‘Guerrilla’ subsidies are telecoms’ newest trick

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‘Guerrilla’ subsidies are telecoms’ newest trick

Ahead of the launch of a series of new smartphones, including Apple’s iPhone 6, Samsung Electronics’ Galaxy S5 and LG Electronics’ G Pro 2, mobile carriers are clearing out their inventories of phones offering illegal subsidies.

Although the nation’s three mobile carriers - SK Telecom, KT and LG U+ - were prohibited from providing subsidies of more than 270,000 won ($253) per customer by the Korea Communications Commission (KCC) last year, the companies continued to offer subsidies above the limit through guerilla sales techniques, hoping such sporadic, irregular sales would avoid large government penalties.

Between Monday night and Tuesday morning, a special promotion popped up on the Internet and via text messages, offering the latest smartphones for free, with some even including subsidies that are worth more than the phone’s retail price. In the latter case, a customer gets a free phone and some additional cash.

In exchange, customers will be bound to a two- or even three-year contract. The deal was only concluded when a customer showed up at a store.

The tactics raised controversy among customers who paid the full amount for their smartphones or those who don’t know how to access the guerilla promotions. They feel cheated.

The phones offered in the guerilla marketing events were LTE models including the iPhone 5S and the Galaxy Note 3.

The guerilla sales lowered the price of an iPhone 5S to 70,000 won to 90,000 won and the Galaxy Note 3 to 80,000 won to 140,000 won. The Galaxy S4 LTE-A, LG G2, Optimus G Pro, Galaxy S4 Active, Galaxy S3 3G have been offered for free to customers signing longer contracts.

The Galaxy S4 LTE-A is now being called a “minus phone” after 1.2 million won subsidies were offered on the 954,000 won smartphone last week by mobile carriers. Customers who snapped them up went home with 246,000 won in their pockets.

After news circulated about Apple’s latest iPhone 5S being sold for 100,000 won, one website crashed because of traffic overload.

People who received text messages flocked to mobile phone retailers around Seoul yesterday morning to purchase the cheap smartphones.

According to sources in the mobile phone industry yesterday, those smartphones were sold for around 100,000 won on the condition that users change their existing mobile carriers.

According to the Korea Telecommunications Operators Association (KOTA), there were 112,961 mobile phone users changing their carrier between Feb. 8 and 10.

That is more than the 24,000 people per day, considered an indicator of an overheated market fuelled by whopping subsidies.

LG U+ saw an influx of 12,691 customers, while SK Telecom lost 7,663 and KT 5,028.

The subsidy competition was ignited by SK Telecom earlier this month because it started offering massive subsidies to dispose of 3G phone inventories. On Feb. 7, KT countered with its own subsidies, and LG U+ joined last weekend.

The KCC plans to call for the Ministry of Science, ICT and Technology to suspend operations of mobile carriers for three months for violating the rules and is currently investigating the illegal subsidies provided through guerilla sales.

“Since last year, it has been illegal for mobile companies to pay more than 270,000 won in subsidies. We are planning to come up with stronger measures along with the current punishment of suspending their businesses and imposing fines,” said a spokesman for KCC. “Providing subsidies is most problematic as it discriminates among users,” he continued.

BY kim jung-yoon [kjy@joongang.co.kr]

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