Honing Its Digital Game

Seoul is spending billions of dollars -- and working closely with private companies -- to get ahead of the IT pack

SK Telecom Ltd. (SKM ) is hard at work developing what may be a key part of your digital future. It's called radio-frequency identification technology, or RFID. Here's how it might work: Strolling down a street in Seoul, you notice a billboard advertising flower delivery, and you remember it's your girlfriend's birthday. The billboard is equipped with an embedded radio chip. You whip out your mobile phone and press a "hot" key that connects with the chip and calls up information from the advertised flower shop on your phone's display. You select a bouquet of daffodils, and a query pops up asking if you want to include a song. You pick a ditty dedicated to daffodils, and click "send" to place your order, which is billed to the phone. The shop delivers the flowers, with a radio chip attached to the wrapping paper. Your girlfriend clicks the hot key on her phone, and it plays the song. She is happy you remembered; SK Telecom is delighted because it gets traffic and earns money from selling the music as well.

RFID is just one of a dozen new digital technologies under development in South Korea's bustling laboratories, part of a government-led campaign to ensure that the country doesn't lose its leading role as an innovator in information technology and telecommunications. "We are determined to maintain Korea's status as an IT leader," says Information & Communication Minister Chin Dae Je. "Within a few years, Koreans will be connected anywhere, any time, and enjoy truly ubiquitous computing."

In the past decade, the country has invested billions of dollars to make itself the world's most wired -- and wireless -- nation. Today some three-quarters of South Korean households have broadband Internet hookups. Of the population of 48 million, 80% carries a mobile phone -- that's virtually everyone over the age of 12. Many of these phones are equipped with cutting-edge technology allowing the users to take photos, surf the Net, and listen to music.

But other nations are narrowing the gap. So the government has launched a program designed to propel Korea ahead of the pack. It's called "IT839" -- shorthand for the eight services, three infrastructure projects, and nine new or upgraded devices the country's tech wizards have decided to focus on over the next five years. The effort is expected to cost the government and private industry as much as $70 billion by 2010.

Few of the services or gizmos the South Koreans are working on are unique. Indeed, research on most, including RFID, is under way in the U.S. and Europe. What distinguishes South Korea's effort is the intense cooperation between the IT industry and the government -- in sharp contrast with the U.S., where the government devotes few resources to the development of broadband and wireless technologies. Indeed, the soul of many of Korea's machines is not in the laboratories of Samsung Electronics Inc. or mobile operator SK Telecom, but at the state-run Electronics & Telecommunications Research Institute (ETRI) in Daejon, 170 km south of Seoul. There, 1,500 engineers -- some of them paid by private industry, some by the government -- are working on technologies involved in IT839. The institute's annual budget is $345 million -- but that doesn't count the billions being spent on research and product rollouts by Samsung, LG Electronics Inc., and SK Telecom. "Our role is to help develop basic and core technology and make it a new global standard," says ETRI President Yim Chu Hwan. "Then new products will be developed by companies in the private sector."

The mobile phone is the focus of much of the research. Everyone assumes that in the future the handset will serve as the centerpiece of communications, entertainment, and computing for people on the go. South Korea has already launched a long-awaited advance in cell phones -- live, extended, affordable television transmission on your phone, using a technology it calls digital multimedia broadcasting (DMB). TU Media Corp., an affiliate of SK Telecom, has signed up 76,000 Koreans for the service since May. Mobile video has been available for several years, but only at a high cost. Now, Do Se Kang, a 36-year-old Seoul software engineer, can pass the time on his one-hour bus commute from home to office watching news programs or a live soccer game via satellite. "This is great," Do says from his bus seat. "Watching TV on the small screen is much better than I thought." The cost for limitless TV viewing: $14 a month.

ETRI played a key role in developing DMB mobile TV. Its researchers created the technology, then Samsung Electronics and its rival LG Electronics rolled out cell phone-TV combos. ETRI has done the same for other important technologies. For instance, after Korea decided to adopt CDMA as its sole wireless standard in 1996 -- rather than the GSM standard prevalent around the world -- ETRI worked with Samsung and other companies to develop snazzy, high-performance phones that won wide acceptance in the U.S., which also uses CDMA. After stunning established rivals with their success with CDMA, Samsung and LG then elbowed their way into the GSM market.


The South Koreans also have an aggressive strategy for rolling out RFID. Phones that include RFID readers are not yet in use, but Samsung and other companies plan to begin producing them next year. The government has allocated the 900-megahertz frequency for the phone applications as well as logistics tracking purposes. That will allow hundreds of phones to read information from a single radio chip at the same time, and from a greater distance than current radio chip technology, which requires that customers wave a card or phone near the chip.

Radio chips are already being used in Europe and the U.S. as inventory trackers. In that sphere, the South Korean government has set itself up as an RFID demonstration project. The Defense Ministry in June announced that it is utilizing the chips to track supplies of bullets and grenades. The National Veterinary Research & Quarantine Service will soon begin attaching RFID tags to imported beef to better handle emergency situations such as mad cow outbreaks. Air- and seaports are establishing RFID systems as well.

RFID development is closely tied to another IT839 project called USN, or the ubiquitous sensor network, which would allow various industries to manage logistics and distribution through RFID tags that would be embedded in virtually all products. USN could usher in a new digital era, in which networks of smart machines and products communicate with each other. USN is in turn linked to a global tech project called IPv6, which would create a limitless universe of Internet Protocol addresses -- necessary if each of millions of products is to have its individual electronic tag.


USN and IPv6 constitute two of IT839's three infrastructure projects. The third, and most important, is South Korea's initiative to build a so-called broadband convergence network, or BCN, which would integrate wired and wireless systems, and the telecom and broadcasting sectors, allowing companies and consumers to send voice, text, images, and video all through the same pipe. Right now only rudimentary BCN systems exist on a very small scale. "BCN will end the biggest problem of the current Internet -- the failure to guarantee quality of service, sometimes causing delay and transmission interruptions," says Nam Ill Sung, assistant vice-president in charge of network planning at KT Corp. (KTC ), the country's largest telephone and broadband company. Nam says KT will invest some $10 billion in BCN equipment over the next five years, part of a network that will allow Koreans to send data at superfast speeds of from 50 to 100 megabits per second. That's at least 50 times the speed of transmissions today.

Some of the new technology projects are joint enterprises of ETRI and private industry. For instance, the local version of wireless broadband, WiBro, was developed by researchers from ETRI, Samsung, and the three South Korean mobile carriers, with the private companies picking up the entire $38 million cost. WiBro, like WiMax, the standard being developed by various companies in the U.S. and Europe, will allow wireless broadband to be sent across relatively long distances. WiBro's distinction is that users of phones and computers will be able to pick up the signal even while they're traveling at speeds up to 60 kph. That will allow television viewing and data transmission from a moving car or train.

Korea would, of course, like to be in the vanguard of such groundbreaking technology. But it has lots of competition. Every major cell phone maker around the world is working on RFID-enabled phones in conjunction with banks and credit card companies. Visa International and American Express Co. (AXP ) recently announced nationwide U.S. rollouts of RFID technology for their credit cards.

In mobile-digital TV, Nokia (NOK ) is promoting a standard called DVB-H in Europe -- where Korea is also peddling its DMB technology. In North America, Qualcomm Inc. (QCOM ) is pushing its own version, called MediaFlo. The Koreans argue that DMB is a year ahead of any competitor. And they countered that WiBro is more mobile than its WiMax competitors.

Meanwhile, foreign tech giants are using wired Korea as a testing ground for their own products. In June Intel Corp. (INTC ) said it will team up with KT to develop long-distance wireless-broadband technology, with Intel providing engineering support to ensure compatibility between WiBro and its own version of the technology, called Mobile WiMax. In March Microsoft Corp. (MSFT ) opened its first global wireless-device technology lab in Seoul, saying it expected Korea to be an "ideal model" in the mobile sector and that it would invest more than $10 million annually there over the next three years. Siemens (SI ), Hewlett-Packard (HPQ ), Cisco Systems (CSCO ), Motorola (MOT ), and Nokia have also set up shop in the country. "Korea is very important not just as a test bed but as a major market," says Qualcomm founder Irwin M. Jacobs.

Some foreign startups are betting on Korea, too. San Jose (Calif.)-based Caspian Networks Inc. has contracted with ETRI to jointly develop next-generation Internet routers aimed at guaranteeing speed and quality for voice and video streaming. When it linked up with ETRI, Caspian was given assurances that its routers would be used in Korea's new BCN network.

Clearly, there is a global fight going on over who will be first to roll out the next generation of digital technologies, and South Korea won't always be first. But in coming years, if you take a digital tour of your local museum, send video files while driving, watch a soccer game on the bus, or send flowers via radio signal, there'll be a good chance that Koreans helped make it happen.

By Moon Ihlwan in Seoul, with Cliff Edwards and Peter Burrows in San Mateo, Calif.

— With assistance by Cliff Edwards, and Peter Burrows

    Before it's here, it's on the Bloomberg Terminal.