Market has no final say on mobile rates

By Yoon Ja-young

Economics 101 says market sets prices, but it isn’t so with telecommunications rates. It is not the market but politics that decides the charges.

Reporters covering the telecommunications industry were anxiously waiting for the press release at the briefing room of the Korea Communications Commission (KCC) Monday as the industry regulator was to announce plans to cut mobile rates.

However, a KCC spokesperson only announced at around 4 p.m. that there will be no announcement. “We need more time so that we can prepare the measure after talks with mobile carriers and the political circle,” said Lee Tae-hee, the KCC spokesperson.

The commission and the telecommunications industry has spent two months preparing for the rate cut. The plan included giving more free text messages, cutting rates for teenagers and senior citizens, providing more diverse pricing packages and allowing handset manufacturers to directly sell to customers instead of through mobile carriers. The measure was estimated to cut total mobile rates by 1.2 trillion won.

However, it was immediately rejected by Rep. Lee Joo-young of the governing Grand National Party, chair of the House policy planning committee, who demanded that the base rates be cut. Politicians even scolded officials of the commission for not including the basic rate cut in the plan.

There have been a number of rate cuts in the industry and politics was involved each time. A 20 percent rate cut was one of the pledges made by President Lee Myung-bak, and mobile carriers did cut rates, although not by that much, following the inauguration of the new President. Amid inflationary pressure this year, politicians are pounding away mobile carriers once again.

However, it seems that politicians have transcended their boundaries. First of all, mobile carriers aren’t state-run enterprises like KEPCO. They are private companies.

Another problem involves investment in networks. Amid an increasing use of smart devices, data traffic is growing explosively, and upgrading of existing networks is essential. As analysts note, good networks helped the country become an IT powerhouse, creating numerous jobs in the industry. Mobile carriers say that if they cut rates as much as the politicians demand, they won’t have room for network upgrades. A monthly cut of 2,000 won in the base rate for SK Telecom’s 26 million users, for instance, would result in a 624 billion won reduction in annual revenue. However, it is also true that the carriers are spending trillions of won for marketing.

More fundamentally, there isn’t even a consensus here on whether the rates are high or low. Even KCC Chairman Choi See-joong doesn’t seem clear in this regard. Upon kicking off his second term in March, he said he will push for rate cuts. Then, in a meeting with reporters the following month, he said that smartphone rates are very cheap when considering what users can do with the gadget. He then said the following week that the commission is considering making text messages free.

Communication charges now account for nearly 8 percent of total household spending as smart devices have become widely available, and that’s a considerable amount of money. Hence, it is necessary to start a thorough analysis on mobile rates, and set prices not based on politics, but considering costs and the roadmap of the IT industry.