Program Director, Mobile Phones, EMEA
Read full bio
5G has taken off fast in South Korea, with a reported 600,000 subscribers in the first 50 days. Subsidies of a third or more primed the smartphone market, giving Samsung and LG the head start that should serve them well in the U.S., which launched 5G at the same time but will ramp up more slowly.
South Korean president Moon Jae-In turned out for the switching on of the country’s 5G network on April 3, when the country’s three mobile operators, SK Telecom, KT, and LG Uplus all made their 5G networks operational. The U.S. chose the same day for its 5G network launch, but the Koreans were just ahead. That the president showed up for the launch should come as no surprise — for the South Korean government a lot rides on 5G. The country needs to push forward and maintain its sophisticated manufacturing production base and fend off the challenge from China, as well as pull ahead of Japan, its traditional rival.
With China breathing down its neck, and a lagging economy, another way of putting it would be to say for South Korea, 5G cannot be allowed to fail. To set up the manufacturing potential of 5G down the line, first it needs to get the networks up and running and full of services via smartphones. As many of my colleagues at IDC feel — especially analysts on the mobile operator side — that is not going to be simple. 5G is not going to be overall an easy sell, as it does not offer much in the way of advantage to subscribers straight off and it requires a lot of investment in the networks.
As it happens, South Korea appears to be among the best placed countries to move quickly on 5G. South Koreans spend more on smartphones than people almost anywhere in the world, according to IDC data, at an average price of nearly $800 before sales tax. As a result, Samsung and LG have focused on incorporating full 5G technology — they both have launch model variants which incorporate Sub 6GHz and the mm wave straight off, and the focus has been to make these initial models look and operate like 4G ones.
South Korea is not a bad place to launch 5G from the deployment perspective either; its surface area is relatively small and it has high population density, making sense for mm wave tower deployment (where each tower may only cover a square km).
Deep Subsidies Have Pushed Large Smartphone Volumes
The way the launch has gone so far will not have disappointed President Moon. The initial reception from Korean consumers after the April launch has been very strong. According to Total Telecom, close to 600,000 South Koreans signed up to 5G in the first 50 days from the launch of service and the number was increasing by between 15,000 and 20,000 per day. If all these new subscribers bought a 5G phone, this is equivalent to around a third of the country’s smartphone market.
Only Samsung had a model available at launch, the S10 5G — an expensive phone at over $1,100. The LG V50 ThinQ 5G model arrived in early May, at a price closer to $1,000; LG reported sales of an initial 100,000 units in the first month. Both phones were discounted by carriers by a third or more, leading to official warnings that deep discounts could be illegal, according to the Korea Times.
The pitch from the local operators is to offer 5G tariffs from around $50 a month — more expensive than the basic ones for 4G — but give a lot more data throughput, so they work work out at around the same cost for heavy users. There are also launch offers that cut those tariffs by a quarter or so for those who sign up early. The Korean mobile operators had 54,000 base stations in operation at launch, with service due to be available across 85 cities by the end of this year.
Mobile Gaming a Key Target Market
A key target group for the operators is mobile gaming, where the technology’s low latency, quick response time will make the gaming experience more enticing. South Korea is also a good place to start as it is the fourth-largest mobile gaming market in the world, according to NewZoo. Such is the level of national addiction to gaming that services are required to ban users under 16 and there is a cut off on mobile gaming at midnight.
Of the first five 5G subscribers in the country, all carefully chosen to help promote the 5G experience and including a K Pop singer and an Olympic medalist, it is no surprise that one — Lee Sang-hyeok — is an e-sports player (where he is known as “Faker,” though not presumably in relation to his enthusiasm for 5G).
Being ahead in 5G may boost South Korea, but for how long will that really help Samsung and LG? This is a country after all with a population of just 51 million. That’s where the U.S. comes in. The Koreans will be wishing luck to their main initial 5G rivals, though so far in terms of who is ahead, it is no contest. The U.S. may have launched 5G on the same day, but only through one operator, Verizon, which only has mm wave frequency allocated to it, and initial service involved only Chicago and Minneapolis.
Next America, But Not Necessarily All of the World
America is the main market where the Koreans can hope to leverage their early lead in 5G. As well as being the world’s second largest smartphone market by value, and another market with high ASPs, in the U.S. the Korean phone players have a strong position. Samsung has nearly a quarter of the U.S. smartphone market by units, and while LG has only half Samsung’s volumes, the U.S. accounts for half of all LG’s global smartphone sales.
While the Korean approach to 5G appears at least from the outside a model of Asian consensus and smooth organization between the hardware and operator players, the U.S. approach to 5G is one of straightforward American individualism, of opposing and competitive commercial outlooks, and let capitalism decide the winner. It will be some time before there is widespread access, for instance through the Sub 6GHz networks of AT&T, when they get going next year.
But the Koreans need not worry too much — the Chinese brands have a very low share and that situation is not likely to change anytime soon. Motorola’s Mod backpack 5G add-on was the only device available at the Verizon kickoff, and the initial sales, in contrast with Korea, must have been very modest. The U.S. mobile operators will stock Samsung and LG 5G handsets as well, and they stand to take a lot of the market.
A third country where Samsung and LG can hope to make a strong play is Australia. It also has ambitions to be in on 5G early, and government concerns about Huawei as a network gear supplier. Australia may not have a huge population at 25 million, but the smartphone ASP is high. Telstra launched 5G services on May 28 — with the Samsung S10+ 5G — with a strong promotion in that the smartphone upgrade was free to current Telstra users, albeit with a new, more expensive data plan.
The rest of the world may be a lot more challenging for the Koreans. Sub 6GHz will be the way the industry goes in most places, and mm wave will only come years later. In Europe, for instance, Sub 6GHz frequency allocations are currently the focus for regulators.
For the Chinese smartphone players, the realities of their home market are so much different from those of Korea; the population is poorer, the country massively larger, and the mobile operators not keen to invest in the new technology (until at least the government makes them). Price competition on Sub 6GHz is the path the Chinese vendors are choosing. In Europe they are beginning to arrive with Sub 6GHz devices and at keen prices.
How Long a Lead Will the Koreans Have?
5G provides an opportunity for the Koreans to fend off China for now. In 4G too, Korea was among the first countries to launch a network, along with the U.S. The Chinese market did not really get going until three years later, but then it grew massively and at its peak it absorbed more than 40% of global 4G smartphone production, a boom which laid the foundation for the Chinese New Wave smartphone players which are currently expanding around the world.
Whatever happens with the U.S. attempt to hobble Huawei, other Chinese brands will move into 5G in a big way too. Back at home, the urban realities of the big Chinese coastal cities echo market conditions in Korea. If there is a concerted push from regulators in China to make mobile operators offer 5G services, Korea’s lead may be quickly forgotten.
For South Korea, the 5G question is just how much time its initial lead will buy.