Discount rate for mobile fee goes up to 25%

By Kang Seung-woo

The government’s plan to expand the discount of mobile phone fees was implemented Friday.

President Moon Jae-in’s key campaign pledge is expected to eventually save mobile phone users an aggregated trillions of won in communication fees.

However, the new system is only available for new subscribers, so those who have existing contracts cannot enjoy the discount immediately because of potential cancellation fees.

It is inevitable that the nation’s three mobile carriers’ profitability will worsen.

The Ministry of Science and ICT has implemented the measure to raise the discount rate for monthly telecom fees to 25 percent from 20 percent. The discount is normally offered to subscribers on one- and two-year contract plans if they opt not to receive a handset subsidy.

The Korea Telecommunications Operators Association (KTOA) advises those with less than six months left on their contracted period to sign a new one- or two-year new agreement to get the 25 percent discount on monthly bills.

“Such users can be exempted from cancellation fees, so they are free to subscribe to a new contract without any penalty,” a KTOA official said.

However, the official added the new subscription must be committed for the remainder of the previous contract. In addition, if users switch from one wireless service carrier to another, they are not eligible for the new discount rate _ a practice that often occurs in Korea to receive high handset subsidies.

The KTOA also warns that the higher discount rate means a heavier cancellation penalty.

For example, a subscriber who pays 65,000 won per month is subject to a cancellation fee of 150,000 won under the new discount system, compared with 120,000 won from the 20 percent discount rate.

Financial burden on wireless providers

Although the local mobile service providers -- SK Telecom, KT and LG Uplus -- accepted the higher discount ceiling instead of taking legal action, they are expected to lose billions of won in annual revenue.

According to the science ministry, 1 million people are projected to subscribe to the new 25 percent discount rate this year and 5 million will do so next year, increasing the annual rate discount by 120 billion won.

According to the Korea Investment and Securities, the new mobile plan is estimated to reduce the three mobile carriers’ combined operating profits for 2017 by 18 billion won, followed by 283.6 billion won in 2018 and 558.5 billion won in 2019.