Mobile carriers unlikely to cap subsidies: study

Although each of the nation’s three largest mobile carriers were fined 800 million won ($718,000) on Thursday over the excessive subsidies they gave to customers who purchased new iPhones, the impact is expected to be limited.

Brokerage firm studies say the punishment imposed by the Korea Communications Commission will be ineffective since the mobile carriers’ overall profits from illegal subsidies are still lucrative despite the fines.

“The annual revenue is between 4 billion won and 5 billion won, if there are 10,000 new subscribers each bringing in 40,000 won in revenue,” said Kim Young-hong, head of the wireless business at KT.

For the first time, smartphone retailers were also penalized. The KCC imposed fines between 1 million won and 1.5 million won each on 22 stores discovered to be handing out excessive subsidies on the iPhone 6.

The retailers were offering the iPhone 6 almost for free from the moment it went on sale on Oct. 31, despite the fact that the government’s revised bill prohibited large subsidies from being handed out.

The combined fines on the 22 stores amounted to 31.5 million won, which is likely to be a big financial blow to these smaller retailers.

But the criminal charges the government is threatening to hand out to executives responsible for defying the subsidy cap are likely to have more of an effect than fines on forcing the mobile carriers to comply with the law.

According to Kim Jang-won, an analyst at IBK Investment and Securities, 800 million won in penalties is not too much for the mobile carriers.

“Rather, the criminal charges against the executives is unprecedented and therefore could be a big burden on them,” Kim said.

If the mobile carriers follow the revised legislation, the companies will receive the benefit of reducing their marketing costs.

“The marketing costs of mobile carriers will be stabilized if [the mobile companies] comply with the government’s subsidy limit,” said Kim from IBK.

But on the other hand, the ban on additional subsidies on new smartphones will only keep prices high compared to the cost of the same products outside of Korea, which could lower sales.

Nevertheless, IBK Investment and Securities predicted the number of new subscribers is expected to increase in December from a month earlier due to seasonal demand but added that it will be difficult to reach the same level as last year.

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