[Viewpoint] Competition and telecommunications

After KT, Korea’s leading landline phone provider, merged with its mobile service affiliate, KTF, many news articles expressed worry about overheated competition in the IT industry. Headlines included: “Three IT companies try to take customers from one another,” “Overheated competition worsens profitability,” and “Get phones for free with no subscription fee.”

Articles of this kind are not good for two reasons.

First, newspapers view the matter from their own point of view, not that of the customer’s. If one can get a free mobile phone and not pay a subscription fee, hey, why not?

To customers, free phones are good things.

That this might damage the bottom line of a company is hardly a customer’s concern. Companies trying to snatch customers from rivals is a natural phenomenon in a market economy.

When competition is fierce, if companies raise fees they will lose customers. It’s actually rather simple.

Naturally, IT companies cannot pass all increased costs for business on to fees for customers.

According to statistics by the Bank of Korea, in 2008 telecommunication fees accounted for 4.4 percent of all household expenditures.

Granted, that was down from the 5.4 percent households spent in 2000, but nonetheless it is a hefty sum, particularly considering that for the past eight years, the national per capita income increased 41 percent.

During the period, a tremendous increase in subscribers lowered the cost for supply per phone. But for the lowest 10 percent of income earners, telecommunication fees take up around 10 percent of their entire budget.

Second, the essence of the problem is not IT companies that charge nothing for mobile phones or subscription fees, but regulations on telecommunications fees that ignore or even encourage such offers.

IT companies must set their types of telecommunication services and price rates. Dominant businesses like SKT and KT must get permits from the Korea Communications Commission, or, at least, report these matters to them.

The procedure is the same when a company wants to provide a new service. It takes much time and effort to get permission or to make the report.

During the delay, price rates or the content of new services can easily be revealed to rivals.

Because of government regulations, IT companies cannot compete freely. Instead, they charge no subscription fees or provide mobile phones for free to lure subscribers.

That is a distorted form of discounting communications fees.

But competition will lower profits and make it more difficult for companies.

So, eventually, the companies will want to take the easy way, using the government regulations as a crux.

Now is the time to abolish regulations on controlling telecommunications fees.

The only thing that the government should do is monitor and regulate whether companies have collusive deals or misuse their dominant market positions.

Regulating telecommunication fees was legitimate when one or two companies dominated the market and therefore could raise prices at will.

Those days are gone. Today, three companies compete in local landline phone services, five in national and international phone services, three in mobile phone services and eight communications companies and local cable TV stations in broadband services.

Even landline and wireless phone providers compete against one another, and IT companies compete against broadcasters. And for international phone services, foreign companies join the competition in our market.

In this competitive environment, regulations on fees only hinder customers from getting inexpensive and varied telecommunications services, and they prevent companies from enhancing their competitiveness. A company can get a leg up only through fierce competition.

Japan’s game and automobile industries have dominated the global market, and our mobile and home electronic appliance industries are doing well because there are no government regulations in these areas and companies have become highly competitive.

If regulations on telecommunications fees are abolished, service providers will charge less and present various products and services to suit customers’ tastes. They will make efforts to lower costs, develop better technology and seek ways to enter foreign markets.

This suits the purpose of the incumbent government, having abolished the former ministry for the IT industry, the government organ that drew up and implemented industry policy. Instead, it created the Korea Communications Commission as a watchdog for the industry.

*The writer is the former vice chairman of the Fair Trade Commission. Translation by the JoongAng Daily staff.

by Kim Byung-bae