Ministry hands 45-day suspensions to three mobile carriers

A man passes by a smartphone retailer yesterday that has closed up shop in Yongsan District, Seoul. The government has suspended the three mobile carriers for illegal subsidies on smartphones. [NEWS1]

The Ministry of Science, ICT and Future Planning said yesterday it will impose staggered business suspensions of 45 days on each of the three mobile carriers - SK Telecom, KT and LG U+ - from Thursday through May 19 for violating a corrective order related to offering excessive smartphone subsidies.

The sanctions include prohibiting carriers from enrolling new subscribers.

However, the ministry decided to allow sales of new mobile phones to replace lost or damaged devices. To alleviate customer inconvenience, it will also allow new phone purchases and subscriptions for customers who have used their existing phone for 24 months or more.

According to the ICT Ministry, LG U+ will serve the suspension for 23 days from March 13 to April 4 and for 22 days from April 27 to May 18.

KT will serve the sanction from March 13 to April 26 and SK Telecom from April 5 to May 19.

If the mobile carriers do not adhere to the sanctions, the ministry plans to bring criminal charges against their CEOs.

However, the longest business suspension ever imposed on the carrier companies is expected to improve profits by reducing marketing costs. But smartphone manufacturers and retailers will be hit directly by the penalty.

Local securities firms also expect the bottom lines of the carriers to improve because fierce subsidy competition will end.

Smartphone subsidies are categorized as marketing costs and account for 23 percent to 28 percent of sales.

SK Telecom spent 3.43 trillion won ($3.2 billion) on marketing last year, while KT spent 2.68 trillion won and LG U+ spent 1.84 trillion won.

“The suspension could reduce marketing costs in the short term and performance will improve in the second quarter compared to the first quarter when the excessive subsidy competition intensified,” said a market analyst at local securities firm. “Although sales will fall, the impact of reduced marketing costs will be greater.”

“We humbly accept the government’s business suspension penalty and expect the market to be stabilized as soon as possible,” said a spokesman for SK Telecom.

“We plan to gear up efforts in converting a telecommunications market polluted by the intense competition of subsidies to a healthy competition of products and services. We also hope that institutional mechanisms, such as introduction of the mobile device distribution improvement act, could be implemented in order to support the market stabilization.”

BY KIM JUNG-YOON [kjy@joongang.co.kr]