As the repeal of the Act on the Improvement of the Distribution Structure of Mobile Terminal Devices (the Distributing Act) approaches on the 22nd, concerns are deepening within the budget mobile phone industry. After the repeal of the Distributing Act, if the subsidy regulations are eliminated, it could accelerate the migration from budget mobile phones to telecommunications companies due to intensified competition for subsidies among telecom companies with greater financial resources. There are concerns that if the budget mobile phone industry, which has played a market competitor role with the major three telecom companies by offering affordable plans, faces a crisis, it will also negatively impact consumers.
◇ “Receive a 25% discount on fees and also receive additional subsidies”
According to the Korea Communications Commission on the 20th, previously, additional subsidies were only allowed if the published subsidies were selected, but from the 22nd, when the Distributing Act is repealed, subscribers who choose the 25% discount on fees (hereafter referred to as the 25% discount) can also receive additional subsidies.
With the announcement of this fact, there are discussions within and outside the telecommunications industry that it could be a direct blow to budget mobile phones, which have the strength of affordable plans. A person connected to the budget mobile phone industry said, “If telecommunications companies provide additional subsidies when subscribing to a 2-year contract fee plan along with the existing 25% discount, it could become cheaper to activate a mobile phone through the telecommunications company than to use a budget mobile phone.”
For example, the data plan (5G Light+) currently being sold by LG Uplus, offering 14GB of data (unlimited use at 1Mbps speed after data exhaustion), is priced at 55,000 won per month. When applying the 25% discount, the monthly fee can drop to 41,250 won. Meanwhile, the monthly fee for the budget mobile phone companies' LG HelloMobile '5G Light SIM 14GB' plan, under the same conditions, is 36,300 won, making it 4,950 won cheaper than LG Uplus.
However, from the 22nd, telecommunications companies will be able to provide additional subsidies to those who choose the discount on fees. Assuming an additional subsidy of 150,000 won is provided, there will effectively be an additional discount effect of 6,250 won per month over two years, making the LG Uplus plan 1,300 won cheaper than LG HelloMobile.
◇ Competition for subsidies among telecom companies triggers a decrease in self-sufficient phones centered around budget mobile phones
With the repeal of the Distributing Act, the cap on device support funds will be eliminated, so the competition for subsidies, which was previously illegal, is expected to become more active. There is a significant possibility that the 'free phone' promotions, which were focused in some distribution channels, will spread nationwide. Concerns have been raised that if competition for subsidies among telecommunications companies intensifies, the consumption patterns of self-sufficient phone users, who previously purchased from manufacturers and used budget mobile plans, could change.
A person connected to the telecommunications industry said, “While there are some users of secondhand phones, consumers trying to subscribe to affordable plans after purchasing new self-sufficient phones (purchased directly from manufacturers, bypassing telecommunications companies) make up the mainstay of budget mobile phones.” He added, “The consumption patterns of self-sufficient phone users are likely to shift towards purchasing and activating phones from telecommunications companies that provide significant device subsidies. This will lead to a decrease in budget mobile phone subscribers.” Another industry insider noted, “Over the past decade since the implementation of the Distributing Act, telecommunications companies have reduced competition over device subsidies, providing a chance for the self-sufficient phone market to grow,” explaining, “In effect, the growth of the budget mobile phone market was a result of the Distributing Act.”
According to the Ministry of Science and ICT, budget mobile phones, which had 3.87 million subscribers and a 7.3% market share in 2014, saw their subscribers increase to 9.5 million in January this year, achieving a market share of 16.7%.
◇ Budget mobile phone industry facing financial strain
The problem is that budget mobile phones do not have enough financial resources to compete with telecommunications companies in marketing. Starting this year, the spectrum usage fees, which had previously been exempted for budget mobile phone companies, are being enforced, and the mandatory implementation of the Information Security Management System (ISMS) is increasing the cost burden. In this situation, the negotiation entity for wholesale prices for network usage with the three telecommunications companies has shifted from the government to individual budget mobile phone companies with less negotiating power since last April, making it even more difficult to maintain competitive pricing.
An adjunct professor at Chung-Ang University for communications, An Jung-sang, noted, “Once the Distributing Act is repealed, a 'war of money' will begin, concentrating subsidies from the three telecommunications companies on attracting budget mobile phone subscribers,” stating that, “It seems there will be no options for budget mobile phone companies that are small and financially constrained.” He added, “If the budget mobile phone market, which was a crucial player competing with the three major telecommunications companies on affordable rates, dies, it will ultimately have a negative impact on consumers.”