Customers angry over subsidy law

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Customers angry over subsidy law

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A week after the Mobile Device Distribution Improvement Act took effect, consumers vented their anger over the new regulation on the website of the Korea Communications Commission (KCC).

The complaints said that the new act, which cuts the amount of subsidies on new smartphones to a maximum of 100,000 won ($93), has discouraged consumers from buying phones.

On the message board, 391 posts as of 8 a.m. yesterday were uploaded by consumers and retailers questioning the effectiveness of the act’s enforcement.

“Over the last four days, I sold one smartphone. I cannot even afford to pay rent from now on,” a smartphone retailer surnamed Kang wrote on the board.

One person wrote that everyone realized how foolish the government’s attempt to regulate the market was on Oct. 1.

“Any good can be purchased at a little higher or a little lower price according to the times and the places. If the government believes that is unfair and [tries] to fix that with a new mechanism, everyone will have to purchase the product at higher prices,” said a post by a user surnamed Lee.

“The new Mobile Device Distribution Improvement Act emerged from the socialist idea that people should purchase a smartphone for the exact same price, ignoring spontaneous market order,” the post continued.

The KCC has not responded to the criticism.

Its position is that it cannot legally force manufacturers to offer bigger subsidies to alleviate the pressure on telecoms to offer discounts.

“We believe it will take some time for the Mobile Device Distribution Improvement Act to settle in place,” said a spokesman for the Ministry of Science, ICT and Future Planning. “If the confusion in the market continues for longer than expected, we plan to take additional measures.”

The act increased the overall subsidy ceiling from 270,000 won to 300,000 won. But under the new law, mobile carriers must offer subsidies that are proportionate to the price of a monthly plan.

The law doesn’t require phone manufacturers to disclose or contribute to the subsidies.

Currently, the subsidies are set jointly by carriers and smartphone manufacturers, but in the previous version of the bill, the KCC required that mobile carriers and manufacturers announce their subsidies separately to give consumers more transparency.

However, as the Ministry of Strategy and Finance and the Ministry of Trade, Industry and Energy decided that the announcement of subsidies by phone makers could undermine the competitiveness of the companies and the country, the separate disclosure scheme was scrapped.

“In the past, we were able to offer more subsidies than the 270,000 won ceiling, but now we can’t,” said a smartphone retailer in Sinchon, northwestern Seoul.

“We can only give the amount of subsidies announced on the mobile carriers’ websites. It is the same everywhere, whichever store you go to. There is no difference, even by 10 won.”

Since the implementation of the new law, the three mobile carriers have announced that they will offer subsidies of about 100,000 won on each new smartphone.

Now, subsidies given by mobile virtual network operators (MVNOs) on thrifty phones are larger than the discounts offered by SK Telecom, KT and LG U+.

In the new law, thrifty MVNO phones are an exception to the new rule.

Large mobile carriers can’t provide extra subsidies for expensive plans, but thrifty carriers can.

At the three mobile carriers, a consumer can get a 63,000 won to 98,000 won discount when signing a two-year contract for a new Galaxy S5 on a 40,000 won monthly plan.

But MVNOs such as CJ HelloVision are giving 120,000 won in subsidies for the same device and plan.

Even when adding a 15 percent discount that the three mobile carriers can give at their own expense, the benefits given by thrifty phones companies are larger. For some models, the subsidies gap is more than 200,000 won.

“All in all, the largest benefit [of the act] goes to mobile carriers, as they could reduce the amount they spend on subsidies significantly,” said a smartphone seller.

“In fact, operating profits of mobile carriers increased during the business suspension periods, as they saved on marketing expenses, which includes the subsidies on smartphones.”

Some consumers are even starting petitions online, calling for the Mobile Device Distribution Improvement Act to be repealed.

Consumers believe that the disadvantage of a smaller subsidy is greater than the benefit of receiving subsidies at the same rate as everyone else.


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

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