KCC slaps more fines on carriers

The telecom and broadcast industry watchdog slapped a multibillion won fine on the three largest mobile carriers for lowering new smartphone prices by offering illegal bargains to customers subscribing to high-end monthly plans.

The Korea Communications Commission (KCC) Thursday levied a total of 3.4 billion won ($3 million) in fines on the nation’s three largest mobile carriers. SK Telecom received a 930 million won fine, KT got 870 million, and the smallest carrier LG U+ got 1.59 billion won.

LG U+ was given the heaviest fine for being the first to offer the illegal deals last October and continuing it even after its two competitors suspended theirs. SK Telecom suspended its Free Club and KT suspended its Sponge Zero Plan in mid-January, while LG U+ ended its Zero Club service on March 2.

In mid-February the KCC announced those deals were illegal under the Mobile Distribution Act.

LG U+ promoted its deals with a television commercial featuring K-pop star G-Dragon of Big Bang. LG U+ offer buyers of new phones an advance discount for the surrendering of an old phone in good condition.

LG said customers could get the discount in advance when purchasing a phone on the promise that they would turn in the device 18 months later.

“There is nothing wrong about the used-phone compensation policy itself,” KCC Chairman Choi Sung-joon said on Thursday. “I just want to emphasize that the compensation fee goes against the Mobile Device Distribution Improvement Act because the policy has been only offered to customers on certain monthly plans [high-end monthly plans] and there were no standards for the customers to follow later when returning the used phones.

“If such problems are solved, offering the used-phone compensation fee in advance will not be illegal anymore,” Choi added.

When it comes to determining the amount paid for the used phone depending on its condition, Choi said some customers may end up receiving a higher discount than they deserve, which could be considered an excessive subsidy.

SK Telecom and KT gave the discounts only to customers who paid 800,000 won or more as cumulative base rate. LG U+ required its customers to subscribe to a monthly plan with a 62,000 won base rate or higher for 18 months or longer.

The KCC said all three carriers required customers to pay back the initially discounted amount in a lump sum if they moved to another carrier within 18 months.

According to the KCC, about 185,000 SK Telecom customers purchased new phones like the Samsung Galaxy Note 4, Galaxy S5 and iPhone 6 relying on such discounts as of March 2, while about 168,600 KT customers and 206,000 LG customers did as well.

“It was regretful to hear the KCC decision this morning,” said the head of the LG U+ public relations team. “Our original intention was to provide more price options for customers purchasing devices.”

BY KIM JI-YOON, PARK EUN-JEE [kim.jiyoon@joongang.co.kr]