Go to contents

Why not just get rid of ban on mobile phone subsidies

Posted July. 10, 2014 09:31,   


The Korea Communications Commission decided yesterday to increase the maximum subsidy for a new mobile phone under a new subscription contract from the current 270,000 won (267 U.S. dollars) to 350,000 won (346 dollars), and adjust the amount every six months. The measure has been taken because 270,000 won as set in 2010, when feature phones accounted for majority of mobile handsets on the market, seemingly fail to properly reflect the current situation where expensive high-end smartphones are not uncommon. However, it is questionable whether a hike in phone subsidies and publicizing the amount of subsidies will address chaotic situation in the mobile handset retail market. KCC imposed administrative fines and suspension of sales operation to the big three mobile carriers, namely SK, KT and LG, last year by conducting intensive crackdown on illicit subsidies. Despite this, there was a situation wherein even subsidies worth 1.2 million won (1,190 dollars) was provided for a mobile handset priced at 1 million won (988 dollars) per unit. Again this year, the commission imposed sales suspension for 45 days each to the big three one after another from March, but competition to pay out illegal subsidies rather intensified further.

Mobile phone subsidies might be beneficial in the short-term because they allow consumers to buy expensive phones at a bargain price, but the cost will end up being passed on to consumers through telecom subscription fees, adding to consumers’ financial burden. As stores charge all different prices for the same handset model, and because there is a flurry of ‘spot subsidies’ that are provided instantly and disappear, only those who are well versed with such policies can take advantage of them. Most consumers sign two-year “slave contract” entailing high monthly rates, as if a blind person with open eyes.

The price of mobile handsets and subscription fees in Korea is among the highest in the world. Korea is a mobile phone industry powerhouse that produces 25 percent of the mobile handsets sold in the world, but the supply price amounts to 415 dollars (2012) on average here, which translates into 2.5 times that of the global average (166 dollars). The telecom service subscription fee amounts to 148.39 dollars on average per household, the highest only after the U.S. and Japan among the members of the Organization for Economic Cooperation and Development. The previous Lee Myung-bak administration pledged to cut telecom service fees for household by 20 percent, but just ended up granting a 1,000 won discount in basic telephone service fee. The more the government recklessly interferes with the market, the more chaotic the market situation gets. Critics have raised voices urging the government to change the paradigm of policy now.

Some experts and consumer advocacy groups are staging a campaign demanding “the government to lift regulation on mobile handset subsidies and the system requiring telecom carriers to win approval for their service rates.” Originally, the government controlled subsidies and subscription rates in a bid to prevent industrial giants from supplying products and services at dumped prices and thus force smaller players out of business, thereby to maintain competition in the market. However, as the telecom market has consolidated into the structure of a three-way oligopoly now, regulations seem to be rather blocking a cut in service rates. It is about time that Korea devised more fundamental measures, including ways for the market to set the price of handsets and service rates on its own. We urge KCC Chairman Choi Sung-joon to keep his pledge to “normalize the mobile handset market.”