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Phone firms dig their own graves with discounts

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June 28,2006
Mobile service providers thought they could lure more subscribers by offering discounts at various business for their customers, but the tactic appears to have backfired ― badly. Companies both affiliated and unaffiliated with the service providers say their businesses have suffered, and telecommunications companies are stuck paying large amounts to make up for the discounts, which they classify as marketing costs. This Saturday, most theaters under the Seoul Theater Association are scheduled to back out from the membership discount services offered by the three main mobile phone companies ― SK Telecom, KTF, and LG Telecom. The association includes the multiplex theater chains CJ CGV, Lotte Cinema and Megabox. Currently, a cell phone subscriber can receive a discount of 1,500 won ($1.56) to 2,000 won when buying a movie ticket because the theaters have a discount plan with the companies. The phone companies had to pay about 55 to 67 percent of the cost of the discounts, but theaters demanded that they cover all the costs. “The three telecom companies are profiting from the discount program, but our profits have worsened because we have to cover the costs of the discounted service. Our livelihood is being threatened,” the director of the association, Choe Baek-sun, said during a June 21 press conference. They pointed out that when the discount plan first started in 1999, they only paid 300 won per ticket, but that amount rose every year. Theaters are not the only ones complaining about the discounts. Independent bakeries also complained that they were being threatened because firms such as SK Telecom offered discounts of up to 40 percent at certain bakery chain stores. Opposition was so fierce that in March, the company agreed to lower the discount to 10 percent. Restaurant chains have also complained, with those not included in the service claiming that restaurants with the service were stealing their customers; those fears were soon put to rest when most of the participating restaurants backed out from the contract, saying they could no longer bear the losses. Telecommunications companies are now realizing that were too clever by half ― or in this case, 40 percent. SK Telecom spent 100 billion won last year paying for discounts, almost a tenth of its entire marketing costs; KTF spent 45 billion won and LG Telecom spent about 2.5 billion won. They say subscribers, however, complain when the discounts are lowered, and yet they are also criticized for abusing their extensive consumer pools when signing up new businesses for discounts. The providers also say the discount plan encouraged more people to go to movie theaters, a fact that even the theater association agrees with. Association figures showed that theater-goers numbered 54 million in 1999, but surged to 142 million last year. “We can’t really complain, since we made the discount plan in the first place, but we just wish companies that benefited from our plan would stop saying we abused them. They seem to have forgotten their past,” said Kim Hye-jin, a spokeswoman for SK Telecom. by Wohn Dong-hee


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