Network Equipment

The domestic equipment businesses have low expectations on the trickle-down effect of the auction on the 4G LTE wireless frequency ended on May 2.
The domestic equipment businesses have low expectations on the trickle-down effect of the auction on the 4G LTE wireless frequency ended on May 2.

 

Korean communication equipment providers are struggling these days as both sales and operating profits have been decreasing for several years. The government and mobile carriers have said that they would open the era of the 5th generation (5G) mobile networks from 2018 and significantly expand the frequency bandwidth of the 4th generation (4G) wireless system, continuously advertising the high technological competitiveness. However, its trickle-down effect on the investment is leaking out overseas.

In fact, domestic mobile carriers’ investments in communication equipment amounted to 41.3 trillion won (US$35.74 billion) in total as of capital expenditure (CAPEX) for six years from 2010 to 2015, reaching an annual average of 7 trillion won (US$6.06 billion). However, combined sales of Korean communication equipment providers in the domestic market barely surpassed 1 trillion won (US$865.43 million) on an annual basis, said industry sources. According to the data of the second half in 2015 revealed by Korea Association of Network Industries, the combined sales of 103 domestic major communication equipment firms in 2014 stood at 1.01 trillion won (US$872.44 million).

This is why domestic equipment businesses have low expectations on the trickle-down effect, though the government successfully finished the auction on the 4G LTE wireless frequency on May 2. An official from the industry said, “Large mobile carriers ordered a large amount of equipment last year to advance their backbone networks but most of the deals were won by European and Chinese firms. Even if mobile carriers seek to make an additional investment in equipment after awarding the frequency contracts, they are likely to have the same situation again.” 

According to a survey of 461 Korean network equipment providers conducted from late June to early July last year, the domestic communication equipments fell behind the global competitiveness in terms of price, technology and brand awareness. The study showed that their brand awareness was very low at 75.1 percent, technology at 82.6 percent and price competitiveness at 86.8 percent compared to that of competitors overseas. 


However, some say that such gap can be easily narrowed if there is support from the government and mobile carriers. They claim that Korean large, small and mid-size enterprises will be able to raise their competitiveness when the government and local mobile network operators focus the nation’s buying power worth an annual average of 7 trillion won on them in order to promote local network equipment providers.

An official from a small wireless transmission equipment provider said, “How is it going to be possible for local equipment to be exported to global markets if they are rejected in the domestic market and cannot even have an opportunity to prove their quality? In fact, Huawei has grown with support from the Chinese government and mobile network operators, based on the large Chinese market, and accumulated the opportunities to prove its technology and services. As a result, it is now hot on the trail of firms in advanced countries.”


Many express concern that the base of the relevant industry ecosystem itself can gradually disappear if the government postpone its plan to foster local businesses. LG Group already closed down the network equipment business and sold the relevant unit long time ago. Also, there were rumors that Samsung Electronics, the nation’s only conglomerate in the sector, was seeking to sell the network business unit in the second half of last year. Samsung officially denied the rumors and announced its plan to invest in the related business. However, there is a consensus in the securities industry that the company will not be able to catch up with Ericsson in a short period of time. Other local businesses have even weaker base since most of them are SMEs, except for KMW and DASAN Networks.
 

Accordingly, the government and mobile carriers should support domestic network equipment providers by helping them to carry out research and development in the sector they are good at and awarding orders. For the 4G wireless equipment system, local conglomerates and SMEs have the global competitiveness in technologies like VoLTE, a high quality voice communications technology, and Carrier Aggregation, which combines radio frequency carriers at the device to increase the user data rates. Therefore, they should be provided with support to develop related markets. In addition, electronic industry sources said, “Domestic mobile communication companies are slow in adopting the network virtualization communication technology compared to businesses in other countries. So, the active R&D in the sector is needed.” Therefore, the government should support R&D in the sector and secure the market.

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