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AI Revolution in South Korean Telecom

General Report October 29, 2024
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TABLE OF CONTENTS

  1. Summary
  2. Stock Market Trends and Investor Behavior
  3. AI Technology Integration in Telecommunications
  4. Collaborations and Partnerships
  5. Infrastructure Developments in AI Data Centers
  6. Challenges and Incidents in Telecommunications
  7. Conclusion

1. Summary

  • South Korea's telecommunications giants SK Telecom, KT, and LG Uplus are navigating a shifting landscape marked by AI integration, evolving partnerships, and a demanding market. Despite the KOSPI index facing declines, defensive stocks like these telecom companies exhibited resilience, hinting at their strategic positioning. Innovations include HOGAK's AI broadcasting for sports events, showcasing AI's expansive role in media, and KT's Baekseok AI Data Center, which emphasizes technologically advanced infrastructure. LG Uplus recently launched its AI-enhanced IPTV service, aiming to hold competitors KT's Genie TV and SK Broadband's AI Btv at bay. These moves underline the sector's shift towards AI and cloud services, driven by heightened demand and strategic partnerships with global tech firms.

2. Stock Market Trends and Investor Behavior

  • 2-1. KOSPI Decline and Foreign Investor Activity

  • The KOSPI index has been on a decline for four consecutive days, trading at approximately 2,540 points. Notably, foreign investors have exhibited a selling trend, continuing their net selling for four days ahead of the release of the U.S. employment report. On the most recent trading day, foreign investors sold shares worth 92.6 billion KRW, while individual investors bought shares worth 47.3 billion KRW. Institutions have fluctuated between selling and buying, with a net buying position of 46.5 billion KRW. In contrast, defensive stocks such as SK Telecom, KT, and LG Uplus have shown positive performance in a broadly declining market.

3. AI Technology Integration in Telecommunications

  • 3-1. AI Sports Broadcasting by HOGAK

  • HOGAK, an AI sports broadcasting company invested by KT Skylife, took charge of broadcasting the '2024 Homeless World Cup' held at Hanyang University in Seongdong-gu, Seoul, from September 21 to 28. This event, officially sponsored and certified by FIFA, aims to create sustainable change in the lives of people who are homeless through the sport of football. The tournament, which is the 19th edition since its inception in 2003, will feature 59 teams from 45 countries, with around 480 players competing in over 390 matches. A FIFA delegation is scheduled to visit during the tournament to witness HOGAK's AI broadcasting system firsthand. HOGAK, in collaboration with KT Skylife, provides technical support for global broadcasting and promotional activities, allowing all 60 million subscribers of the FIFA+ platform to watch the matches live. The AI broadcasting system utilizes unmanned cameras installed at the venue to track players' movements in real-time and automatically edit the footage to convey the game's flow accurately. This technology offers high-quality broadcasts with minimal manpower and costs, opening new possibilities for broadcasting sports events that previously struggled with profitability.

  • 3-2. Introduction of AI Features in IPTV by LG Uplus

  • On October 3, LG Uplus introduced an AI-powered IPTV service called 'AIPTV', which utilizes a generative AI model called 'IXI' to provide a personalized viewing experience. Although the service enhances content recommendations and includes AI-generated subtitles, LG Uplus is recognized for adopting AI technology the latest among the three major telecom companies in South Korea. Competitors KT and SK Broadband had already integrated AI features into their IPTV services in 2022 and 2023, respectively. While LG Uplus's AIPTV presents personalized content based on AI, it has been criticized for lacking differentiation compared to its competitors. KT's 'Genie TV' launched in 2022 integrated AI for personalized curation and significantly increased user engagement. Additionally, KT's 'Magic Platform' introduced comprehensive media solutions utilizing AI for content creation, while SKB, in December 2023, launched 'AI Btv', offering advanced personalized services and shopping features.

  • 3-3. AI Services and Innovations by KT

  • KT recently opened the 'Baeksok AI Data Center', an advanced AI-specific facility equipped with high-density and efficient cooling technologies. This new data center is integrated with existing facilities in the metropolitan area to create a unified operational framework called the 'One DC' network, capable of providing seamless co-location services and dedicated line services connecting to global cloud service providers. KT Cloud offers customized AI infrastructure as a cloud service utilizing thousands of GPUs from partners like NVIDIA and AMD across multiple data centers. The rise in demand for AI infrastructure from enterprises has driven KT to enhance its service offerings. KT Cloud aims to continue expanding the capabilities of the Baeksok AIDC and improve operational efficiency to establish the best infrastructure service environment in South Korea.

4. Collaborations and Partnerships

  • 4-1. MOU for Open API Standardization

  • On October 28, LG Uplus, along with SK Telecom and KT, announced the signing of a Memorandum of Understanding (MOU) to jointly establish and commercialize the standard for 'Network Open API' in the domestic telecommunications sector. The telecommunications trio aims to utilize open API technology to create innovative services across various industries, leveraging commercial networks. This collaboration is expected to open new business opportunities based on this technology. For instance, during emergencies, APIs can use location information and guarantee quality on demand (QoD) to transmit real-time drone footage via 5G networks, aiding in rescue efforts. Furthermore, the open API standards will enhance mechanisms for preventing financial crimes by checking SIM card history, roaming status, and user authentication. The three companies intend to promote the domestic ecosystem for open API technology by jointly establishing standards with the Korea Telecommunications Technology Association (TTA) and conducting interoperability verification.

  • 4-2. Partnerships with Big Tech Companies

  • The telecommunications leaders SK Telecom, KT, and LG Uplus are focusing on enhancing their competitiveness in generative AI by collaborating with big tech companies. For instance, SK Telecom has focused its investments on leading AI firms, contributing over $300 million since last year to companies like Anthropic, Lambda, and Perplexity. This strategy underpins SK Telecom's aim of establishing a strong foothold in the AI sector and is part of its participation in the Global Telco AI Alliance (GTAA) and K-AI Alliance, which aims to promote collaboration among domestic AI companies. KT has reinforced its AI and cloud strategies through a strategic partnership with Microsoft, focusing on local AI and cloud solutions. LG Uplus is also advancing its AI capabilities through close cooperation with LG Group subsidiaries and engaging in discussions with global tech giants like Microsoft and AWS.

  • 4-3. AI and Cloud Strategies of KT

  • KT is actively enhancing its AI and cloud strategies through partnerships, particularly with Microsoft. The partnership focuses on the joint development of Korean AI and cloud solutions and the establishment of an Innovation Center, indicating a shift toward a collaborative strategic relationship rather than merely technical cooperation. Furthermore, KT launched its large-scale language model (LLM) named 'Mi:dm' in October of the previous year, built on NVIDIA's DGX SuperPOD platform. This technological foundation is vital for KT to position itself as an AI and ICT service provider. KT's collaboration with big tech firms is critical for accelerating AI innovations, highlighting the urgent need for the three major South Korean telecommunications companies to remain competitive in the AI landscape.

5. Infrastructure Developments in AI Data Centers

  • 5-1. Launch of the Baekseok AI Data Center

  • KT Cloud has opened the Baekseok AI Data Center (AIDC) located in the KT Baekseok Building in Goyang, South Korea. The AIDC is dedicated to AI learning, development, and inference, and incorporates advanced cooling technologies for high-density and high-efficiency operations. This launch addresses the growing demand for AI graphic processing unit (GPU) capabilities, ensuring reliable power and climate control systems. KT Cloud plans to integrate the Baekseok AIDC with existing data centers in the capital region, establishing a unified operational framework known as the One DC network, along with a dedicated line service to facilitate connectivity with global cloud service providers.

  • 5-2. Market Demand for AI Data Centers

  • The demand for AI data centers in the Asia-Pacific region is expected to surge significantly due to the increasing interest in AI technologies. According to a report by Bank of America, data center capacity in this region could double over the next five to six years, reflecting a compound annual growth rate (CAGR) of 14%. The report indicates that companies requiring data centers are increasingly relying on major cloud service providers such as Microsoft, Amazon, and Google, which are actively expanding their data center investments in the region. Approximately 33% of the projected increase in data demand over the next five years is attributable to the adoption of generative AI.

  • 5-3. Impact of New Data Center Technologies

  • Advancements in data center technologies have a notable impact on operational efficiency and service delivery in the telecommunications sector. The implementation of high-performance computing capabilities, particularly through AI GPUs, facilitates the processing and analysis of large datasets. The establishment of the Baekseok AIDC is part of KT Cloud’s strategy to respond to heightened resource demands while enhancing service reliability. Such developments are critical in positioning companies like KT favorably in the competitive landscape, emphasizing their ability to adapt to rapid technological changes and market dynamics.

6. Challenges and Incidents in Telecommunications

  • 6-1. Recent Internet Outages

  • On October 5th, a significant disruption occurred in South Korea, affecting the fixed-line internet service of major telecom companies SK Telecom, KT, and LG Uplus. This outage resulted in the inability of customers to connect to the internet, leading to widespread inconvenience, especially for those relying on internet-connected payment systems. The disruption was traced back to issues involving specific access points used by customers, particularly a device manufactured by IPtime, which encountered a firmware update error that hindered internet access. Although the scale of the disruption is difficult to quantify due to the inability to identify affected users, LG Uplus responded swiftly by announcing a solution that required customers to upgrade their IPtime devices' software to restore internet connectivity.

  • 6-2. Responses to Technical Issues

  • In response to the disruption of services, LG Uplus took proactive measures to address the technical issues. The company advised users to update the firmware of their IPtime devices to the latest version (15.02.2), which was deemed necessary to resolve the internet access problems resulting from the previous firmware update error. This prompt communication of solutions highlighted the company's commitment to customer service and rapid response mechanisms amidst widespread connectivity challenges.

  • 6-3. Regulatory and Market Pressures

  • The telecommunications sector in South Korea faces ongoing regulatory and market pressures that influence operational dynamics. The introduction of new technologies and services requires compliance with rigorous standards and regulations, often leading to increased operational challenges for companies. Moreover, as the market evolves with the integration of advanced telecommunications technologies and AI capability, companies are compelled to maintain competitiveness while managing the consequent regulatory requirements. These pressures have imposed a dual challenge on the telecommunications companies to balance innovation and regulatory compliance in a rapidly changing market landscape.

Conclusion

  • South Korea's major telecom companies—SK Telecom, KT, and LG Uplus—are navigating a competitive environment by embracing AI and expanding infrastructure like the Baekseok AI Data Center. While these advancements showcase their adaptability and foresight, the landscape presents challenges, such as market volatility and unexpected disruptions like recent internet outages. Nonetheless, these firms are advancing their capabilities through strategic collaborations, such as KT's partnership with Microsoft, and robust AI developments, as seen in KT's AI and cloud strategies, which are critical for maintaining a competitive edge. Future prospects may involve more synergistic alliances across industries, leveraging open API standardization to enhance service delivery. As these technologies evolve, practical applications may arise in sectors ranging from media, exemplified by HOGAK's AI sports broadcasting, to personalized customer experiences in telecommunications services offered by companies like LG Uplus. However, ongoing regulatory pressures and market demands necessitate balanced innovation to ensure sustainable growth and competitive resilience in the AI-driven future of telecommunications.

Glossary

  • SK Telecom [Company]: SK Telecom is a leading telecommunications provider in South Korea, known for its innovative services and investments in AI technologies. The company aims to strengthen its market position through strategic partnerships and technology integration.
  • KT Corporation [Company]: KT Corporation, another major telecommunications player in South Korea, focuses on enhancing its AI and cloud capabilities through collaborations with global tech firms. They have recently expanded their AI data center infrastructure to meet rising demands.
  • LG Uplus [Company]: LG Uplus is recognized for its efforts in integrating AI into its services, particularly in IPTV offerings. The company aims to differentiate itself in the competitive telecommunications landscape through innovative technologies.
  • Baekseok AI Data Center [Infrastructure]: The Baekseok AI Data Center is a recently opened facility by KT that utilizes advanced cooling technologies and aims to meet the increasing demand for AI processing capabilities in the region.
  • HOGAK [Company]: HOGAK is an AI sports broadcasting company collaborating with KT Skylife to provide coverage for international sports events, showcasing the potential of AI in media and broadcasting.

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