Just a year and a half ago, smartphones were nearly absent from South Korea's wireless market, but a smartphone boom hit the country last year following Korea Telecom’s (KT) introduction of iPhones. KT's move pushed other mobile operators like SK Telecom and LGU+ to raise their marketing spending and partner with smartphone manufacturers to try to claim a bigger chunk of the rapidly growing mobile data services market.

Smartphones had been a hard sell in South Korea due to their lavish price tags and the lack of apps, but now, with desirable devices such as the iPhone and Samsung Electronics' Galaxy S available at more reasonable prices, the country is on the cusp of a mobile Internet explosion. The number of smartphone users jumped to approximately 7 million as of December 2010, up from 806,000 in

December 2009 – a growth rate of 768.5%. The Korean smartphone market is growing rapidly, and manufacturers and mobile operators are pushing hard to introduce new smartphone models.

SK Telecom has made aggressive efforts in the smartphone sector recently by making a wider selection of smartphones available. Since losing customers to KT in Q1 2010, it fought back in Q2 2010, and the number of SKT smartphone users reached 3.91 million at the end of December 2010. This represents 15.2% of its total mobile subscribers. SKT aims to raise this number up to 10 million by the end of 2011.

Galaxy S, the most popular smartphone (along with the iPhone) offered by SK Telecom, has sold more than 2 million units in South Korea since it debuted in June 2010. LGU+’s smartphone subscribers rose to 420,000 at the end of November 2010 thanks to new models such as the Galaxy U and Optimus One. For

LGU+ the portion of smartphone users among new activations increased from 8% in July 2010 to 36% in last November. LGU+ had rolled out seven smartphones as of November, and plans to roll out 14 smartphones this year.

Korea Telecom’s target is to have 6.5 million smartphone subscribers by the end of 2011 (it had 2.73 million at the end of 2010). According to KT, two million iPhones were activated in South Korea as of January 20th, 2011, including 1.03 million units of the iPhone 4, and 977,000 units of the iPhone 3GS. KT's iPhone users account for 67% of its total number of smartphone subscribers.

The success of the iPhone in Korea is contributing to a major change in the local mobile phone market, which until recently has been split between Samsung Electronics and LG Electronics, and centered on regular cell phones with sophisticated features. Samsung has reportedly been one of the most upset by the

presence of the iPhone in Korea. In the past it has counted on SK Telecom as an ally, but this could be undermined if SK Telecom also decides to launch iPhone.

The competition in South Korea's mushrooming smartphone market is poised to intensify as mobile carriers and handset manufacturers are going full-force to carve out a bigger slice of the smartphone pie. KT, which had 17 in its 2010 lineup, plans to launch around 25 to 30 smartphone models this year. SKT plans also to launch around 30 smartphones in 2011 (it had 22 in its 2010 lineup).

SKT also plans to introduce four or five more tablet computers in the first half of 2011. In January 2011 the company released a smartphone that can also serve as a set-top box, playing content on personal computers, tablet PCs and televisions.

The smartphone, named “Galaxy S hoppin,” is manufactured by Samsung Electronics, and represents the company’s efforts to tap into the growing demand for easy exchange of content accross different devices.

South Korean manufacturers are among a number of companies raising the stakes in the global mobile device market by offering new smartphones and tablets to compete with Apple’s iPhone. LG Electronics and Samsung Electronics have unveiled their new smartphone and tablet models at MWC in Barcelona; LG

introduced its new Optimus 3D smartphone while as Samsung Electronics unveiled its Galaxy S II, a follow-up to its Galaxy S smartphones that have sold more than 10 million units worldwide.

South Korean mobile operators are not promoting global brands, with the exception of the Apple’s iPhone with its has exceptional brand strength. Foreign vendors had been uneasy about entering the South Korean market due to policies and regulations under the direct and indirect control of the Korean government.

As the use of smartphones by Korean subscribers grows and diversifies, foreign manufacturers may miss an opportunity if they do not strengthen their position in this market; they should lobby hard for regulatory barriers to be removed. They also need to invest in their marketing and strategy towards operators, and explain how their smartphones can improve customer acquisition and retention.

MARAVEDIS is a leading analyst firm focusing on 4G and broadband wireless technologies and markets.

Author: Basharat Ashai, Market Analyst, APAC & MEA