Telecoms in lull without subsidies
This year, September is a critical month for the telecommunications industry as major smartphone makers such as Samsung Electronics and Apple are launching new phones and the country’s biggest holiday is coming up fast.
For the past two years during Chuseok, sales of mobile phones were about 17 percent higher than usual.
Both Samsung Electronics and Apple are expected to launch their flagship smartphones, Galaxy Note 4 and iPhone 6, this month, though exact dates were not specified.
Consumers are eager to receive higher subsidies on new smartphones or wait for the retail price of existing models to drop before the government implements the Mobile Device Distribution Act on Oct. 1.
The new law aims to even out smartphone prices by limiting subsidies, regardless of where, when or how a customer purchases a phone, and fining carriers up to 2 percent of their annual sales if they offer excessive subsidies.
The law has mobile carriers walking on eggshells, waiting for the moment to meet customers’ demand with discounts or other marketing promotions.
“I have a Galaxy S2, which I have used for more than two years. My two-year contract ended, but I’m waiting for the new Galaxy phone or iPhone 6 and also for the mobile carriers to provide big subsidies,” said a 58-year-old surnamed Kim. “Why would I get a new phone now when I could be getting the latest smartphone or an existing model with subsidies?”
The number of new subscribers at mobile carriers fell sharply in August, by 19.2 percent from the previous month, according to the Korea Telecommunications Operators Association.
The market has cooled down ahead of the launch of new smartphones and due to the 58.5 billion won ($57.1 million) fines the Korea Communications Commission (KCC) handed down to the three mobile carriers, SK Telecom, KT and LG U+, for offering excessive subsidies in May and June. SK Telecom and LG U+ were also given weeklong business suspensions. LG U+ stopped operations from Aug. 27 till Sept. 2, while SKT will serve its suspension starting Thursday.
Industry observers estimate that the number of people waiting for the right time to purchase a smartphone is between 100,000 and 200,000.
KT will likely come out on top in September, since it avoided an operation suspension and already has a head start, attracting 7,286 new customers while LG U+ lost 26,000 subscribers during its suspension.
When SK Telecom pauses business later this month, KT and LG U+ will likely give out huge subsidies in an attempt to get rid of their existing smartphone stock and compete for a larger market share.
In the first half of the year, after the three mobile carriers each served a 45-day business suspension, the subsidy battle between carriers was pushed to a new level.
“We have not yet confirmed which promotional events we will undertake, as the specific launch dates of the smartphones have not been determined, but there will be various benefits provided to encourage customers to buy the Galaxy Note 4 and the iPhone 6,” said a spokesman for a mobile carrier.
“It is reported that the mobile carriers are meticulously planning their strategies as the KCC is currently monitoring them closely,” said a spokesman for a thrifty phone operator.
“Although the subsidy competition between these carriers has cooled down recently, they will likely engage in aggressive marketing activities after Chuseok, when the government reduces its intensive monitoring.”
Another phone retailer predicted that the No. 3 mobile carrier LG U+ might offer bigger subsidies than SKT and KT in its attempt to win back customers lost to the leading carriers.
“As it is the last chance [this quarter] for the No. 3 mobile carrier to increase its current market share, which is now held 50 percent by SK Telecom, 30 percent by KT and 20 percent by LG U+ … LG U+ and No. 2 KT might begin aggressive marketing when SKT goes into business suspension,” said the retailer.
“If any of the three mobile carriers makes the move to give huge subsidies or introduce other marketing promotions, the market will soon be overheated again with the other two trying to prevent their customers from being taken away.”
But one market analyst predicted that the KCC will stop the mobile carriers from giving out vast subsidies as they did before and the mobile communications market will remain stable after Chuseok.
“There is not enough time for the carriers to compete because SK Telecom will stop its business after Chuseok and their budget is already too tight after spending too much on subsidies and paying off penalties in the first half,” said Choi Nam-gon, an analyst at Tongyang Securities.
“They will keep walking on eggshells in this early stage of the government implementing the new law. Also, the new law will require the carriers to make public the subsidies they offer on smartphones.”
The Mobile Device Distribution Act will only allow carriers to offer discounts of up to 270,000 won.
The analyst said that the mobile carriers will perform better in the second half.
“There is no doubt that the three mobile carriers will improve their earnings in the fourth quarter,” Choi said.
BY KIM JUNG-YOON [firstname.lastname@example.org]
More in Industry
Chaebol heads talk shop at closed-door dinner
I've got two words for you: Biodegradable plastic