Rationalizing mobile phone costs

The new law banning mobile carriers from offering competitive subsidies on mobile devices took effect yesterday. The so-called Mobile Device Distribution Improvement Act is designed to curb excessive marketing competition by wireless operators to attract consumers with subsidies. Operators have recently taken the extreme measure of offering free phones at midnight or holding other surprise bargain events to escape a crackdown by regulators. The benefits were mostly enjoyed by young people while other phone users had to pay full price. Two years ago, some wireless carriers gave away smartphones worth 1 million won ($941) for 170,000 won.

These actions could cost carriers enormously, because fines for illegal subsidies under the new regulation are as high as 10 million won to 50 million won. For a large company, the sum may not be big, but it could ruin business for small outlets. Some may have to close if they break just one or two regulations. The regulations are expected to curb irregular marketing activities, because huge subsidies are mostly given at retail outlets. The law also protected consumers’ choices, because users now get a 12 percent discount on their contract fees if they subscribe to a plan with a phone they already own.

But the downside is inevitable. Smartphone prices will go up because of fewer discounts and giveaways at stores. Due to proportionate subsidies, consumers will now have to pay more for new phone purchases.

Wireless operators and handset manufacturers will likely invest less in subsidies. The retail market could also be hit. Both consumers and the industry may be hurt by the cease of subsidy competition. The law initially designed to bring down mobile phone costs could in fact result in pushing prices in the opposite direction.

The government, wireless operators and mobile phone manufacturers must work together to ensure the positive effects of the new regulation. The government must encourage manufacturers to lower costs and operators to rationalize wireless fees. The industry should work harder to bring down overall mobile costs. It is the only way Korean households - whose wireless phone bills are the most expensive in the world, taking up 7 percent of their monthly expenditures - will be less burdened.

JoongAng Ilbo, Oct. 1, Page 30