Strategy Analytics - Korean Telematics Competition Hots UpStrategy Analytics InsightIn-Vehicle Telematics & Multimedia Service October 08, 2002 Korean Telematics Competition Hots Up Snapshot Competition between TSPs (Telematics Service Providers) in Korea is intensifying. In December 2001 SK Corp first launched its Entrac telematics service, and in Sep-02, SK introduced the “CITI Bank Entrac Card” scheme that provides users with a free Entrac telematics terminal and personal cellular handset, in addition to a series of discounts on purchases by using the bankcard. Now, according to press reports, Samsung Fire & Marine Insurance Company (FMIC), in partnership with Korea’s second largest wireless operator KTF, is about to launch a competing product consisting of a telematics terminal and services. Analysis SK Corp is well positioned to deliver telematics products in Korea. SK Corp is Korea's largest oil company with a customer base of 9 million vehicle users in Korea, and is also the parent company of the country’s leading wireless service provider SK Telecom with around 14 million cellular subscribers. Like Samsung FMIC the company is also an active insurance provider. In December 2001 SK Corp it launched its Entrac telematics service. Using a combination of a SK Corp handset plus in-vehicle phone cradle incorporating a GPS receiver, subscribers are able to receive a range of route guidance services incorporating dynamic traffic information (also incorporates voice activated hands free phone operation). Uptake of the service has been slower than anticipated by the company, with around 30,000 subscribers. The latest initiative introducing the CITI Bank Entrak card scheme is intended to attract new customers ahead of new competition entering the market. Subscribers can receive a free Entrak receiver, handset plus 8% discounts at gas stations and 0.9% discount for purchases using cards or cash advances for three years – SK Corp was previously charging for the hardware, with service subscription starting around $16/month. SK Corp is delivering 3 layers of Entrak service: Standard – incorporating navigation, route guidance incorporating traffic info, concierge, wireless Internet access (NATE Drive); Safety - adding emergency road service, remote vehicle diagnosis and control, stolen car retrieval services; Driver Manager – adding Bonus point purchase savings awarded according to the amount spent in SK service stations, insurance consulting and recommended insurance products, free vehicle checkups, vehicle inspection reservation service. Affiliate SK Telecom (Korea’s largest wireless operator) is its wireless partner. Despite a significant customer base, Samsung F&MIC will face strong competition from SK Corp. Samsung F&MIC has 3.3M insurance subscribers and is a leading insurance provider in Korea along with SK Corp, Samsung Electronics, SK Telecom, and Nongshim. The company has been conducting trials since July 2002 of its Anynet telematics service, and is in partnership with Korea’s second largest wireless operator KTF. Both players are unique in the telematics marketplace: SK Corp is presently the only wireless company operating its own telematics call centre; Samsung F&MIC is the only auto insurance company providing telematics hardware and services. Product targeting and price positioning will be key to how competition will develop. Korean OEMs have started to enter the telematics market but are reluctant to commit to full scale factory fitment of telematics systems. Unlike N. America, Japan and Europe, Korean OEMs have been late in launching telematics products. This is primarily because the market is completely dominated by Hyundai Motors (70% domestic market share for passenger cars) – so it has felt no competitive need to launch products in this area – plus the other makers have had severe financial problems to deal with. However, during 2002 Daewoo Motors has set up a service titled Dreamnet with KTF, the second wireless operator in Korea. Hyundai has established a traffic information and services company titled Rotis in partnership with LG Telecom, and the two companies plan to invest 4 billion Won in the venture. In addition to Rotis, Hyundai has a division, Autonet that provides in-vehicle emergency and safety centric services. Autonet will provide services to vehicles manufactured by both Hyundai and its Kia subsidiary Implications Unlike in other regional markets, Korean telematics players are well positioned to exploit the advantages and synergies between auto services products and client bases, with strong potential benefits of reducing costs. Strategy Analytics consumer surveys show that vehicle safety applications, by far, stimulate the strongest levels of consumer demand across all age groups and salary brackets, and that consumers are very interested in paying for telematics services in conjunction with their car insurance, or as part of a car financing package. Synergies between the joint venture players have significant benefits on the distribution and marketing costs of getting telematics services products to key target markets. SK Corp, through its consolidated companies, has wide ranging customers bases across wireless and auto related services markets. TrafficMaster (working with RAC, a leading auto services player) in the UK and WirelessCar (working with Mondial in Europe and Cross Country Auto Services in the US) are examples of the small number of market players that are exploring the synergies between telematics services and related auto services. To date, OnStar has been focused on increasing revenue by building content and wireless communications into the telematics package, and acting as a TSP for other OEMs in the US. The opportunities of linking with auto services players have not yet been explored. But the user-generated recurring service revenue business model will present the same challenges in Korea as in other geographical markets. In common with the other regional markets, Korean telematics service providers are finding that early consumer and commercial telematics markets are highly segmented. Telematics adoption to date in Korea has been limited, and Korean OEMs have yet to make a full scale commitment for factory fitted systems. The consumer needs of the aftermarket are completely different to those of OEMs and auto maker customers. The new telematics products launched in Korea are highly subsidised and rely on costly operator based call centres. Longer term profitably will depend upon attracting significantly more users, and at higher ARPU levels. This will necessitate introducing attractive, bundled and well positioned service packages that include core services such as emergency and roadside assistance (ERA) telematics, related auto services products such as car insurance, high quality road traffic information (RTI), integrated navigation and also entertainment content. Strategy Analytics consumer survey analysis shows that there are specific user segments that place high value on dynamic navigation, RTI, and ERA services, but other more compelling communications and services are required to build recurring service revenue streams in the longer term. Across segments, and along with safety, in-vehicle entertainment is at the centre of consumer demand. The quality of emerging telematics services will be a key longer term challenge for TSPs in Korea. Korea has a very high penetration of broadband into the home (in excess of 50%) and it is estimated that around 90% of web surfing in Korea is done via high-speed connection. Hence consumer expectation of quality and speed of delivery of infotainment services are high. Current wireless bandwidth cannot match this performance. Questions? To comment on this insight, please contact the analyst Chris Webber Email: cwebber@strategyanalytics.com Other Contacts: Joanne Downie, email: jdownie@StrategyAnalytics.com, tel: 011-44-1582-589808; Clare Hughes, email: chughes@StrategyAnalytics.com, tel: 011-44-1582-589825
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