Big ‘guerrilla’ subsidies for iPhone 6 defy law

From midnight Saturday through daybreak yesterday, crowds lined up in front of smartphone stores in Wangsimni and Gwangjin District, eastern Seoul, and Gangnam District, southern Seoul to receive so-called guerrilla subsidies on the iPhone 6 and iPhone 6 Plus.

As a result, buyers were able to get their hands on the latest Apple smartphones for 100,000 won ($93) to 200,000 won.

Officially, the price of a 16GB iPhone 6 is 789,800 won and the 16GB iPhone 6 Plus is 924,000 won.

Guerrilla sales have been popping up since Friday, as retailers offer subsidies of as much as 700,000 won on the iPhone 6. Some online stores were offering Apple’s latest smartphone for free.

The sharply discounted prices come a month after the implementation of the law that prohibits mobile carriers from providing excessive subsidies that may discriminate against customers who pay the full retail price for their devices.

The mobile carriers, however, deny direct involvement and blame any violations of the law on the retailers.

“We usually offer 700,000 won in incentives whenever a retailer sells a smartphone,” said a spokesman for a mobile carrier, who requested anonymity due to the sensitivity of the issue. “Some [retail] stores, however, seem to have offered most of the incentives plus a legal subsidy to lure customers.

“Mobile carriers should not be penalized, because it is the retailers that provided illegal subsidies,” said the spokesperson. “However, you can’t blame them for their actions, as it is a natural market response for smartphone retailers to try to attract business when there has been no customers for a long period of time due to the small subsidy allowed by law.”

The legal subsidy on the 16GB iPhone 6 is 190,000 won to 250,000 won, according to the monthly plan.

“Although most retailers do not ordinarily use their sales incentives from carriers for smartphone subsidies, they are tempted to offer the incentives because there is high demand for the iPhone 6 and iPhone 6 Plus,” said a smartphone retailer in Seoul.

Smartphone retailers have been suffering from a stagnant market since the Mobile Device Distribution Improvement Act took effect in October. The act was intended to reduce and even out the amount of subsidies consumers receive.

According to the act, any mobile carrier that violates the law by handing out excessive subsidies will be fined 3 percent of its annual revenues plus a maximum of 300 million won.

As the issue of the so-called iPhone 6 crisis quickly spread on the Internet and throughout local media, the Korea Communications Commission (KCC) contacted executives of the three largest carriers - SK Telecom, KT and LG U+ - yesterday afternoon to warn about the illegal subsidy competition.

“We are aware of the illegal subsidy crisis and the iPhone 6 sales during the past three days and we called the executives from the three mobile carriers to give warnings,” said a KCC official.

“Although the KCC wants to find out whether the illegal subsidies were first handed out by retailers or the mobile carriers, I believe they urgently called for the carriers to avoid criticism that the law is not effective at all,” said a spokesman for a mobile carrier.

Since LG U+, the third-largest mobile carrier, started selling the iPhone this year, competition among the carriers has become fiercer.

It is unknown whether the mobile carriers have increased their sales incentives to retailers to encourage illegal subsidies.

Mobile carriers denied the claim, while SK Telecom and KT suspect that LG U+ started the illegal subsidies by boosting its sales incentives to retailers.

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