SK Telecom pulls plug on ‘pre-discount’ program

SK Telecom will terminate a program that offers discounts to subscribers who promise to return a phone after 18 months.

The nation’s No. 1 mobile carrier canceled its Fee Club service as the government began a crackdown on so-called pre-discount programs.

The Mobile Device Distribution Improvement Act that took effect Oct. 1 puts a 300,000 won ($278) ceiling on smartphone subsidies.

In response, mobile carriers introduced programs that offer 300,000 won to 380,000 won discounts, essentially paying for a used phone in advance.

A pre-discount program was launched by LG U+ as part of its Zero Club in October, targeting iPhone 6 subscribers. SKT and KT soon launched similar services.

Because it lowers the upfront cost of buying a phone, more than 430,000 people were in the programs by the end of last year. Zero Club also contributed to LG U+ expanding its iPhone 6 market share to 37 percent.

However, the Korea Communications Commission (KCC) has been investigating whether the programs are fair. It will also look into whether there might be problems if the phones are returned damaged or if they are lost. Consumers must repay the amount of the discount if they break or lose their phone.

And there are concerns the programs are being used to skirt the subsidy ceiling.

The KCC said last month it would start regulating the programs if carriers continue to require that their customers pay them back.

On Wednesday, the KCC said it will investigate whether the pre-discount programs are being used as illegal subsidies.

The commission plans to impose strict sanctions, including corrective orders and fines, on businesses that violate the law.

SK Telecom was the first carrier to end the service, while No. 2 KT is monitoring the situation and is considering getting rid of its program.

LG U+, which benefited the most from the pre-discount program, plans to make a decision after looking at the results of the KCC investigations.

Meanwhile, consumers seem unhappy about yet another regulation on a discount program.

“Although there are holes in the pre-discount services, consumers are already suffering from lower subsidies and expensive launch prices even after the mobile act took effect,” said a spokesman for a nongovernmental organization, People’s Solidarity for Participatory Democracy. “The pre-discount program is what consumers need, because the prices of devices and the monthly plans are still expensive.”

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