The political economies of broadband development in Korea and Japan

Asian Survey

Volumn 47, Issue 3, 2007, Pages 481-504

  Kushida, Kenji ^a   Oh, Seung Youn ^a  

^a UNIVERSITY OF CALIFORNIA   (United States)

Author keywords

Broadband; Information communications technology; Japan; Political economy; South Korea

Indexed keywords

BROADBAND DATA; COMPETITION (ECONOMICS); INTERNET; LIBERALIZATION; POLITICAL ECONOMY; STATE ROLE; STRATEGIC APPROACH; TECHNOLOGICAL DEVELOPMENT; TELECOMMUNICATION;

ASIA; EURASIA; FAR EAST; JAPAN; KOREA; SOUTH KOREA;

EID: 34547124839     PISSN: 00044687     EISSN: 1533838X     Source Type: Journal    
DOI: 10.1525/as.2007.47.3.481     Document Type: Article

References (105)

1. Stephen Cohon J. Bradford DeLong, John Zysman, Tools for Thought: What Is New and Important About the "E-Conomy" (Berkeley: BRIE, 2000).
2. Following the Organization for Economic Cooperation and Development (OECD), we refer to "broadband" as services offering more than 256 kbps (kilobytes per second) downstream, excluding ISDN (Integrated Services Digital Network), discussed later. See OECD, The Development of Broadband Access in OECD Countries (Paris: OECD, 2002), p. 6.
3. For an overview, see Robert Wade, "East Asia's Economic Success: Conflicting Perspectives, Partial Insights, Shaky Evidence," World Politics 44:2 (1992), pp. 270-320.
4. "Institutions" is a widely contested concept, but in this paper we refer to formal organizations.
5. No single "best indicator" of national broadband performance exists. Available measures include availability, penetration, capacity/speed, price. Martin Fransman, "Introduction," in Global Broadband Battles: Why the U.S. and Europe Lag while Asia Leads, ed. Martin Fransman (Stanford, Calif.: Stanford University Press, 2006), p. 7.
6. National Computerization Agency (NCA), Informatization White Paper 2004: Broadband IT Korea (Seoul: NCA, 2004), p. 15.
7. OECD, "The Development of Broadband Access," p. 13.
8. Ibid., p. 14.
9. DSL services in Japan ranged from 1 to 8 mbps (megabytes per second) in 2001, increasing to 50 mbps by 2003. Institute for Information and Communications Policy, Henbou Suru Kontentsu Bijinesu [Transforming content business] (Tokyo: Toyo Keizai Shinposha, 2005). Penetration figures do not capture the rapid increases in speed, a critical difference between Japan and the U.S.
10. Government of Japan, Ministry of Internal Affairs and Communications, Main Data on Information and Communications in Japan, http://www.sou.mu.go.jp/joho_tsusin/eng/main_data.html>, accessed June 2, 2006.
11. By 2004, they had the lowest cost for 100 kbit/s as a percentage of monthly income. ITU, "Asia-Pacific Telecommunication Indicators 2004" (Geneva: International Telecommunications Union, 2004), p. 25.
12. Arguments about states becoming irrelevant include Susan Strange, The Retreat of the State: The Diffusion of Power in the World Economy (New York: Cambridge University Press, 1996);
13. Kenichi Ohmae, End of the Nation State: The Rise of Regional Economies (New York: Free Press, 1996);
14. Manuel Castells, The Rise of Network Society (Malden, Mass.: Blackwell Publishers, 1996).
15. For scholarship before the 1990s, see Wade, "East Asia's Economic Success."
16. For Japan, see Richard Katz, Japan: The System That Soured: The Rise and Fall of the Japanese Economic Miracle (New York: M. E. Sharpe, 1998).
17. For Korea, see Linda Weiss, The Myth of the Powerless State (Ithaca, N. Y.: Cornell University Press, 1998);
18. Meredith, Woo-Cumings, "The State, Democracy, and the Reform of the Corporate Sector in South Korea," in The Politics of the Asian Economic Crisis, ed. T. J. Pempel (Ithaca, N. Y.: Cornell University Press, 1999).
19. OECD, "OECD Economic Surveys 1999-2000: Korea" (Paris: OECD, 2000);
20. Don-Wan Tcha, June S. Park, Suk-Gwon Chang, and Kwan Ho Song, "Korean Telecommunication Industry in Transition." Telecommunication Systems 14:1 (August 2000), pp. 3-12;
21. Nae-Chan Lee, "Broad-band Internet Service: Korea's Experience," report (Seoul: Korea Information Society Development Institute, 2002);
22. Jyoti Choudrie and Heejin Lee, "Broadband Development in South Korea: Institutional and Cultural Factors," European Journal of Information Systems 13:2(June 2004); pp. 103-14.
23. For an overview, see Wade, "East Asia's Economic Success."
24. For example, see Jonah Levy, ed., The State after Statism: New State Activities in the Age of Liberalization (Cambridge, Mass.: Harvard University Press, 2006);
25. Weiss, "The Myth."
26. See Robert Wade, "Wheels within Wheels: Rethinking the Asian Crisis and the Asian Model," Annual Review of Political Science 3 (June 2000), pp 85-115;
27. Steven K. Vogel, Japan Remodeled: How Government and Industry Are Reforming Japanese Capitalism (Ithaca, N. Y.: Cornell University Press, 2006).
28. Martin Fackler, "In Korea, Bureaucrats Lead the Technology Charge," New York Times, March 16, 2006;
29. Rob Frieden, "Lessons from Broadband Development in Canada," Japan, Korea, and the United State," Telecommunications Policy (September 2005);
30. Choongok Lee and Sylvia M. Chan-Olmsted, "Competitive Advantage of Broadband Internet: A Comparative Study between South Korea and the United States," ibid., 28 (October-November 2004), pp. 649-77;
31. Hee-jin Lee, Robert M. O'Keefe, and Kyounglim Yun, "The Growth of Broadband and Electronic Commerce in South Korea: Contributing Factors," Information Society 19 (January 2003), pp. 81-93;
32. Tcha et al., "Korean Telecommunication Industry in Transition";
33. Choudrie and Lee, "Broadband Development in South Korea";
34. for Japan: Thomas Bleha, "Down to the, Wire," Foreign Affairs 84:3 (May-June 2005), pp. 111-24;
35. Mark Tilton, "Neoliberal Capitalism in the Information Age: Japan and the Politics of Telecommunications Reform," Working Paper, no. 98 (Encinitas, Calif.: Japan Policy Research Institute [JPRI], 2004).
36. Tcha et al., "Korean Telecommunication Industry in Transition";
37. Lee, "Broadband Internet Service: Korea";
38. Choudrie and Lee, "Broadband Development in South Korea";
39. and OECD, "Economic Surveys: Korea."
40. Karl Polanyi, Great Transformation: The Political and Economic Origins of Our Time (Boston, Mass.: Beacon Press, 1944).
41. Steven K. Voggel, Freer Markets, More Rules: Regulator Reform in Advanced Industrial Countries (Ithaca, N. Y.: Cornell University Press, 1996).
42. Suzanne Berger, Peasants against Politics (Cambridge, Mass.: Harvard University Press, 1972), pp. 145-77.
43. John Zysman, Governments, Markets, and Growth: Financial Systems and the Politics of Industrial Change (Ithaca, N. Y.: Cornell University Press, 1983).
44. For details, see Vogel, "Freer Markets," pp. 137-45.
45. Chalmers Johnson, "MITI, MPT, and the Telecom Wars: How Japan Makes Policy in High Technology," in Politics and Productivity: How's Japans Developmental Strategy Works, ed. Chalmers Johnson, Laura Tyson, John Zysman (New York: Harper Business, 1989), p. 190.
46. See Marie Anchordoguy, "Nippon Telegraph and Telephone Company and the Building of a Telecommunications Industry in Japan," Business History Review 75 (Autumn 2001), pp. 507-41;
47. Martin Fransman, Japan's Computer and Communications Industry: The Evolution of Industrial Giants and Global Competitiveness (Now York: Oxford University Press, 1995).
48. Vogel "Freer Markets;
49. Johnson, "MITI, MPT, and the Telecom Wars";
50. Kenji Kushida, "The Politics of Restructuring NTT: Historically Rooted Trajectories from Actors, Institutions, and Interests," Stanford Journal of East Asian Affairs 5:2 (Summer 2005), pp. 29-36.
51. For details, see Eiji Kawabata, "Dual Governance: The Contemporary Politics of Posts and Telecommunications in Japan", Social Science Japan Journal 7:1 (April 2004), p. 21-39.
52. Dal Yong Jin, "Political and Economic Processes in the Privatization of the Korean Telecommunications Industry: A case Study of Korean Telecom: 1987-2003," Telecommunications Policy 30:10-11 (November-December 2006), pp. 3-13.
53. Although privatization did not go exactly according to government plans, its main objectives were fulfilled. In 2000, the government raised the foreign ownership ceiling to 49%, fearing adverse effects on the stock market after the financial crisis, but no foreigner owned more than 10%. In 2002, SK Telecom (SKT) aggressively bought over 10% of KT, taking advantage of regulatory changes allowing Chaebol to own up to 15%, but the government, intending for three chaebol to own 5% each, successfully pressured SKT to reduce its shares. See ibid.
54. For details, see Hong Sung Gul, "The Political Economy of the Korean Telecommunications Reform." Telecommunications Policy 22:8 (September 1998). pp. 697-711.
55. The first minister of MIC, Sang-Hyon Kyong, with a Ph.D. from MIT and experience at Bell Labs, became vice president of KT, president of the Korean government's Electronics and Telecommunications Research Institute (ETRI) and NCA, and vice minister of MOC. The recent minister, Dae-Je Chin, with an electrical engineering Ph.D. degree from Stanford, worked at HP Labs and IBM and was an executive at Samsung.
56. "Type I" owned infrastructure. "Type II" carrier leased facilities from Type I carriers, "Special Type II" carriers provided long distance services, and "General Type II" carriers offered local service.
57. Hidenon Fuke, Joho Tsushin Sangyo no Kozo to Kisei Kanwa: Nichibeiei Hikaku Kenkyuu [Structural change and deregulation in the telecommunications industry: A U.S.-U.K.-Japan comparative study] (Tokyo: NTT Shuppan, 2000).
58. For details, see Kenji Kushida, "Japan's Telecommunications Regime Shift: Understanding Japan's Potential Resurgence," in How Revolutionary Was the Digital Revolution? National Responses, Market Transitions, and Global Technology in the Digital Era, ed. John Zysman and Abraham Newman (Stanford: Stanford University Press, 2006), pp. 125-47;
59. Fuke, "Structural Change and Deregulation," pp. 25-31;
60. Vogel, "Freer Markets," pp. 161-66.
61. Categories for service providers changed several times as the government sought to find the optimum level of control over each type of provider, shifting from General/Specific/Value-added (1990) to Facility-based/ Value-added (1994), and Facility-based/Special/Value-added (1997).
62. See Nae-Chan Lee and Han-Young Lie, "Korea's Telecom Services Reform through Trade Negotiations," in Trade in Services in the Asia-Pacific Region, ed. Takatoshi Ito and Anne O. Krueger (Chicago: University of Chicago Press, 2003).
63. In international service, DACOM (Datacommunications Company of Korea) was licensed in 1990, and Onsei in 1996; for long distance, DACOM in 1995 and Onsei in 1997. For local telephony, Hanaro was licensed in 1996.
64. For details, see Lee and Lie, "Korea's Telecom Services Reform."
65. KII consisted of three parts: "KII-Government" built a nationwide backbone for broadband, "KII-Testbed" supported R&D to bring technologies to market, and "KII-Private" aimed to facilitate market competition to spread broadband through private sector investment. Lee and Chan-Olmsted, "Competitive Advantage," pp. 658-59.
66. For example, see Choudrie and Lee, "Broadband Development in South Korea," pp. 106-07.
67. According to a prominent government official, the story behind KEPCO's fiber network is a check against the temptation to overrate Korean government's omnipotence. Around 1980, KEPCO installed fiber throughout its network, gambling that once it had the infrastructure, the government would be forced to allow KEPCO to use it more productively. This was interesting, given that KEPCO was fully government-owned and under the jurisdiction of the Ministry of Commerce. and Industry (MCI). In the meantime, KT had created its own fiber networks with government support, partly financial. A dispute ensued when both KEPCO and KT applied for a license to lease fiber to telecom carriers. From a capacity standpoint, according to the government official, KT's infrastructure was sufficient, while KEPCO's was redundant. However, both KT and KEPCO were fully government owned at the time, and although MOC was pitted against MCI, they could not engage in a public battle because that would have revealed that MCI had allowed KEPCO to take matters into its own hands with taxpayers' money.
68. Interview with former top MIC official, Berkeley, Calif., November 4, 2005.
69. ISDN was considered the next evolutionary stage in the telecommunications infrastructure to reach homes, until the advent of DSL rendered it obsolete. ISDN transmits voice and data over copper wires digitally, allowing for simultaneous voice and data transmission. It sported faster Internet connections than conventional dial-up but was far slower than DSL.
70. In cable services, the Korean government separated conduit and content. The two state-owned cable infrastructure owners, Powercomm and KT, werte not permitted to offer services, instead leasing out capacity. Therefore, new entrants to the broadband market, such as Thrunet in 1998 and Hanaro in 1999, initially rented cable capacity. This structural separation ruler was relaxed in 2000 when KT sold its cable infrastructure to cable service providers.
71. From 1999 to 2000, ISDN subscribers shrank dramatically from 175,000 to 100,000, while DSL grew to over two million. OECD, "Source OECD Telecommunications Database, Vol. 2005," .
72. In early 2005, Hanaro absorbed Thrunet but still had difficulty, even contemplating receiving foreign funds to stay afloat (Fransman, Global Broadband Battles, p. 32).
73. Programs include the "Ten Million People Internet Education Project (2000-02)," the "One Million Housewife Digital Literacy Education Project," and the "PC for Everyone" program (1999). The government subsidized approximately 1,000 private training institutes to educate housewives to promote demand in households and provided low-priced PCs, partly through an installment program via the postal savings system and through subsidies and leases for PC/broadband to low-income citizens (MIC, "White Paper 2001" [Seoul: Ministry of Information and Communications]). The government offered discounts for Internet access by primary and secondary schools, leading to 100% broadband penetration in schools by late 2000 - though, of course, how it is used is another matter (Choudrie and Lee, "Broadband Development in South Korea," p. 107).
74. For an overview, see Izumi Aizu, "A Comparative Study of Broadband in Asia: Deployment and Policy," discussion Paper (Tokyo: Center for Global Communications, International University of Japan, 2002).
75. See Erik Bohlin, "Editorial: Restructuring Japan's Telecommunications," Telecommunications Policy 21:2 (1997), pp. 79-84;
76. Steven K. Vogel, "Creating Competition in Japan's Telecommunications Market," working paper (Washington, D.C.: Japan Information Access Project, 2000).
77. Interview by Kenji Kushida with Toshihiko Hayashi, former member of the Telecommunications Deliberation Council, Stanford, Calif., May 2001. Nakamura Ichiya, former MPT official, contends that the sudden compromise was the result of MPT shifting its focus from battling NTT to battling NHK (Nippon Hoso Kyokai, Japan Broadcasting Corporation), the state-owned broadcaster under its jurisdiction. Interview by Kenji Kushida with Nakamura Ichiya, Stanford, Calif., May 2001.
78. For details, see Kushida, "Japan's Telecommunications Regime Shift."
79. For Type I carriers, most price changes and market entry shifted from "approval" to "notification." See Fuke, "Structural Change and Deregulation."
80. Yuko Suda, "Japan's Telecommunications Policy: Issues in Regulatory Reform for Interconnection," Asian Survey 45:2 (April 2005), pp. 241-57.
81. Kushida, "Japan's Telecommunications Regime Shift";
82. Fuke, "Structural Change and Deregulation," pp. 43-45;
83. Vogel, "Creating Competition" The formula, LRIC (long run incremental cost), was revised in 2000 to further favor competitors.
84. DSL sends high frequency signals ovet copper telephone lines, requiring equipment on both the user's side (the box at home) and inside the carrier's facilities (NTT switching stations).
85. NTT invested approximately nine billion dollars in its ISDN infrastructure. Robert Cole, "Telecommunications Competition in World Markets: Understanding Japan's Decline," in How Revolutionary Was the Digital Revolution? eds. Zysman and Newman, citing Nezu (2002).
86. The Cabinet Office gained personnel and expanded policymaking capabilities. T. J. Pempel, "A Decade of Political Torpor: When Political Logic Trumps Economic Rationality," in Beyond Japan, ed. Peter Katzenstein and Takashi Shiraishi (Ithaca, N. Y.: Cornell University Press, 2006).
87. Government of Japan, IT Strategic Headquarters, Cabinet Office, , accessed May 23, 2006. Tilton argues that the "e-Japan" strategy is a classic "industrial policy" with a catch-up objective, explicit goal, and timeline to achieve specific outcomes. Tilton, "Neoliberal Capitalism."
88. Ministerial ordinances are legally binding but under the ministry's discretion, eliminating the need for coordination with actors such as the Ministry of Justice. In the 2000 government reorganization, MPT merged with other bureaucracies to become the Ministry of Public Management, Home Affairs, and Posts and Telecommunications (MPHPT). In 2004, it simplified the English name to "Ministry of Internal Affairs and Communications."
89. See Kushida, "Japan's Telecommunications Regime Shift";
90. Hidenori Fuke, "The Spectacular Growth of DSL in Japan and Its Implications," Communications & Strategies 52 (2003), pp. 175-91.
91. DRC website (meeting minutes in Japanese), , accessed May 15, 2006.
92. Fuke, "Structural Change and Deregulation."
93. Son's aggressive pricing surprised competitors and MIC officials. Many worried that the price war threatened future investment. It is doubtful that Son could have waged such a dramatic price war under the "controlled competition" regime.
94. Flat-rate telephony was new to Japan due to NTT's interconnection fees and dominance of the last-one-mile. Softbank IP telephony calls to the U.S. were 8 yen/min (6-7 cents), compared to the prevailing 200-300 yen/ 3 min.
95. "IP denwa demo bangou ga kawaranai riyuu" [Why numbers don't change with IP telephony], Nikkei Communication (November 2003), pp. 66-68. Some officials contend that MIC could quickly support IP telephony because the technology was relatively unknown and NTT didn't think to protest, because none foresaw IP telephony's rapid spread.
96. By the end of 2001, metropolitan coverage of FTTH was 95% (MIC, "White Paper," 2003).
97. See Kushida, "Japan's Telecommunications Regime Shift."
98. Takanori Ida contends that NTT DoCoMo's success in cellular markets provided NTT regional carriers de facto subsidies. Takanori Ida, "Broadband, the information Society, and National Systems," in Global Broadband Battles, pp. 65-86.
99. Competitors included K-Opticom, a subsidiary of Kansai Electric Power Company; TT Net, a subsidiary of Tokyo Electric Power Company; and KDDI.
100. "Peer-to-peer" IP telephones (excluding computer to computer IP telephony such as Skype) grew from 4.3 million at the end of 2003 to 10 million by March 2006. MIC, Joho Tsushin Hakusho [Information and communications white paper 2006] (Tokyo: MIC, 2006), p. 112.
101. It is debatable whether IP telephony should be considered a "disruptive technology" à la Christensen (2000). As Steven Weber contends, Christensen's definition of disruptive technology is problematic because it depends on the capacity of incumbent businesses to adapt their business models to the new technology. If incumbents successfully adapt to the new technology, it is not a "disruptive technology" per se. The true conceptual definition should rely on incumbents' business models rather than the technology. Clayton Christensen, The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail (New York: HarperBusiness, 2000);
102. Steve Weber, "Christensen Right and Wrong," QED 1 (December 2005).
103. See Steven Vogel and John Zysman, "Technology, in U.S.-Japan Relations in a Changing World, ed. Steven K. Vogel (Washington, D.C.: Brookings Institution Press, 2002).
104. Cohen et al., "Tools for Thought," esp. pp. 13-17.
105. Firms such as Microsoft, Cisco, Yahoo!, Amazon, Google, and eBay had enjoyed the most advanced and sophisticated domestic Internet market for their initial experimentation and innovation.