By Kim Tong-hyung
Staff reporter
The popularity of feature-packed smartphones is exploding, but wireless carriers are worried that the government's attempt to restrict their marketing expenses could cool the boom by making the devices more expensive.
The Korea Communications Commission (KCC), the country's converged regulator for broadcasting and telecommunications, has imposed a new cap on marketing expenses for mobile-phone carriers, preventing them from spending more than 22 percent of their revenue from the previous fiscal year.
The KCC, which is concerned about the companies' deteriorating financial health, claims that the new rules will allow the country's three wireless carriers ― SK Telecom, KT and LG Telecom ― to save a combined 1 trillion won ($880 million) in promotional spending.
The smartphone wars, sparked by the Apple iPhone and other intriguing devices, have the carriers splurging to add muscle to their marketing efforts, which include handset subsidies to offer the premium phones more cheaply to customers.
SK Telecom, the country's largest mobile-phone carrier with a 50-percent-plus share in subscribers, spent an amount equivalent to 27 percent of its revenue last year on marketing expenses, while the number was 33.5 percent for KT and 30.6 percent for LG Telecom, the smallest carrier.
``Despite their verbal commitments to rationally control their marketing expenses and investing that money to develop better services for mobile users, the chief executives of KT, SK Telecom and LG Telecom have been failing to agree on how to set the guidelines to curb their increasing spending,'' said Shin Yong-seob, an official from KCC's telecommunications policy bureau.
``We came to the conclusion that we can't give them any more time.''
KCC is also considering adopting a ceiling for the handset subsidies, limiting the amount to around 250,000 to 270,000 won per device.
Smartphones, which are digital Swiss army knives that support e-mail, multimedia messaging, games, video and music, are becoming more critical in the business strategies of mobile-phone carriers, who are hoping that the increased customer revenue from data services will make up for their declining voice sales.
But previous to KT's release of the iPhone last November, smartphones had been a hard sell due to their cost and lack of a content ecosystem.
The wireless carriers, despite sustaining eroding profits, complain that the government regulations are getting excessive. Smartphones work more like handheld computers than conventional phones and are priced more like computers too.
HTC's recently released Desire, which is generating significant buzz among the handsets powered by the Google-backed Android operating system, is priced at around 900,000 won out of the factory. But SK Telecom's handset subsides have the phones sold to customers at around 300,000 won, although the exact price depends on the monthly data plans they choose.
``There are concerns that the strengthened government restrictions could slow the transition toward a mobile Internet explosion,'' an industry official said.
