Scheduled removal of handset subsidy ban expected to reshape telecom industry
This photo shows a mobile phone store promoting the planned lifting of the decade-long ban on handset subsidies in Seoul, July 21. Yonhap
The long-contested ban on handset subsidies is set to be lifted this week, 11 years after it was introduced, in what many view as a move that will promote competition in the local market and reshape the mobile industry landscape.
The revised Mobile Device Distribution Improvement Act will take effect Tuesday, effectively removing the ban on excessive discounts or subsidies by mobile carriers, which was first placed in 2014.
The law was intended to curb chaotic subsidy competition among carriers and retailers, who had flooded the market with various incentives to lure customers into buying premium smartphones.
Before the ban, information asymmetry had been a key concern. Savvy consumers who compared retail shops or negotiated well could secure generous deals, while elderly or less-informed customers often paid more and received the least in subsidies at official stores.
Under the regulation, telecom companies have been required to announce an official cash subsidy for each mobile handset model, with retail shops allowed to offer only up to 15 percent of that subsidy in additional incentives or paybacks.
However, the ban has long been criticized for stifling healthy competition, preventing telecom companies from offering legal subsidies and limiting consumers' ability to purchase smartphones at lower prices, especially as premium phone prices continued to rise.
Moreover, illegal subsidies have persisted, raising questions about the regulation's effectiveness.
Amid mounting criticism, the government began discussions in 2023 to repeal the law and completed legal revisions in 2024.
With the ban lifted, telecom companies will no longer be required to disclose official subsidy amounts. Instead, subsidies will be provided in the form of "common subsidies," and retailers will be allowed to offer additional incentives at their own discretion.
In principle, it will also be possible for subsidies to exceed the retail price of a handset.
Market watchers expect the revised subsidy policy to spur competition in the market and demand in the mobile phone market.
"With subsidy competition for premium smartphones set to intensify, this will benefit consumers," Counterpoint Research said in a recent report, noting that Samsung Electronics Co.'s newly released Galaxy Z Fold 7 and Z Flip 7 will be among the first models impacted.
"Although telecom companies may face a short-term dip in profits, they are likely to view the change as an opportunity to expand their market share and attract new subscribers," the report added.
Major mobile carriers — SK Telecom, KT and LG Uplus — have expressed support for the government's move, saying they will comply with the new guidelines aimed at revitalizing the saturated mobile market.
Industry insiders say competition for new subscriptions is likely to heat up after Tuesday, particularly following a massive data breach at market leader SK Telecom in April, which has shaken consumer trust and opened the door for rivals to close the gap.
SK Telecom, the long-dominant player in the Korean mobile market, logged 39.3 percent of the country's total mobile subscribers, followed by KT with 23.8 percent and LG Uplus with 19.5 percent, according to recent government data.
It marked the first time that SK Telecom's market share dropped below the 40 percent line.
"Given our current situation, we may focus on marketing," said an SK Telecom official, speaking on condition of anonymity. "But we will closely monitor the market and competitors in the first few days before responding in earnest."
Some experts remain cautious, noting the return of handset subsidies may not trigger the kind of intense competition seen before the ban, given Korea's already high smartphone penetration rate and a market largely dominated by just two players — Samsung and Apple.
"SK Telecom, the industry leader, has the strongest incentive to ramp up marketing, but its cash flow situation is not favorable," said Kim Aram, an analyst at Shinhan Securities "If SK Telecom holds back, the other two carriers are also likely to respond conservatively."
The Korea Communications Commission (KCC), the telecom watchdog, says it will strictly monitor retailers for illegal practices once the ban is lifted.
"Telecom companies and retailers must provide written contracts clearly stating subsidy amounts, terms and conditions, and bundled service details," the KCC said. "They are prohibited from offering different subsidies based on a customer's region, age or other personal factors."