Signs of mobile subsidy competition

A telecommunications retailer near Hongik University, western Seoul, last Friday was luring customers with a banner saying, “A massive discount celebrating Chuseok.”

The store offered subsidies worth 400,000 won ($372), including fees for a USIM chip, optional services and a new phone when customers switch from competitors by changing phone numbers.

The government has limited the amount of subsidies to 270,000 won.

“This is a special offer for Chuseok,” said an employee of the retailer. “You may have to pay an extra 100,000 won to 200,000 won after the holidays.”

On the same day, several banners at telecom retailers in Gangnam District, southern Seoul, said, “We offer subsidies for Chuseok.”

“After deducting?the government limit of 270,000 won, we will make a wire transfer to your bank account for the rest of the subsidy amount we promised,” said another employee.

The mobile phone subsidy competition has started again after the Korea Communications Commission fined three mobile service providers a total of about 67 billion won and ordered a seven-day suspension on new subscribers for KT in mid-July.

Targeting the holidays when commission inspectors were not working, some telecom retailers jumped into the subsidy market to move inventory to make way for new models like the Galaxy Note 3 and iPhone 5S and 5C.

Private online retailers also sold the devices like Galaxy S4 and G2 in the 100,000 won range. Cheaper models such as the Galaxy Grand and Vega R3 were given out for free.

Those retailers usually advertise such sales through online and mobile messages, and finish the deals within an hour or two. They disappear afterward, so it is difficult for the government to crack down on them.

According to the telecom industry on Monday, cases of phone number changes have been increasing, with 24,000 on Sept. 17 alone.

Industry experts say the subsidy battle stems from newly emerging competition between the broadband long-term evolution (LTE) and LTE-Advanced since the second-largest carrier KT launched LTE service this month after an auction in August resulted in more bandwidth for the service providers.

“The three telecom companies claim that they still refrain from competing against each other on the amount of subsidies, but their price policies changed during the past two weeks,” said a telecom industry employee who asked for anonymity.

BY Son Hae-yong [jiyoon.kim@joongang.co.kr]