Rethink distribution act

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Rethink distribution act

Apple’s iPhone 6 has made a mockery of the government’s Mobile Device Distribution Improvement Act. Starting early Sunday morning, customers flocked to mobile phone retail shops in Seoul to buy the newly released iPhone 6 models at much lower prices. The original price of 789,800 won ($736) for the 16GB model fell to the 100,000 won range. The price plunge was largely due to the retailers offering higher subsidies than the law allows. Some outlets even offered customers “cash back” if they return their iPhone 6 after 18 months. Despite government efforts, illegal sales were out of control.

Such a situation had been predicted. Even though the iPhone 6 costs nothing in Japan and averages 210,000 won in the United States, the price in Korea has reached 500,000 won since the Mobile Device Distribution Improvement Act set the ceiling for subsidies at 350,000 won. As customer complaints grew, so did illegal practices like transferring 600,000 won to 700,000 won in “payback” to customers’ bank accounts through solicitations on social network services platforms.

The government has belatedly vowed to investigate and levy fines after summoning executives from the three major mobile carriers. But that’s a stopgap measure.

The government can’t prevent such occurrences through such measures because the domestic mobile device market is structured so that a fiasco can occur anytime.

The subsidies offered by retail outlets came from so-called “sales rebates” that mobile carriers offer to their outlets. In other words, sales shops arbitrarily doled out a share of their subsidies to customers. Many of them will likely be tempted to attract customers by diverting their own rebates.

The recent episode shows how desperately customers want to see reductions in the cost of smartphones and telecommunication charges. The government’s pledge to correct the “market disorder” for the benefit of customers has backfired and instead hurt manufacturers and sellers. As the fiasco has exposed the vulnerability of the law, it is time to close the loopholes, even if it means a revocation of the act. Lower prices are the result of greater competition, not regulation. The authorities must encourage companies to engage in competition by eliminating subsidies and the current price approval system. The optimum price can only be determined by the market.

JoongAng Ilbo, Nov. 4, Page 34

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