Cho Hyung-rae

The revolutionary Apple iPhone finally landed in Korea, generating a huge wave of interest. Over 60,000 customers placed pre-orders for it and people lined up in the cold overnight to get a seat to the official launch ceremony held last Saturday at Jamsil Stadium in Seoul.

Its arrival also prompted Samsung Electronics to lower the price of a competing smartphone, a clear sign that the iPhone has emerged as a new threat to mobile phone makers in Korea, which so far has been a very difficult market for foreign manufacturers. Its debut also poses challenges to the country's telecommunications service providers.

First of all, the launch of the iPhone means the end of the invisible protections Korean companies have enjoyed against foreign rivals in the local market. Over the last 10 years, the Korean government has cleverly prevented an onslaught of foreign handset makers by enforcing local technical standards on products sold here, but it won't be able to do so any more. In a recent article on the iPhone's impact on the Korean market, the Wall Street Journal reported, "The average selling price for Samsung and LG phones is nearly twice as much in Korea as it is outside the country." That will no longer be possible, and low-cost phones from Nokia and other overseas brands will surely arrive soon.

Secondly, software has emerged as the key to the competitiveness of mobile phones. Smartphones, which can send email, play media, and create documents, are increasingly dominating the market. Global demand for mobile phones actually dropped this year for the first time in 10 years, but sales of smartphones have risen more than 10 percent. The most important component of smartphones is their software and that is why the Apple iPhone is so popular.

Apple does not specialize in mobile phones. It does not manufacture them and does not possess many phone patents. Instead it combined existing phone technologies, including Samsung's chips and microprocessors, with its own software to roll out an entirely new kind of device. It also linked the iPhone to its iTunes online media and applications store, developing a business model that generates 1.5 times more profit than Nokia or Samsung, which sell some 10 times more phones than Apple. The iTunes store presents another threat to Korea's mobile operators, which have dominated the mobile content business through their own online content sites such as Nate (SK), Show (KT) and OZ (LG). Now their virtual monopoly must compete with the world's largest online content retailer, which offers some 11 million products.

The rise of Chinese mobile phone makers poses yet another threat. Soon the Taiwanese company that manufactures the iPhone for Apple may use its expertise to roll out its own products around the world. Korean companies are still complacent in the belief that Chinese rivals are still years behind. But Taiwanese computer makers such as Acer and Asus have already proven their potential by creating a global sensation with their netbooks. They are now turning their sights to smartphones.

The rise of the iPhone may go down in history as a turning point in the IT industry. Just as the shift 10 years ago from analog to digital technology was a turning point that determined the rise or fall of businesses in the industry, the shift this time from hardware to software is expected to have a similar effect. The difference is that 10 years ago Korean companies were the threat who had nothing to lose. This time they must defend themselves. And now their greatest foe has appeared in their own backyard.

By Cho Hyung-rae from the Chosun Ilbo's News Desk