The domestic telecommunications companies' early termination fee system appears to excessively infringe upon consumer rights compared to overseas practices. Typically, the amount of the early termination fee decreases as the contract period increases, but domestic telecommunications companies analyze that they include a period during which the early termination fee increases, thereby limiting the benefits provided through competition.
In particular, in Japan, the burden of the early termination fee is low at about 10,000 won, allowing consumers to switch providers freely. The United States also gradually lowers the early termination fee in a step-wise manner according to the contract period. On the other hand, in South Korea, the early termination fee system operates in the form of a "discount repayment fee," requiring up to 2.66 times the monthly rate to change providers.
◇ South Korea's early termination fee system increases for half of the contract period
According to the telecommunications industry on the 22nd, SK Telecom, KT, and LG Uplus have divided their plans into "selective contracts" and "device support funds." The contract period for obtaining public device support funds is 2 years, while the service fee with a 25% discount can be chosen between 1 year and 2 years.
The early termination fee varies according to the subscription plan. In the case of subsidized plans, if canceled within 6 months, all of the discounted device price must be repaid. After 6 months, the early termination fee decreases proportionally, resulting in a fee of 0 won at the end of the contract.
For selective contract plans, if cancellation occurs within the first quarter of the contract period, all of the discounted amount must be returned. For a 1-year contract, 3 months and for a 2-year contract, 6 months are set as the period for "returning all discounted amounts." Afterward, the repayment ratio decreases as the usage period increases.
The problem is that the early termination fee for selective contracts continuously increases until more than half of the contract period has passed. If a subscriber chooses a 2-year contract with a monthly fee of 80,000 won, the early termination fee gradually increases until it reaches a maximum of 160,000 won within the first 12 months after subscription. A subscriber must pay a maximum of 2.66 times the monthly fee as an early termination fee to switch to another telecommunications company.
The background of the domestic early termination fee being operated in an unusual manner compared to overseas is attributed to the 'whitelist system' established by the government in 2012, which allowed telecommunications companies to manage the device's unique identification number (IMEI). By only allowing mobile phones registered through dealerships to open services, a telecommunications-centered device distribution structure has become entrenched. The self-sufficient market has not formed significantly, leaving consumers with no option to purchase mobile phones without going through a telecommunications company.
◇ Telecommunications companies in the U.S., Japan, U.K., and France reduce early termination fees based on the contract period
According to a paper titled 'Comparative Analysis of the Terms of Use of Major Domestic and Foreign Mobile Telecommunications Providers' by Jeon Joo-yong, a professor at Dongguk University, none of the dominant telecommunications companies in the United States, Japan, the United Kingdom, France, or Australia design their early termination fees to increase during the contract period like in South Korea. Foreign telecommunications companies offer services with pre-determined contract periods and discounted rates. In Japan, the amendment of the Telecommunications Business Act in October 2019 reduced the maximum early termination fee from 9,500 yen (approximately 90,000 won) to 1,000 yen (approximately 10,000 won).
Verizon in the United States also operates a plan linked to advanced devices. With this plan, the initial early termination fee is set at $350 (approximately 480,000 won). However, this is the maximum amount and decreases by $10 to $60 monthly based on the contract period, resulting in 0 when the contract expires. Plans not linked to advanced devices follow a similar structure, but the initial early termination fee is around $175 (approximately 240,000 won).
Telstra in Australia also incurs an early termination fee proportional to the number of days used in the month the plan is canceled. British Telecommunications (BT) and Orange in France also link discount amounts and early termination fees, but their structure does not explicitly increase early termination fees during the contract period like in South Korea.
◇ The more consumer rights are infringed upon, the more advantageous for telecommunications companies
The increasing scale of early termination fees during the contract period in South Korean telecommunications companies is viewed as unusual and abnormal. It is designed to increase the burden of switching for long-term customers, excessively infringing upon consumer rights.
Jeon noted, "Korean telecommunications companies set their early termination fees according to the 'discount repayment amount,' while those overseas are designed around 'contract stability,' resulting in a stark contrast. The existence of periods during which early termination fees increase as the contract maintenance period lengthens is particularly unusual, as cases where the early termination fee is greater than that for maintaining the contract are rarely seen." He added, "South Korea is forming a higher barrier to switching telecommunications companies compared to other countries."
The reason that overseas telecommunications companies provide discounts on telecommunication fees according to the contract period is that they are promised 'stable revenue' by consumers, but in South Korea, those who maintain contracts face disadvantages, focusing on 'preventing churn.'
Some analysts suggest that the structure of early termination fees by domestic telecommunications companies, being disadvantageous to consumers, serves as a means for corporations to prevent subscriber churn.
Kim Joo-ho, head of the People's Solidarity for Participatory Democracy's Economic Team, stated that "subsidies and contract discounts are factors that inflate telecommunication fees, and the structure requiring repayment upon early contract termination is very unfavorable to consumers." He urged, "The government should restrict such unnecessary systems and lower telecommunications costs to create a market where number portability is free."