Microsoft Corp. has taken a further step into one of the world's most advanced broadband markets by picking up a stake in KT Corp., South Korea's de facto local telephone provider and the nation's leading broadband Internet provider.
Under the terms of a deal announced in Seoul on Saturday morning, Microsoft will pay US$500 million for an unspecified stake in KT, which changed its name earlier this month from Korea Telecom. The sale is part of an ongoing government plan to fully privatize the carrier by the middle of 2002.
The two companies will work together in four main areas: the linking of Windows Messenger to KT's Internet access service to provide a voice over IP (Internet Protocol) service; provision of a wireless broadband service via Windows-based devices; upgrading of KT's broadband content network with Microsoft software; and the development of a co-branded KT and MSN portal site.
The deal drives Microsoft further into the Korean broadband market, where it already has a 7.7 percent stake in number three broadband provider Korea Thrunet Co. Ltd. Experience there is valuable because the East Asian nation leads the world in broadband Internet penetration -- Korea, a nation of 48 million people and 14 million households counts 7.6 million broadband connections.
With so many broadband homes, the local Internet is already tailored around such services -- the major local TV stations offer live broadband streams of their broadcasts, a number of portals offer pay-per-view movies on demand and network gaming and video chat are very popular.
Despite entering the market relatively late, in the summer of 2000, KT currently has a commanding lead of the South Korean broadband market. With 3.6 million customers, the majority of them connected through KT's MegaPass ADSL (asynchronous digital subscriber line) service, the company had a total market share of 49.2 percent share in October, according to data from Korea's Ministry of Information and Communications.
In addition to its broadband unit, KT has a near monopoly in the local telephone market and is the number two player in the cellular sector through its KTF unit. The company, which had 9.8 million subscribers at the end of November according to data from the company, is already operating a CDMA2000 1x network, which offers data transfer speeds of 144k bps (bits per second) and the company has secured a 3G license.
For calendar year 2000, KT posted sharply higher results thanks in a large part to soaring revenues from its broadband service. The company saw non-consolidated net income of 1 trillion won (US$777 million), against 383 billion won in 1999, on top of a 7.6 percent increase in revenue to 10.3 trillion won.
The deal is one of the largest Microsoft has done in Korea -- a country where is has not always been warmly welcomed. Its attempt to acquire Hangul & Computer Co., a local word processor software maker and its main rival, in the summer of 1998 stirred a wave of patriotic support for Hangul and anti-Microsoft sentiment. A year later, Hangul filed a Fair Trade Commission complaint alleging dumping by Microsoft.
More recently, a group of local companies led by portal operator Daum Communications Corp. tried to block the release of Windows XP in the local market. The group, which also included Lycos Korea, was unhappy at the bundling of Microsoft's Passport identification service with the operating system.