Posted : 2013-01-31 17:12
Updated : 2013-01-31 17:12

More penalties on carriers mulled

Pedestrians pass by an unidentified phone outlet near Oksu Station, downtown Seoul, Thursday. The local telecom regulator plans to impose additional penalties on all three mobile carriers as they continue to offer heavy illegal handset subsidies despite previous punishments.

By Kim Yoo-chul

The Korea Communications Commissions (KCC) confirmed Thursday it will impose additional punishments on the country's three mobile phone operators for continuing to provide higher-than-legal handset subsidies despite being hit by suspensions for previous violations.

''Despite previous warnings, the carriers are continuing to break the law with subsidies. There will be more penalties after we complete the investigation,'' said a senior KCC official, who hinted at more business suspensions.

SK Telecom, KT and LG Uplus were given suspensions late last year for providing customers with excessive subsidies to help them purchase pricey smartphones and tablets.

SK Telecom, the largest carrier with a 50 percent-plus market share, entered a 22-day period on Thursday during which it will be prevented from signing up new customers. LG Uplus, the smallest of the three, was served a 24-day ban that ended Wednesday. KT, the country's second-largest wireless carrier, will face the same restrictions from Feb. 22 to March 31.

The carriers were also fined a combined 11.89 billion won. The KCC has imposed strict limits on the level of handset subsidies to prevent the market from overheating and maintain parity in competition.

The unruliness of wireless carriers is one reason why the KCC continues to foster the market for mobile virtual network operators (MVNOs), which rent data and voice minutes from existing carriers to sell as their own wireless services.

While the KCC believes MVNOs will benefit customers by triggering price competition in the telecommunications industry, the presence of virtual operators has been close to non-existent here as carriers are reluctant to lease their networks cheaply.

KT spokeswoman Kim Yoon-jeong declined to comment on whether the company has continued to provide excessive handset subsidies or whether it anticipates further penalties. Representatives from SK Telecom and LG Uplus were equally coy.

Out of control?

Market watchers question whether the KCC has lost the respect of the carriers, which they expect will continue to splurge on marketing expenses in a cut-throat competition.

''Because long-term evolution (LTE) is a growing market, each carrier is spending more to get an early lead. In this environment, the government's cap of 270,000 won per handset doesn't make any sense, especially when phones today are more like handheld computers,'' said a KT executive who didn't want to be named.

An LG Uplus official agreed.

''Customers don't trust the price tags on smartphones out of the factory. No one will pay for a phone's face value. We provide subsidies because customers want them. What is wrong with that?'' he said.

The LG Uplus spokesman said that his company has no choice but to continue providing higher-than-legal subsidies because it anticipates its rivals will do so too.

''Success in LTE is a life-and-death matter for us in a saturating voice market. We have no choice,'' he said.

SK Telecom appears to have found a loophole in the KCC suspension. Sales people from the carrier admitted that the firm was still receiving pre-orders for new phones through the number portability policy, which allows customers to switch carriers without changing numbers.

''As you know, we can't attract new customers for the next few weeks. But if you sign up to use us as the carrier via pre-order proceedings, then we will give you more discounts,'' said an SK Telecom salesclerk near Gangnam Station in southern Seoul.

KT has been selling Samsung Electronics' latest Galaxy GRAND smartphone for between 50,000 won and 150,000 won with the condition of changing carrier and agreeing to pay 62,000 won for a monthly plan.

The suggested retail price of the GRAND was 726,000 won, the phone manufacturer Samsung Electronics said.

In investigations conducted between Dec. 25, 2012, and Jan. 8, 2013, SK Telecom had the highest violation rate, which measured the proportion of excessive subsidies for new customers, the KCC showed.

The carriers released unlimited data services for customers signing up for new pricing packages supporting their own LTE services, raising the possibility that the effects of the agency's additional punishments will be short-lived.

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