient or optimal allocation of resources.
E. Arnold and K. Guy state “government intervention – whether through regulations, policies or R & D (research and development) investments – seems to be a rule rather than the exception in the processes of liberalization, privatizations and deregulation.” Thus, they state that the participation of the government is necessary to liberalize the telecommunication industry.
J. Browett agrees with Arnold and Guy stating that changes in telecommunications in Korea can be said to have been initiated and implemented by the government. An illustration given was that a policy was adopted by the government to upgrade the priority of investment in telecommunications during the 5th Five-Year Economic Development Plan in 1982 to 1986. As a result, telecommunciations investment was increased from 3% of total national fixed assets in the 1970s to 7% in the 1980s.
The Telecommunications Basic Law was largely revised to encourage all parties concerned to invest in research and development into more sophisticated technologies and more relevant socioeconomic policies in the highly competitive telecommunications environment. KT has reinvested more than 50% of its total profits in the development of telecommunications facilities. After being privatized, common carriers and operators in several countries have tended to increase rather than decrease their tariffs to provide high-quality services, which require financing of high-tech facilities. However, it is also worth noting that Korea lowered its telephone tax from 15% to 10% in accordance with the revised Telephone Tax Law in January 1988. The current tariffs for a local call have been fixed at 30 won (about US $0.37) for both a subscriber’s telephone and a public payphone per three minutes – relatively cheaper than the rates prevailing in developed countries. Owing to the introduction of competition in international calls between KT and DACOM, furthermore, the tariff for international calls was reduced up to 3% by DACOM and 7% by KT. This information shows that privatization can be the answer to effective and affordable telecommunication services.
He further goes on to state that economic factors, which are intertwined with government policy, have also influenced the introduction of a decentralized or liberalized industry in Korea. The government is aware that growth can be achieved only if Korea remains highly competitive exporter and makes substantial progress in technological development. He believes that “decentralized decision making may become the most effective means of achieving the efficient allocation of resources especially in a rapidly changing and highly competitive telecommunications environment” (800). Competition between companies creates a business environment of “efficient resource management and better access to capital for investment so that the sector assumes its rightful key role in the socio-economic developments to nations (198).” Furthermore, competitiveness cannot be maximized under bureaucratic intervention. Thus, liberalization is an important ingredient to progress in the telecommunications industry.
According to R.M. Martin, “liberalization has made the shaping of policy more pluralist, increased the scope for lobbying by distributional coalitions, and given management incentives to evolve their own strategies for acquisition of larger market shares” (88). Because companies are more free to function away from government regulations, they are able to develop a more effective telecommunication market. Liberalization or decrease in government control allows companies to freely research and develop their own telecommunication products. Through their acquisition of profits away from government control, companies have the incentive to produce better quality, lower cost products and services.
Myung-Jung Kim also supports liberalization and privatization of the telecommunications industry as in the broadcasting industry. She advocates the private system stating that the new media industry is so vast in scope that state or public organization alone is more than a match for its investment demand. A private system should be adopted to induce private capital and vitality. From a corporation’s standpoint it is a golden opportunity for industries such as cable, satellite, and production and distribution of programs. She goes further to state that deregulation of program content will be positively adopted to satisfy program need caused by the introduction of multi-media and multi-channels.
Hyeon-Dew Kang states that government needs to reduce regulations to attract investors in the broadcasting industry. Also public investment will make it possible to inflow enormous capital, help providing sufficient programs, and provide management skills for operating broadcasting system.
He further states that it is “necessary to assure diverse types of ownership under a flexible structure where it can combine one broadcast stations and others, broadcasters and telecommunicators, and newspapers and broadcasting so as to meet the current trend of globalizing the broadcasting industry” (241). In particular, it can help cope with the opening trends of broadcasting market by strengthening domestic corporates’ predominating positions.
Friedland and Westlake also advocate deregulation as the means to technological progress in telecommunications. They state that “deregulation – a trend that began in the mid-1980s – could be critical to the success of national economics … Deregulation was supposed to deliver goods by fostering efficiency through competition” (66). They further go on to say that liberalization has taken root in South Korea and some local firms are already world-class players. For governments and the commercial operators, the basic issue is how to achieve the most effective form of competition. To this effect, they quote a Washington based privatization consultant, “The general path is that you separate the regulatory apparatus from the operation of the telephone system. Next, you corporatise the telephone system operator. The next step is privatization and the development of a profit mentality at the old operator. Finally, you license private common carriers or niche players” (67). Thus, the expert advocates that privatization is the way to healthy competition which leads to progress. In their publication, Friedland and Westlake illustrate countries that have licensed second carriers that have seen great improvement in service. Japan was an example of this success. Japan, the first Asian country to open its domestic long-distance market to competition, captured 22% of the market from the established state-controlled provider to three private carriers. Because of this transfer to private carriers, rates on long distance calls have been cut five times since 1988, and are now around 60% cheaper than when liberalization began. They go on to state that the “benefits of liberalization, however, are not merely confined to the industry itself … Better communications spur greater economic activity overall, which in turn produces further growth in telecommunications” (67).
In the decade after the development of the telegraph, the first telecommunication tool, Korea has rapidly developed its telecommunications industry to become a serious competitor to more developed countries. The deciding factor to this conclusion, is the government policies which changed from an authoritarian controller to a more liberalized overseer. Government policies became less regulatory.
The turning point from a tight government control to a more liberalized industry began with the delegation of powers to the Korean Telecommunications Authority. This separated powers from one entity to two. Then the Korean Telecommunications Authority delegated powers to other companies as ETRI and other research and development companies. Then as time went on, the government allowed private companies to join in the telecommunications industry. This liberalizing action and deregulation led to the competition necessary for progress.
Competition is the factor which invigorates technology. It gives companies the reason to develop quality equipment and service at more affordable prices to the public in order to compete with other companies. Also private companies are able to allocate their own resources, relieving the great burden on the government. Liberalization and deregulation is the process which Korea’s telecommunications industry underwent. I believe it is the factor which has brought Korea’s telecommunications industry where it is today. Liberalization and deregulation means that the government had reduced its regulations on telecommunications companies so that the industry looks attractive to perspective companies. It gives private companies an incentive to begin telecommunications business to Korea. Thus, these companies answer Korea’s telecommunications problems.
Korea is serves as an illustration of a country which underwent many changes in telecommunications government policies. The loosening of government reigns can be seen in the media sector. The great increase in newspapers and periodicals after June 29 1987 Declaration of “freedom of the press” serves to show how deregulation can lead to increase in production.
Korea still has a long way to go. Its sight on satellites as an answer to telecommunications is still tentative. Although it has not yet caught up with the more developed countries, it is filled with the telecommunication tools as pagers, cellular phones, and other value added services. Korea is booming on the telecommunications superhighway.
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Table of Contents
Chapter 1: History of Telecommunications 2
- Government Policies and Telecommunications Companies 3
- Results of Telecommunication’s Research and Development 5
- Development of Different Systems to Extend Calling Lines 6
- Digitalization of Telecommunications 9
Chapter 2: Media 12
- Effects of “Freedom of Press” 14
Chapter 3: Present State of Telecommunications in Korea 15
- Satellites 16
Chapter 4: Government Policies 19
- Business Sectors Open to Foreign Investment 21
- Requirements for Joint Ventures 24
- Protection of Technology 26
- Regulation of Public Service Providers 28
Chapter 5: Literature Review 30
An Overview of the Korean Telecommunications Industry
and its Liberization