October 1, 2008

By Bill Roberts

Koreans who do not want to use a credit card do not need online payment services to shop on the Internet. The nation's banking system installed a real-time direct settlement capability many years ago on the country's networking infrastructure. About 50 percent of all bank transactions go through the online channel; another 30 percent take place through ATMs or telebanking using the same payment system.

"Because of the speed of the network-much of it 100 Mbps fiber optic-any banking Web site in Korea is rich in graphics and content," says Chong ho Yoon, head of consumer transactional banking at Standard Chartered First Bank Korea Ltd. in Seoul. "But the real-time transfer capabilities are the big thing. It eliminates the need for payment services like you have in America." Of course, millions of Koreans use their credit cards online, just like in the United States, he notes.

Banking is not the only beneficiary of fire-hose throughput. Many Korean corporations use broadband to achieve efficient real-time capabilities, according to Sangyun Han, a research analyst in the Seoul office of Ovum Ltd., a London-based IT consulting firm. As for results, he cites a Bank of Korea finding that information and communication technology (ICT) significantly contributed to price stabilization by decreasing annual average consumer prices by 0.22 percent and annual average producer prices by 1.15 percent from 2000 through 2004.

No wonder Korea ranks high in networking.

The World Economic Forum (WEF) in Geneva recently announced that the Republic of Korea (a.k.a. South Korea) moved up 10 notches in its annual rankings based on its Networked Readiness Index, from 19th among 122 nations in 2007 to 9th among 127 nations in 2008. No other nation jumped so many slots year to year.

The Networked Readiness Index is a product of the Global Information Technology Report 2007-2008. Sponsored by Cisco Systems, GITR is a joint project between the WEF and graduate business school INSEAD to assess countries' ICT infrastructure, in addition to their regulatory environments, intellectual protections, educational systems, workforce talent, and business innovation.

And in a recent study by the Information Technology & Innovation Foundation (ITIF) in Washington, D.C., Korea ranked first in broadband adoption among 30 members of the Paris-based Organization for Economic Cooperation and Development (OECD).

Noting that Japan ranked second, Robert Atkinson, ITIF president and founder, says: "The odd thing is, if you compare Korea to Japan, the broadband household penetration rate is markedly different. Japan is around 55 percent and Korea is around 93 percent of households. They are not all that different in [population] density. Korean incomes are lower, and income is a big driver of adoption. So Korea is an anomaly."

Anomaly or not, how did Korea do it?

Banking on ICT

Two decades ago, the government decided to bank on ICT to modernize the economy. In 1987, it created the National Information Society Agency to oversee construction of high-speed networks, the use of IT in government, and programs to promote computer literacy and access to PCs. The PC program offers low prices through an installment plan using the postal savings system. The program is popular, because most Korean parents are willing to do anything to give their children an education.

In 1994, the agency established the Korean Information Infrastructure initiative to construct a nationwide optical fiber network. The government followed that with a string of programs, including most recently the Broadband Convergence Network and IT 839 initiatives of 2004.

It spent $24 billion to construct a national high-speed public backbone network, which service providers could use to deploy broadband services to about 30,000 government and research institutes and around 10,000 schools. The same initiative also provided government test beds for companies to use for research and development.

In addition, the government provided $1.76 billion in low-cost loans between 2000 and 2005 to spur private funding to construct an access network for homes and businesses, aiming to stimulate last-mile broadband deployment. The private sector invested $14.5 billion in this effort for a total public-private investment of $16.3 billion, according to the ITIF.

The government also used a regulatory scheme to benefit. For example, a certification program requires all buildings to be designed to enable high-speed broadband connections and grades buildings of 50 units or more based on the level of high-speed access they support.

Through the Broadband Convergence Network and IT 839 initiatives, the government offers service providers incentives of more than $70 billion in low-cost loans to build high-speed broadband networks while providers pledged to invest an equal amount. The aim is to create a ubiquitous convergence infrastructure by 2010.

Convergence is one item on the Networked Readiness Index that helped to push Korea to the higher ranking in 2008, according to Dr. Suk-Gwon Chang, professor of MIS and telecommunications at Hanyang University in Seoul.

The index previously included 67 variables, but a 68th was added this year to measure accessibility of digital content from various platforms-a gauge of convergence. Korea ranked third on that item. Had the variable been included previously, Chang believes Korea's leap forward would have been seen as early as 2004.

On two variables, Korea ranked first: the quality of competition in the ISP sector and the extent of business Internet use. Chang says Korea benefits from ISP competition, which drives down prices. Korea's leap forward in 2008 can also be attributed, in part, to the No. 1 ranking on extent of business use, which is directly tied to lower rates, Chang says.

Korea also scored high on several other variables, including:

• Buyer sophistication and participation by citizens in e-government applications (ranking No. 2 on both)
• Lowest cost of broadband (No. 3)
• Internet access in schools (No. 4)
• Extent of staff training, university-industry research collaboration, business monthly telephone subscriptions, and broadband Internet subscribers (No. 5 on all)

Outside of business, networking has also had a major impact. Korea has some of the world's most avid online gaming communities; a higher level of participatory democracy as Koreans use messaging to mobilize like they did in recent protests against resumption of U.S. beef imports; and increased online learning, which gives families a cheaper alternative to cram schools for tutoring for all-important university exams.

Megastudy Co. Ltd., a Seoul-based e-learning company that prepares high school students for college entrance exams, has a market cap of $1 billion, which makes it the fifth largest company on the Korea Securities Dealers Association Quotation (KOSDAQ).

"Korea is a very interesting case of a country that used ICT to leapfrog stages of development," says Irene Mia, associate director and senior economist at WEF's Global Competitiveness Network and coauthor of the Global Information Technology Report 2007-2008. "You are seeing the results of these policies now."

Bill Roberts is a freelance writer based in Silicon Valley.