A time for sanity

A new law designed to reduce competition over subsidies among mobile carriers and bring about lower phone charges through more transparency in pricing has been heavily challenged since it took effect in the beginning of October. The Mobile Device Distribution Improvement Act aims to eradicate uneven prices in mobile phones, but consumers complain that they end up paying more for their phones. Some analysts point out that the regulation undermines free competition in the mobile phone market, while others argue it is too early to determine the impact of the law.

Policymakers have come under fire since the Mobile Device Distribution Improvement Act went into effect in October. The law is called a complete failure for increasing phone costs for consumers and putting a damper on competition. Most arguments raised by the media and politicians during a recent parliamentary questioning point to injustices inherent in the policy. The criticisms can be summed up into two areas.

First, the subsidy restrictions to ease overcompetition in sales of new phones did not help consumers, but only ended up pushing up prices. As the subsidies offered by the three major mobile phone carriers were more than halved, consumers now have to pay higher prices when they purchase phones.

Second, consumers lost interest in changing to new models because of the price spikes and the less fevered discount offers, sending a chill through the wireless phone market. If these are the results, the law needs to be revised because a law designed to protect consumers actually ended up hurting their interests.

But I would like to ask the critics if they really were all that happy before the law was passed? Previously, prices of the same phone differed according to subsidy programs by SK Telecom, KT and LG U+. Even the latest smartphone models were given away for free or a pittance when customers signed up for certain plans or moved their business from one competitor to another. At the end of the day, consumers with certain handsets complained of feeling ripped off because someone they knew bought the same phone at a lower price. Others ended up paying large amounts in high subscription rates for service that came with the phone that they never used.

Many would agree to having had unpleasant experiences when buying new smartphones. The industry, which cried bloody murder about the new regulation, also admits it wasn’t too happy about the previous competitive sales practices. Overblown competition over subsidies led to irregular and dirty marketing practices to hook and mislead consumers.

They should have profited. But actually, who got away with what remains unclear because of the lack of transparency in the industry. The mobile carriers and retail shops were forced to carry out money-losing subsidy programs because they could not avoid the abnormalities in the wireless market. Yet they join the chorus of bitter criticism on a policy that aimed to normalize the business.

According to recent pricing disclosures, the average number of new subscribers per day to the three wireless carriers fell in September, but is picking up. Subscribers with used phones surged by 88.6 percent in the first two weeks from the average in September. In terms of the overall subscription rate, the ratio in the low price range rose by 15.7 percentage points, while use of value-added services dipped by 26.2 percentage points.

The data sheds an entirely new picture on the effect of the new law. Consumption practices in mobile phones are changing. People are turning into more prudent spenders, choosing phones for practical reasons instead of falling for marketing and advertising appeals of new fancy phones.

Is persuading consumers to buy the latest, most expensive smartphone models really a way to protect consumers or help the market? Everyone knows there is no such thing as a free lunch. What can we gain by fooling ourselves and clinging to a distorted market structure? The market will calm down soon and normalize in due time. Once transparent market practices prevail, consumers will make more reasonable choices in regards to their phones. We all went a little crazy over smartphones when they first hit the market, for sure. Now’s the time to restore sanity.

Translation by the Korea JoongAng Daily staff

*The author is a professor at Hanyang Cyber University’s department of advertising and media.

by Kim Gwang-jae