Why Does South Korea Have Faster Internet for a Cheaper Price Tag?July 19, 2017
The average South Korean can choose between three major private internet providers –SKT, KT and LG U+ – and pay less than $30 a month for the fastest internet in the world. That’s $17 less than what the average American pays for a much slower internet hookup. But why? How is it possible that the citizens of the last developed democracy have a faster and more affordable internet than Americans? The simple answer to this question is that in the 1990s South Koreans decided that their country needed a fast and affordable internet provided by a vibrant private sector, and there was the political willingness, and a national plan, to achieve that goal.
Some may argue that Americans pay more for internet service because there are more people to serve in a larger geographic area. Yet, not even in America’s densely populated cities (like San Francisco or New York City) or states (like New Jersey) do people enjoy comparable prices to those in Korea.
Others may argue that internet access is cheaper and faster in South Korea because of excessive government intervention and regulation. Leaving normative judgements aside, that is also empirically not true. As explained below, internet in South Korea is provided by a vibrant and competitive private sector.
How South Korea Did It
The 1987 “Framework Act on Informatization Promotion” established a high priority national broadband deployment plan. The goal of the Act was to “improve the quality of life for the nation and to contribute to the development of the national economy, thereby promoting the informatization and laying the foundation for the information and communications industry and achieving the advanced information and communications industry infrastructure.” That same year, the Korean government started computerizing national data in important areas, such as resident registration, real-estate registration, and finance, as part of its efforts to lay the groundwork for informatization at the national level.
Since 1987, Korea has spent more than $5,000 million in connectivity efforts. As a result, internet penetration rate in South Korea achieved 89.9 percent in 2015, up from 6.8 percent in 1998. In contrast, internet penetration in the United States was only at 74.6 percent in 2015, despite being at a generous 30.1 percent in 1998. In addition, South Korean consumers enjoy free and fast WiFi on public transportation and in public buildings and streets. Meanwhile in the U.S., consumers pay much more for a service that makes it challenging to send emails on the metro or have an uninterrupted call.
The Korean federal government also made a point to spur broadband demand and enhance digital literacy, naturally creating a healthy cycle of supply and demand, and thus a circulating blood flow through the economy. Laws and regulations were established early on for efficient informatization, including the Act on the Expansion and Promotion of the Use of Information and Communications Network (1987), the Framework Act on Information Promotion (1995), and the Electronic Government Act (2001). The government has also encouraged its citizens to get computers and to hook up to high-speed internet by subsidizing the price of connections for low-income and traditionally unconnected people.
The Important Role of the Private Sector
The private sector has an important role in the provision of fast affordable internet in Korea. Companies did an important part of the structural work, in cooperation with the government. For example, in 2003, the South Korean Information and Telecommunication Ministry reached agreement with the nation’s leading carriers to jointly invest $2.1 billion into the nation’s multimedia network. The deal between the government and private entities guaranteed a $1.2 billion investment from these carriers over the next seven years. The South Korean government has embraced infrastructure-sharing as a way to incentivize new companies to compete in the broadband market. As such, the government and businesses have had a symbiotic relationship towards achieving the same goal. In addition, the government has consistently moved towards encouraging competition by deregulation with the telecommunications sector and encouraging the challenging of incumbents.
A Healthy and Competitive Environment
Thanks to these regulatory and economic efforts, South Koreans enjoy a healthy and competitive internet provider environment. Private sector companies compete among themselves to gain customers by offering lower prices for a faster internet. This enhances consumer choice. As a result, in South Korea, installing only internet in the household is cheaper than bundling up with other services like cable, whereas in the U.S., ironically it often costs more to install only the services, like internet, that a household may need. Therefore, South Korean consumers are left with more consumer choice when selecting the services they need.
We Too Can Have Better Internet
So what can the U.S. learn from the South Korean experience? That cheaper and faster internet is at hand for America if we act in consequence to achieve that goal. Like Korea, the U.S. should encourage private sector competition, and expand public-private partnerships to improve access and lower prices.