ed Regulators must protect mobile phone users
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By Lee Chang-sup
As of 2012, Korea has the world’s highest penetration rate of high-speed Internet and the world’s fastest data connection, according to the OECD.
Despite these milestones in communications, Korean cellular phone users are unhappy with the way the government regulates the telecommunications market. Many consumers believe the Korea Communications Commission (KCC) protects operators and manufacturers, not consumers.
In January and February, the government suspended mobile carriers SK Telecom, KT and LG U+ for offering higher cell phone subsidies than is allowed by law. The law says cell phone subsidies cannot exceed 270,000 won (about $260).
Contrary to the KCC’s claim that regulating subsidies prevents operators from raising fees, consumers end up paying more.
I am one of these customers. Two years ago, I received a free iPhone 4 from KT by agreeing to a two-year service contract. My monthly bill averaged less than 60,000 won during that time. When my two-year contract expired, I switched to the iPhone 5, and my monthly bill jumped to more than 90,000 won.
A KT sales clerk says I must pay 20,000 won a month as an installment fee because of the government’s subsidy restrictions. Without the government’s intervention, KT might have offered me a free iPhone 5 in return for renewing my contract for another two years. Further, every month, I only use 350 minutes and do not come close to my text message or data limits. Nevertheless, I do not receive any discounts.
The KCC lags behind other government agencies in promoting consumer interests. In the past, deregulating a product has reduced prices for consumers and fueled healthy competition between companies. For example, since gas, interest rates and currency rates have been deregulated, customers have been able to shop for the lowest prices.
Before the complete liberalization of these products in 2000, policymakers had erroneously argued that gas prices, lending and deposit rates and exchange rates would skyrocket once they remove regulations. However, this did not turn out to be the case.
The bankruptcy of a telecom operator would be a healthy sign for the telecommunications industry as this means low-priced services for subscribers. In addition, full deregulation would remove a room for collusion between regulators and telecom operators. Further, it is costly for the understaffed KCC to regulate everything.
Instead of regulating prices, the government should intervene in other areas of the industry. For example, the Korea Fair Trade Commission should investigate why mobile phone makers charge different prices for the same phone. According to Rep. Kwon Eun-hee of the governing Saenuri Party, Korean consumers pay $100-$200 more for the same phone than consumers in another country. In an extreme case told by Jeon Byung-hon of the opposition Democratic United Party, a local maker exports a model at half the price available in Korea.
That is not the only area where the government should step in. Many civic groups say prosecutors should look into telecom lobbyists who bribe regulators and lawmakers. In addition, the government should license additional telecom operators to ignite competition. Finally, the three operators can lower fees by reducing their annual marketing expense of $8 billion.
The previous government action did not seem to be helping. This heavy-handed approach, which the Lee Myung-bak administration unsuccessfully adopted five years ago, did little to help consumers. Contrary to the expected results of the Lee administration’s push, Statistics Korea says the average two-person communication bill is $150 a month or 6.3 percent of total household spending. The finding is significant because six in 10 Koreans use smartphones, and my case shows that the household communication bill has indeed risen.
A KCC official said Koreans overspend in communication in proportion to income. Home plus, a leading discount store retail chain, has introduced a budget phone called Mobile plus, Wednesday for helping subscribers lower cost. The so-called mobile virtual network operator (MVNO) service is likely to press the existing telecom companies to cut service fees.
The three telecom companies fear the Park Geun-hye administration would force them to cut communication bills. The Park administration may be tempted to please people who complain about the rising cost of communication. However, this is not a sufficient or appropriate motivation for cutting smartphone bills.
Regulators claim that Korea would not have become an Internet and mobile powerhouse without adequate pricing. They say a drastic cut in mobile bills would discourage telecommunications operators from investing in upgrading services. Mobile phone operators argue that communication fees in Korea are not as expensive as in other countries. They point to OECD data that show Korea is in the middle of the pack when it comes to mobile phone spending.
When the government scraps the existing telecom rules on pricing, licenses other operators and eliminates variable pricing for the same phone model, mobile carriers will be prompted to slash fees while providing a fast service. The KCC must introduce an agency that protects subscribers through programs such as a reduction of fees for unused minutes and data.
Many subscribers question whether the KCC is working for either producers or consumers. KCC’s promotion of consumer welfare would be the first step toward curbing the rising communication bills in Korea.
Lee Chang-sup is the executive managing director of The Korea Times. Contact him at editorial@ktimes.co.kr.