Is Korea’s launch of world’s 1st 5G services hype?

 The next-generation wireless network technology 5G is in the limelight as South Korea is poised to beat the United States as the first to cross the finish line.

Tech giant Samsung Electronics has said it will launch its Galaxy S10 5G device in collaboration with the nation’s largest telecom operator SK Telecom on Friday, beating US telco Verizon, which is scheduled to launch its fifth-generation services across the country on April 11.

But how exactly will 5G telecom services benefit consumers? Why this rush to be the world’s first?

It will make no material difference if services are below par, and going by the palli-palli (fast-fast) Korean culture, I am sure many Samsung and SKT executives are trembling to launch services by the given deadline. Remember the Galaxy Note 7 fire fiasco when they did not look before they leaped?

According to a recent report by MarketWatch, the 5G penetration rate in Korea will be 5 percent by 2020, and subscribers will increase from 30 percent in 2020 to 90 percent in 2026.

“The 5G hype across the world has led Korea to invest $1.7 billion to roll out 5G wireless services that would enable users to download a full movie within a second. This would enable the related industries to upsell new 5G related devices and infrastructure equipment, and earn revenue worth $350 million by 2026. This will help in the expansion of the telecom infrastructure equipment industry,” the report noted.

The major growth factors driving the 5G market are continuous evolution toward enhanced bandwidth, lower latency, enhanced security and openness of mobile networks.

However, the region faces growth challenges, such as regulatory pressures. For instance, the Korean government is forcing SKT, the dominant mobile carrier, to lower the rates that it is proposing to recoup its investments.

Another report by the International Telecommunication Union noted that expectations of 5G are high, with many assuming it will deliver a “transformative promised land.”

“As long as the investment case for 5G remains uncertain, industry and policymakers should remain cautious and should consider enhancing the availability and quality of existing 4G networks in the run up to 5G,” said the report.

But the Korean telcos and government want to be the first to launch 5G services -- an obvious case of ego issues.

I will be the first to applaud if Korea -- my home since 2004 -- gets that distinction but caution is needed.

Do consumers really need this hyped-up costly service now, without adequate field tests and knowing how they will really benefit? The current Long Term Evolution 4G services are very comfortable.

The 5G services won’t be available in every country at the same time. Estimates say that by 2023, up to 32 percent of North American mobile connections will be on a 5G network. Central American countries will most likely see a slow 5G rollout. Asia is far behind.

Korea’s push to be the world’s first is understandable in this context. But I personally think it is taking the palli-palli culture to the next level.

There is no need to commercialize a next-generation service and fool consumers to pay for something that will bring no immediate material benefits. It may actually benefit customers one year down the road -- not now.

To understand the logic behind their rush, I tried contacting the three telcos in Korea -- KT, SKT and LG Uplus -- which operate mobile services here.

KT, which tested its 5G services during the 2018 PyeongChang Winter Olympics, responded.

The firm, which has massive telecom infrastructure here that actually made Korea an ICT powerhouse before it was overtaken by SKT, has invested heavily to build the next-generation network that will allow customers to experience faster and more secure services.

“We are preparing B2C (business-to-consumer) 5G plans and services to deliver the maximum benefits of 5G to the general public. KT plans to introduce specialized apps and connected devices (neckband cameras and GiGA Live TV, etc.) with the launch of the full-scale 5G commercialization,” a spokesperson noted.

KT is especially focusing on what people enjoy the most with their mobile phones, such as making calls, playing games and watching videos, so that they can better experience what true 5G is.

“We are also developing various use cases in the B2B (business-to-business) areas, such as smart factories, smart cities and connected cars, by utilizing 5G’s ultra-low latency and massive connectivity,” he noted.

KT believes that it can pursue a good balance between providing world-class 5G services and making sustainable investments by optimizing the deployment of its 5G network and cooperating with global partners to develop and upgrade 5G technologies.

The company is working on introducing data plans that are appropriate for 5G customers by analyzing their needs and data usage.

It launched its commercial 5G network in December last year following the government’s 5G spectrum auction. Since then, KT has successfully demonstrated various 5G services, such as robot guides and baristas as well as real-time broadcasting.

“Considering the time it usually takes for developing and making new apps or special devices, Korea is likely about a year ahead of the competition. Overseas, many 5G services are still in initial development,” the spokesperson noted.

KT has the upper hand for now. In collaboration with Samsung, it has already installed the largest number of 5G base stations across the country.

It is true that local telcos are investing heavily. But how will Korean citizens benefit? Higher download speeds are just a marketing point for now to rake in more revenue. It is still early days for the 5G ecosystem to flourish. I would prefer to wait one year before I make the shift from LTE.

I agree that 5G will not only enable faster connections, but will provide improved bandwidth. The benefits will spread further than just smartphones. The technology will cover the internet of things and will act as a catalyst for a wide range of new consumer and enterprise experiences, including both data intensive and energy efficient applications. But not now.

Juniper Research forecasts a healthy adoption of 5G services, with revenues set to exceed $65 billion by 2025 globally. It might be a few years away, but the potential improvements a 5G network can provide are enough to get tech-savvy Korean consumers very excited.

I am proud that Korea is the first country to commercialize 5G services, but will not fall into the trap telcos have set for customers. I will wait and watch. Why pay more for a service when the present LTE 4G network is efficient and satisfies my needs?

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S. Korea-India economic ties need more heft

 It is now nine years since the South Korea-India Comprehensive Economic Partnership Agreement -- a de facto free trade agreement -- went into effect. However, while much progress has been made, there is still a long way to go for economic ties to reach their potential.

It was widely anticipated that the CEPA, which came into effect in January 2010, would lead to more bilateral trade and investments. South Korea abolished tariffs on 93 percent of Indian imports and India has done the same on 75 percent of Korean imports. 

Besides, the agreement sought to increase the interactive trade account, as it includes investments in various sectors like goods, services and even intellectual property.

They have since set a target to increase bilateral trade to $50 billion by 2030 from around $25 billion last year.

While bilateral trade has no doubt improved, it is still way below expectations.

It is true that large South Korean brands are household names in India and their strength has grown in the years since they began operations there. However, foreign direct investment inflows have been growing at a tardy pace.

The India-South Korea CEPA has certainly helped, according to Rishi Ramachandran, an Indian entrepreneur and CEO of Group IBI, an Asia-focused business intelligence and market development consultancy.

He has lived in Seoul for more than two decades, during which he has followed the evolution of trade ties between both countries and advised organizations on CEPA in particular.

“Rather than an agreement, I would term it a useful mechanism for fostering trade between South Korea and India and for easing trade barriers and tariffs in the long run,” he told The Korea Herald, adding that both sides are trying to access sectors in which they can be competitive.

“But these are subject to progressive easing of both tariff and nontariff barriers. For example, in a sector like pharmaceuticals, both South Korea and India have successful manufacturers of generic drugs, and for whom countries in Africa, Southeast Asia and Central Asia are key target markets. However, the best Indian drug companies can hope for is supplying APIs (active pharmaceutical ingredients) to the Korean pharma sector, as opposed to supplying finished formulations.”

But even then, successful cases are rare and the scope is highly limited since the pharma industry is highly regulated in South Korea with significant nontariff barriers. On the other hand, India could export more food products and consumer products in areas such as coffee, tropical fruits, leather goods and fashion accessories for which there is plenty of demand, he said.

As key economic partners, Ramachandran noted that trade relations are continually improving. However, what India needs is a significant boost in the promotion of Indian brands in South Korea.

“The ‘Made in India’ moniker still has questionable quality and packaging issues attached to it. India needs to address this as a priority and promote well-established brands in South Korea,” he said.

“India needs to realize that South Korea (and most other Asian geographies) is highly brand- and image-conscious. Therefore, Indian products sold here not only have to be of impeccable quality -- as they are competing against domestic products as well as products from overseas -- but they also need to be packaged well, presented well and marketed well.”

As a case in point he noted Indian mango shipments, which are renowned the world over but can hardly be seen at retail outlets here today, contrary to their sudden surge here in late 2016.

Rather than a single bottleneck, there are two main factors hindering growth of mango exports to South Korea, he said.

One is tariffs since, just like CEPA, South Korea also has a free trade agreement with the Association of Southeast Asian Nations as well as the Regional Comprehensive Economic Partnership that benefit exports from the Philippines and other regional countries.

While CEPA entails gradual scaling down of tariffs on Indian products from 30 percent to zero percent over eight years, the tariff targets with ASEAN are far more aggressive and trade-friendly.

Also, when compared to the Philippines, Vietnam or other Asian countries that sell mangoes in South Korea, India does not have a visible dedicated entity on the ground in Seoul promoting mangoes and Indian agricultural exports.

“A dedicated entity can ensure not just maximization of tariff benefits, but more importantly ensuring maximum front-end promotion in South Korea, i.e. customization in terms of product quality, packaging and selling to the right channels.”

The Agriculture and Processed Foods Export Development Authority of India organizes seminars and promotional events at trade fairs where importers can inquire and place orders. If there was a dedicated team here for promotion year-round, the products could go to the right retail channels. As an example, what Australia does with meat and livestock for promotion in international markets is a good benchmark, he said.

As regards economic areas, Ramachandran noted that the country is already benefiting significantly not just through exports to India, but also through large-scale investments that Korean conglomerates and their supply chain partners have made, be it Hyundai Motor, Samsung Electronics, LG Electronics or Lotte Group.

“India is therefore not only a huge captive market for South Korean consumer goods and cars, but also a huge low-cost manufacturing base for Korean exports to other countries. And it will continue to increase as all of these companies scale up their production, or add new facilities, like the world’s largest mobile phone factory for Samsung that was inaugurated in Noida (near New Delhi) during President Moon Jae-in’s visit to India last year.”

Indian Prime Minister Narendra Modi’s recent visit to Seoul, he said, should by default lead to better ties “That said, this visit by Modi was a short one and ostensibly did not include a business delegation from India. So while headline issues and geopolitical climate in the region may have been discussed, in terms of economic ties, this was at best a follow-on to the platform laid by President Moon’s high-profile visit to India in July 2018.”

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India’s demonetization and Korea’s currency reform

India’s Prime Minister Narendra Modi stunned the nation when he made a public announcement at 8 p.m. on Nov. 8 that 86 percent of the currency in circulation -- 500-rupee (US$7.40) and 1,000-rupee notes -- would no longer be legal tender at the stroke of midnight.
The ostensible reason for this was to fight rampant corruption and the underground economy along with counterfeit notes printed by Pakistan to fuel terrorism in India.
He asked the Indian citizens to bear the short-term inconvenience for long-term benefits that would accrue to the economy. While the public has by-and-large supported the move, the anti-Modi cottage industry and opposition politicians have been very critical.
Sure, the public has been inconvenienced because the central bank did not ensure that adequate replacement currency was supplied to commercial banks and the ATM’s were fully stocked across the length and breadth of the country. As a result, there have been long queues of people waiting to exchange their invalid currency and withdraw lower-denomination notes for daily expenses. India’s massive cash-dependent informal sector has been hit hard, and there are even reports of people dying in queues.
However, the public has still not lost patience as Modi has pleaded for time until Dec. 30 for things to get back to normal. The common citizens are willing to give him the benefit of doubt, although his rivals do not.
The jury is still out on whether the move will bring economic benefits to Asia’s third-largest economy or prove to be a huge blunder that could see Modi out of power in 2019, when the parliamentary elections are due next.
That aside, I see in this an opportunity for the Korean authorities to draw lessons from India’s demonetization exercise and see how they can effectively implement the long overdue currency reforms to tackle the underground economy here.
The size of Korea’s underground economy is estimated at 161 trillion won ($143.62 billion) a year. A recent study by Kim Jong-hee, professor of Chonbuk National University, showed that it is equivalent to 10 percent of the nation’s gross domestic product, much higher than the Organization for Economic Cooperation and Development average -- 6.65 percent of G-7 countries as well as 7.66 percent for the other member states.
The amount of tax evasion stood at an annual average of 55 trillion won in the last 20 years, 3.72 percent of the GDP.
“Underground economic activities induce tax dodging, leading to fiscal deficits and tax hikes for key economic actors to make up for the uncollected taxes,” Kim said in the report.
In Korea, it is common for corporates to set up slush funds to bribe politicians, as evident from the frequent raids by prosecutors, which are obviously held in cash of large denomination notes and not in banks. For that reason, there have been many calls to scrap the biggest note, 50,000 won, something that the Bank of Korea is wary of.
In my opinion, Korea should also go in for the bold move of demonetizing the 50,000-won note without notice, so people do not have a chance to convert their illegal currency -- as they will be forced to deposit it in banks and account for it -- and then go in for redenomination of the currency.
This is where the Indian experience will prove handy.
The ground situation in Korea is different and many of the problems India is facing now will not affect the country. Especially since the banking network is more widely used and people are more financially savvy.
For instance, unlike India which is a cash-dependent country, Koreans are increasingly favoring cashless transactions.
According to a central bank survey, Koreans carry on average 1.91 credit cards, 2.03 mobile cards and 1.26 check or debit cards. Four out of 10 picked credit cards as the means of payment they use most, up from three out of 10 the previous year. The ratio of those picking cash, meanwhile, continues to fall.
As Koreans are carrying less cash, with the average standing at 74,000 won last year, down 3,000 won from the previous year, the central bank is also issuing less cash. It released 12.3 percent fewer 10,000-won banknotes last year from the previous year, while the issuance of 5,000 won notes dipped 5.9 percent and 1,000 won bills 3.7 percent.
Statistics from the BOK show that credit cards, at 39.7 percent, make up the largest share of consumer transaction activity while cash accounted for 36 percent in 2015. There is also the increasing popularity of mobile payments, something that is negligible in India.
It would be prudent for the Korean policymakers to watch the Indian experience closely and flush out the problems.
Once the demonetization exercise is successfully completed, it should roll out the redenomination exercise.
Redenomination is the process of lowering the face value of a currency while preserving the same real value. It is simply moving decimal points, so a 1,000-won note will be redenominated as 1 won.
Since South Korea issued banknotes of 1,000 won and 5,000 won in the 1970s, there has been no redenomination to abbreviate the unit of the currency. The 50,000-won bill only made its debut in 2009 in the wake of the rapidly falling value of the 10,000-won bill.
Korea has redenominated twice since the Korean War. In 1953, when the hwan was introduced, with 1 hwan equal to 100 won. In 1962, the won was reinstated, with 1 won equal to 10 hwan.
The BOK claims it has carried out no task on a currency redenomination since 2004 when the government decided to put off discussions on the issue. Finance Minister Yoo Il-ho also recently said that the government has no plans for a redenomination, noting it could cause great confusion.
It is true that a redenomination can cause public inconvenience in the process of adjusting to new bills and a possible hike in consumer prices and spread psychological anxiety among economic players.
Deciding to redenominate during an economic downturn signals that an economy is in very serious trouble and likely to face a currency crisis. It can lower a nation’s international credibility and prompt outflow of foreign capital.
It can also cause prices to become unstable. Redenomination is usually adopted during high inflation and political insecurity (something that Korea is currently facing). Under such circumstances, preference for hard assets rise, pushing up prices for real estate and gold. Such appreciation of hard asset prices can put inflationary pressure.
Moreover, issuing and circulating new coins and paper currency is costly. Financial institutions need to replace their existing payment systems and ATM machines, which requires huge expenditure.
According to some experts, redenomination can drive illegal money into the underground economy because information about personal wealth can be revealed during the process of exchanging old currency with the new one. This is invalid if demonetization takes place.
That is a sure way to tackle the underground economy and boost the currency. It of course requires political will and a strong leader like Modi.

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Samsung's Note 7 fiasco and perils of 'ppalli-ppalli' culture

First published in The Korea Herald.

The last few weeks have been tumultuous for tech giant Samsung Electronics, as it has been knocked down by the battery explosions of its latest flagship smartphone Galaxy Note 7 across the globe.

Samsung recalled 2.5 million Note 7 smartphones in September 2016 after a number of the units spontaneously burst into flames. Faulty batteries were blamed at first, and it issued replacement phones it claimed were safe. However, some of the new phones suffered the same problem, and the firm asked consumers to switch off their Note 7s on Oct. 11. All production and sales of Note 7 handsets has now been stopped, and the model has been withdrawn from the market.

South Korea’s No. 1 conglomerate is still struggling to recover, having initially regained composure and immediately ordered a global recall only to stumble and fall when the replacement handsets also overheated and exploded.

After numerous cases of exploding batteries and a botched replacement program, with sales now discontinued worldwide, some analysts predict the Note brand is finished for good and will be given a quiet burial.

It is a pity, because the Note was truly a game changer and this year’s model got the best reviews the product line had ever seen.

When it was first launched in 2011, many mocked its large screen size, with Wired even lamenting that its “comically huge” 5.3-inch screen made the device too big for pockets and thumbs alike. But ultimately, its popularity meant that even archrival Apple was forced to follow suit.

Another feature that was ridiculed was the stylus, which also has been imitated by competitors. The fourth edition was the first smartphone to be tailored for virtual reality -- that too is being aped by others now.

It won’t be an understatement to say this is an unprecedented crisis that will haunt the group for a long time to come.

Samsung has now lowered its operating profit estimate for the third quarter to 5.2 trillion won ($4.6 billion) from the original estimate of 7.8 trillion won. It also lowered its expected revenue to 47 trillion won from 49 trillion won.

Most analysts have pegged the cost of the Galaxy Note 7 fiasco at about $4 billion, including recall expenses and lost sales, with the mobile division even expected to report an operating loss.

As Fitch Ratings has noted, potential long-term brand damage from the recall and production suspension of the Note 7 is a greater threat to its credit profile than the direct financial impact, which will be buffered by ample liquidity and a strong balance sheet.

“Fitch believes that the benefits of Samsung Electronics’ diversified product portfolio have reduced its vulnerability to this shock. ... However, the problems with the Note 7 have raised long-term uncertainty about its handset operations, as the issues with the flagship model have highlighted weaknesses both in R&D capabilities and the company’s capacity to efficiently remedy serious hardware defects.”

The ratings agency then went on to add that industry experience, such as the decline of Nokia and BlackBerry, shows how successful manufacturers can lose market share particularly quickly in the handset business. This is due to the fast pace of technological change and the frequency with which many consumers change their handsets.

These are indeed tough times for Samsung, but I think it will not be long before it overcomes it, given the tenacity of Koreans.

On that note, I should also add that the crisis that Samsung faces now can be linked to the unique “ppalli-palli” culture in the country.

The Korean term means “fast; quickly; hurry up” in English. Every single economic achievement the nation has reached to this day is linked to this culture. Koreans do everything as quickly as possible with dedication to achieving the set goals as soon as possible. As a result, it has become the main work ethic that is understood by all employees and strictly enforced by bosses.

For that matter, ppalli-ppalli is so ingrained in Koreans that mothers don’t tell their children “come along.” They say “ppalli-ppalli wa,” or “come quickly.” My Korean friends and even wife do the same to me!

I worked in the European Union business lobby in the country for close to eight years during my 12-year stay here and have come face-to-face with this culture numerous times. Although a foreign organization in name, it used to be run as a typical domestic company since the chief operating officer was Korean. While this culture makes employees put in long work hours, it does not really enhance productivity.

Most Korean companies want things to be done as quickly as possible without due checks and balances. Meeting the deadline is more important than doing a perfect job.

Although Samsung heir apparent Vice Chairman Lee Jae-yong is trying to totally transform the work culture at his group, it can be successful only if those lower down adhere to the changes. Which, I believe, is not the case.

This is evident from the fact that the botched recall raises questions about how carefully Samsung researched safety issues around the original Note 7, as well as the replacement.

Samsung has often challenged itself by cramming sophisticated components into a new device in time to beat the launch of the latest iPhone. This time, it advanced the launch of the Note 7 to a month before the launch of iPhone 7 to gain an advantage.

It is reasonable to assume that everyone from the tech engineers, designers and suppliers were told to strictly adhere to the deadline ppalli-ppalli, and somewhere down the line appropriate safety checks were ignored or glossed over.

Moreover, faced with trouble when the first batch of recalls took place, it should have taken the time to analyze the mistake, but wanted to get back in the game ppalli-ppalli. It found a quick fix -- blaming the overheating on a batch of Samsung SDI batteries -- and deployed it with characteristic speed and efficiency. Unfortunately, the diagnosis was wrong.

It seems highly likely that Samsung’s ppalli-ppalli efforts to pack ever more power in these sleek devices may have contributed to the Note 7’s tendency to overheat and even explode by cramming a high-capacity battery into too small a space.

Typically, lithium-ion batteries have been relatively safe, but as batteries grow ever denser, that leaves an ever thinner margin for error in design and manufacturing. Being ppalli-ppalli in evaluating their performance is a definite no-no -- something the Samsung executives behind the project did not comprehend.

Hopefully, it will be a lesson for the company and it will bounce back ppalli-ppalli.

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