Strategy of a Leading Business in an Innovative and Competitive Environment :KT’S STRATEGIC DECISION IN BROADCATING AND TELECOMMUNICATIONS CONVERGENCE1
- Authors
- Choi, Jeongil; Lee, Sang Myung; Ahn, Sanghyung
- Issue Date
- Oct-2012
- Publisher
- International Academy of Business and Economics
- Citation
- Review of Business Research, v.12, no.5, pp.84 - 93
- Journal Title
- Review of Business Research
- Volume
- 12
- Number
- 5
- Start Page
- 84
- End Page
- 93
- URI
- https://scholarworks.bwise.kr/hanyang/handle/2021.sw.hanyang/164443
- ISSN
- 15462609
- Abstract
- The recent emergence of a new business environment coined “convergence” is creating a ripple of change in the competition landscape of media services. As conducting strategic analyses on new changes in the environment becomes increasingly relevant, the telecommunications market is seeking a new strategic response as a result of its transition into a mature market and intensified competition in product prices. Recently, the growth in market size and number of subscribers has slowed and the revenue per subscriber declined, leading to a stagnation of the overall growth in the market. The size of the telecommunications market based on revenues of seven largest network providers has grown by about 2.7%, reaching 38.91 trillion won as of 2008 (Jang Jae-Hyun, 2009). Given that the annual average growth from 2005 to 2008 was 4.8%; the growth rate is in a downtrend. The contraction of the real economy seems to have heightened consumer sensitivity towards telecommunications costs. In other words, consumers are likely to seek less expensive pricing policies or services in order to save on telecommunication costs (Jang Jae-Hyun, 2009). Telecommunications service providers must, therefore, search for a solution to the situation and the battle to acquire more subscribers is expected to intensify. The Korean telecommunications industry is undergoing three changes in its external environment. The first is the convergence between broadcasting and telecommunications. With the rise of convergence, broadcasting and telecommunications are no longer separate fields. They are now integrated as one field. In addition, IPTV services are not subject to the existing Broadcasting Act or Telecommunications Business Act, but the Internet Multimedia Broadcasting Business Act, which was specially enacted for the purpose of regulating IPTV. The second change in its external environment is market stagnation. The telecommunications market has been recording meager growth since 2005, and in the last couple of years, it has even begun to decline. Many causes behind this trend include the decrease in fixed-line communications services, intensified competition among telcos (competition in market, technological facilities, and investment, among others), pressure from government regulation and the saturation of the number of wireless communications subscribers. The last change is the competition of bundling products. For example, SKT is in the wireless business, and its affiliate SK Broadband is in wired communication services. Bundled products are a combination of products of the mother company and its affiliates, and today, they are launched and sold to consumers. Telcos also enter into strategic alliances or mergers in order to offer a greater diversity of contents. Korea’s largest telco, KT, is developing a new business model in light of the external environment. This paper is a study on KT’s future strategic options with a focus on its IPTV, bundled products and smart phone. IPTV is a two-way TV service which uses the broadband network, KT’s core capacity. Users can also access information services and video contents. KT’s Mega TV was launched in the third quarter of 2007 and has since steadily acquired subscribers and recorded increasing sales. Its competitor SK Broadband launched Broad & TV prior to Mega TV. It is a service differentiated in educational contents, such as learning English and acquiring qualification certificates. SK Broadband possesses the equipment infrastructure and diverse contents, which are requisite in the provision of IPTV services. The combination of products or “bundling” is a major convergence service product which utilizes KT’s capacities. There are many types of bundling products: Double Play Service (DPS), a combination of two services, Triple Play Service, a combination of three services, Quadruple Play Service, a combination of four services and products created in alliance with products of a third company. KT’s flagship products are its broadband internet service Mega Pass and Mega TV, which are often the major component in product combinations. According to Top Mobile Trend announced by the International Data Group (IDG) in February 2008, the major issue in fourth generation mobile phones was the transition of the axis of evolution from hardware to software. Smart phones produced by most major telecommunications manufacturers, such as Apple, Nokia and Samsung Electronics, reflect this trend. Gartner estimates that smart phone sales will only occupy 12.6%, 170 million dollars, of the overall handset market in 2008, but that it will rise to 30.6% of market share, reaching 550 million dollars, in 2011. On November 28, 2009, KT exclusively launched the Power Rookie iPhone in the smart phone market. Some 15,000 eager customers flocked to book the product, generating new subscribers at a rapid pace. The introduction of smart phones will create a change in mobile handset market trends and telcos will undergo a major shift in their businesses (Yun Il-Jae et al., 2008). This case study strives to examine the strategies of telcos based on bundling products and IPTV with a focus on the strategic options facing KT in a mature telecommunications industry. The purpose of this study is to consider KT’s strategic options and contemplate their implications in the convergence market by referring to an in-depth interview with the management and employees of KT’s Strategy Planning Division and chief researcher at KISDI (Korea Information Society Development Institute) and existing studies on improving the competitiveness of the telecommunications industry.
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