Hanaro Telecom Aims for Hana TV Break-Even in 2007

Mark Pitchford, chief marketing officer at Hanaro, said during an interview with Reuters that the company is aiming to reach one million subscribers to its hana TV service and turn the business into profit by the end of 2007. Pitchford also confirmed hana TV's target of reaching 200 billion won (US$215 million) in revenue in 2008. Hanaro Telecom, South Korea's second-largest broadband service provider with a 25.9% market share, in July began offering hana TV, a video-on-demand TV service, through its broadband network. The service has signed up more than 100,000 customers so far. It was initially expected to attract 250,000 subscribers with revenues of 5 billion won by the end of this year, but the company later revised the forecast down to 200,000-220,000 subscribers, for total revenues of 1.5-2 billion won. Although the company's business plan is not yet complete, Pitchford said that Hanaro is planning to allocate 350-380 billion won next year for capacity investment to enhance and expand its broadband network. The figure is slightly higher than the 300-330 billion won projected for 2006, and the 300 billion won the company spent in 2005.

Outlook and Implications

• Regulatory Hurdle: Hanaro is hoping that hana TV will give it a competitive edge and generate new revenues as the traditional broadband and telephone markets reach saturation point. The key contents of the hana TV service currently consist of video-on-demand of recent movies, delay broadcasts of local programmes and foreign programmes, and online games. It has also signed contracts with leading foreign content providers, including Walt Disney, Discovery Channel, and Warner Brothers. However, the government does not currently permit real-time broadcasts of major local and foreign content through the service. Cable operators are also vigorously fighting against telecoms operators entering the TV market. Hanaro expects the government eventually to address such issues and permit a full-blown IP TV service by 2008. KT, the country's former incumbent operator with a 92.3% share in the fixed-line call market and a 45.5% share ain broadband, plans to launch a commercial IP TV service in the second half of 2007. The operator has earlier this month launched a trial IP TV service, which will be rolled out to 260 households in eight districts in Seoul and Yangpyeong County, south-east of Seoul, where broadcasting signals are often weakened or distorted. The trial service includes a broad range of applications, such as broadcast, DVD, video conferencing, video-on-demand, streaming and multimedia messaging. Also available are multiple pictures-in-picture, remote programming of digital video recorders, access to caller ID, digital photos, and personalised stock, weather and sports information.
• IP TV to Reduce Broadband Churn: As Hanaro is currently not allowed to offer real-time broadcasting of major local and foreign content, as cable TV services do, its hana TV service may appear less attractive than the services offered by cable TV operators. Full commercialisation of IP TV, which would offer broadcast media content through broadband networks, still hinges on regulatory approval from the Ministry of Information and Communication (MIC) and the Korea Broadcasting Committee (KBC), which have had trouble reaching a consensus. Nevertheless, hana TV will at the least help Hanaro to reduce subscriber churn on its broadband side. As of late October, Hanaro had a 25.9% share in the broadband market, trailing KT's 45.5%, but ahead of LG Powercomm's 16%. However, both KT and Hanaro are seeing serious competition from Dacom subsidiary Powercomm, which entered the retail broadband market last year with an aggressive pricing strategy. During the first half of 2006, Powercomm accounted for 80% of the entire market’s net additions. The operator has signed up more than one million broadband subscribers since its service launch in September 2005 and expects to attract a further 300,000 customers by the end of 2006. In addition, speculation has recently emerged in the market that Dacom is looking to acquire Hanaro, which is 40%-owned by American International Group and private equity firm Newbridge Capital. Although Hanaro has denied such a possibility, the company is indeed an attractive acquisition target for Dacom, which is aggressively building up a broadband business.