Subsidy Deregulation for Mobile Phones Starts

By Cho Jin-seo

Staff Reporter

Telecom companies are busy calculating their best chances and consumers are readying for new purchases, as the government will abolish its guideline on mobile phone subsidies tomorrow.

Neither sellers nor buyers are sure how the deregulation will affect the market. Some say that it will ensue more generous phone subsidies from three telecom companies, while others believe that the firms will collude with one another to give less to their customers.

The government is to lift its regulation on the amount of handset subsidies, allowing the three firms to freely decide how much they will subsidize handset prices and on what conditions. The firms ― SK Telecom, KTF and LG Telecom by order of market share ― are carefully designing their new price plans while collecting information on what their competitors are going to do.

``Every employee received an e-mail that we should hold expenditures to secure sufficient funds for customer subsidies,'' said an LG Telecom manager who works at the firm's headquarters in southern Seoul.

``We are preparing for every possible scenario. If our competitors raise their subsidies, we may follow them. Or we may decide to do so ahead of them,'' a KTF official said.

Consumers also have mixed expectations. Optimists are postponing their purchases until after Wednesday when the telecom firms will announce their new price polices but pessimists are queuing at mobile phone shops to sign a contract today. According to a poll on cetizen.com, a phone users' online community, 38 percent of its members expect phone prices will go up, while 63 percent say they will go down. The remainder said they did not know.

``I had to visit dozens of shops until I found this one, and it was the last in stock they had,'' said Park Ji-sun, who bought LG Electronics' popular Viewty phone on Sunday. She said that she received 120,000 won as a subsidy from KTF for the purchase, which she thinks is an offer she won't get after Wednesday.

The subsidy is the most powerful tool the telecom companies use to control their market shares. They raise the subsidy to illegal levels when they want to attract people from their competitors even if it means they are risking a Fair Trade Commission penalty.

In that way, SK Telecom, the market leader, has delicately controlled its subsidy level to maintain its market share between 50 percent and 53 percent since the late 1990s, as too high a share attracts the attention of the antitrust regulator.

The money needed for subsidies is also a burdensome expense for the firms. Consumer groups have criticized the subsidy system for only benefiting people who frequently change their mobile phones, while it gives the telecom firms good reason to maintain their high call charges.

Numbers support such claims. SK Telecom says it paid 1.65 trillion won in 2007, or 198,000 won on average to its new subscribers. Such generous financial support encouraged people to jump between different carriers more frequently. Among 22 million SK Telecom users, 8.3 million were new subscribers, while as many people left the firm during the same period.

The subsidy guideline went into effect in 2003 to stabilize such a volatile market. Subsidies have been allowed only for people who have maintained a contract with a single operator for more than 18 months. The amount varied from 40,000 won ($40) to 300,000 won ($300) according to each user's history of payment. But in reality, firms casually ignored the guideline and provided under-the-table subsidies to customers via their sales branches.

indizio@koreatimes.co.kr