Telecoms’ new deals upset handset makers

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Telecoms’ new deals upset handset makers

Korea’s three major mobile carriers, suffering through 45-day business suspensions for offering excessive subsidies to new customers, are trying to make up for losses incurred by the sanctions with more aggressive marketing schemes. But those initiatives - slashing phone prices and moving up release dates - are risking their partnerships with handset makers.

LG U+, which ended the first half of its suspension on April 4, said on Friday that it would sell the Vega Secret Up for 599,500 won ($577.40), a reduction of 350,000 won from the initial price of the phone that was released by Pantech in December.

The second half of its suspension resumes April 27 and runs until May 18.

LG U+ said the discount was to help boost sales at Pantech, the country’s smallest handset maker, which is reeling from a cash crunch. But Pantech apparently is not finding the move so helpful, and in a statement released Friday said it had not agreed to the steep reduction.

“It is true that the lowered price will help sales, but we were opposed to it because it requires us to reimburse the carrier,” Pantech said.

While mobile carriers in Korea usually shoulder most of the burden from phone discounts, the handset makers in theory are supposed to return some of the money they received for phones that have not yet been sold.

Pantech said LG U+ has not been clear about how much it expected Pantech to pay.

Later on Friday, Korea’s No. 2 carrier KT announced that it would also lower the price of the Vega Secret Up to 599,500 won. Its suspension ends on April 26.

Pantech also wants LG to promise a certain amount of sales of the Vega Secret Up in advance. If the price cut does not lead to a sufficient increase in sales, that can lead to a loss for the handset maker, so mobile carriers usually promise some level of sales. But Pantech claimed that LG did not clearly make any sales guarantees.

LG U+ said there has been “significant” progress in talks with Pantech over the discount issue. “But it does not make sense for Pantech to talk about sales guarantees,” said an official of LG U+. “We already have a lot of unsold inventory right now, so why should we promise to make another purchase?”

LG U+ reportedly has around 100,000 Vega Secret Ups in stock.

“If the Vega Secret Up remains at over 900,000 won, who will buy the phone when the Galaxy S5 is less than that?” asked a LG U+ official.

The Galaxy S5 was being sold for 866,800 won by SK Telecom to help the carrier through its 45-day suspension, which runs April 5 to May 19. Samsung had scheduled the global and local launch of the 5.1-inch premium phone both on April 11, but SK Telecom began selling it on March 27.

An embarrassed Samsung told the media it did not agree with SK Telecom’s move.


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