Watchdogs lock horns over record-high fines for telecoms

Korea Communications Commission acting Chairperson Kim Tae-kyu, right, speaks during a National Assembly audit of the telecommunication regulator in Seoul, Monday. Yonhap

Korea’s fair trade watchdog and telecommunications regulator are in dispute over the former’s purported intention to impose a total of 5.5 trillion won ($4 billion) in fines on the country’s three major mobile operators.

The Fair Trade Commission (FTC) believes the operators — SK Telecom, KT and LG Uplus — have colluded to coordinate sales incentives paid to their mobile phone retailers so that the number of customers can be controlled. On the other hand, the Korea Communications Commission (KCC) asserts that the coordination was an outcome of its administrative guidance, not collusion.

The FTC said on Monday it plans to hold a commissioner meeting to decide whether to impose fines on the operators regarding the alleged collusion from 2015.

The FTC said that even if commissioners determine that the companies have committed illegalities, the level of penalties will be decided by taking into account various factors.

However, it was reported that the fair trade watchdog has already delivered its review opinion on the case to each company, and industry officials assume that the fines will reach up to 2.2 trillion won for SK Telecom, 1.69 trillion won for KT and 1.64 trillion won for LG Uplus.

If finalized, the fines could represent one of the highest amounts ever imposed by the FTC, exceeding the annual net profits of each company.

On the other hand, telecom companies and the KCC are stressing that the coordination was in line with the KCC’s administrative guidance based on the Mobile Device Distribution Improvement Act.

Since the act took effect in 2014, the KCC has been guiding mobile operators to provide sales incentives within 300,000 won per smartphone, and the regulator has already collected 146.4 billion won of fines from the operators for violating related regulations from 2014 to 2023.

During a National Assembly audit, Monday, KCC Secretary General Cho Sung-eun said that “the KCC has delivered its opinions to the FTC multiple times, highlighting that it is difficult to view the case as collusion.”

“We also explained to investigation officers that the telecom companies’ practices were in line with our administrative guidance from the KCC,” Cho said.

Rep. Choi Soo-jin of the ruling People Power Party also said that “the FTC is making redundant actions on the issue that the KCC has already punished,” and “this shows that there is no proper communication between the two agencies, causing harm to businesses.”

KCC acting Chair Kim Tae-kyu also said that “each ministry has its own role and perspective, so I understand that they may have their own positions,” and “while there may be some misunderstandings between the KCC and the FTC, it is important to find a way to address the current situation.”

Banners of SK Telecom, KT and LG Uplus are displayed at a mobile phone retailer in Seoul, Jan. 25, 2022. Newsis

Despite the KCC’s promise to persuade the FTC, industry officials said that chances are high that the FTC will maintain its position, which could lead individual companies to pursue legal action against the government.

“It's like being punished for simply following the government’s orders,” an industry official said.

“The FTC’s rationale is that the telecom companies have coordinated their actions anyway, even if their actions were based on the guidance from the KCC. Although no punishments have been finalized yet, the telecom companies are likely to contest the fines and pursue legal action because the amounts are excessively high and it seems unfair to face penalties again for following the government orders.”

The KCC’s weakened influence is another reason for the mobile operators' concerns.

For over a year, the KCC has been dysfunctional after being mired in political conflicts regarding its ideological fairness on broadcasters. Its chairperson, Lee Jin-sook, is currently suspended from her position due to an ongoing impeachment trial, and the seven-member commission now has only one member, acting Chair Kim.

"With its weakened influence, it remains doubtful whether the KCC will be able to persuade the FTC on this issue, which presents a favorable political opportunity for the government to portray itself as taking action against large, greedy corporations,” another industry official said.