Korea moving to revise telecom subsidy law

By Kim Bo-eun

A person walks by a mobile phone dealership in this file photo. Yonhap

Moves to hike subsidies for mobile phone purchases are generating a buzz among dealerships and telecom operators.

The Korea Communications Commission (KCC), the country's top telecom regulator, on Wednesday revised the so-called Telecom Subsidy Law to double the cap on subsidies that dealerships are able to provide for mobile phone purchases, from 15 percent to 30 percent.

The hike is mostly aimed at rooting out illegal subsidies some dealerships have continued to offer, though chances are slim for telecom carriers to end their cash-burning marketing campaigns just because of the law being revised. The dealerships are backed by telecom firms, and some mobile carriers have continued offering large discounts through illegal subsidies in a bid to increase their subscribers in the saturated market here.

"We expect illegal subsidies to decrease by legalizing subsidies that were provided illegally up until now," KCC Chairman Han Sang-hyuk was quoted as saying in the meeting on the revisions.

The KCC also added the hike in subsidies will enable the sales of smartphones, which have been centered on models offering large amounts of illegal subsidies, to be dispersed to law-abiding dealerships. The regulator decided on the 30 percent cap, given smaller dealerships may not be able to take on a larger percent of subsidies.

Generally, this would also benefit customers purchasing mobile phones as they are able to get further discounts ― this is estimated to add up to 48,000 won per mobile phone.

But this will not necessarily be the case, an industry official said.

“Because dealerships will be offering different discount rates according to their capacity, customers with more information will benefit, while others will not,” she said.

The subsidy hike would also impose a burden on smaller dealerships that do not have the capacity to provide increased subsidies in full scale.

"This could lead to customers flocking to large dealerships that provide full-scale subsidies, resulting in difficulties for smaller dealerships. This would have a harmful effect on the dealership ecosystem," another industry official said.

Mobile carriers are not in favor of the move, given their backing for dealerships. A greater subsidy burden for dealerships would essentially place the strain on telecom companies. Dealerships run on commissions paid by telecom firms for selling mobile phones and maintaining subscribers for them.

Given the opposition in the industry, it remains to be seen whether the revisions will be passed at the National Assembly and go into effect.