Fight over cell phone fees

Worried about inflation and backed by civic groups complaining that mobile service fees are too high, the government is prepared to force telecommunications companies to lower their rates as early as August. However, the three mobile phone service providers in Korea are strongly against the idea. SK Telecom, KTF and LG Telecom say that lowering their service fees would only hamper telecommunications companies’ growth and could put some of them out of business. SK Telecom, Korea’s biggest cell phone service provider, insists that it has been gradually lowering its rates. In 1996, it charged 32 won (3 cents) for every 10 seconds a person was on the phone, but last year it dropped to 20 won. The companies also say that further investment would be impossible if service fees are reduced. “Net profit was 78.7 billion won last year, but the government’s demand for a 10 percent drop will push the firm into the red again,” said an LG Telecom official. Still, the government dismisses the companies’ complaints, saying that lowering the fees is in the country’s best interests. “The telecommunications firms might not like it, but this is to help the public’s household economy,” said Kim Dong-soo, a director at the Communication Ministry. According to Mr. Kim, cell phone service fees have grown so much as to severely affect households, making it the fifth-largest factor that can swing overall commodity prices. The other four are monthly rent, petroleum products, gasoline and rice. The government cannot easily change prices for rice and gas, so it turned to mobile phone bills instead as inflationary pressures persist. Korea’s top economic policymaker suggested last month that inflation could be tackled by lowering mobile phone bills first. With the inflation running at 3.3 percent as of June, cutting mobile phone bills by 10 percent will pull down the inflation rate by 0.2 percentage points, the government estimates. “The telecommunications companies are earning a tremendous amount of profit every year only to pour it into sales promotion,” said an Economy Ministry official. “If they would only cut down on promotional costs, the lower service fees would not affect their bottom line.” The three carriers had 2.4 trillion won in profit during fiscal year 2003, he added. Civic groups heartily back the government. “Subscribers of mobile phone services grew more than 10 percent in the beginning of last year, but the companies are still insisting they cannot afford to lower their customers’ bills,” said Kim Jong-nam, a manager at the Seoul branch of the YMCA. “The three companies have been spending more on marketing, not on equipment investment as they would argue,” he said. by Lee Hee-sung, Choi Ji-young