Government could change subsidies on smartphones

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Government could change subsidies on smartphones

The Korea Communications Standards Commission (Kocsc) is expected to revise smartphone subsidy regulations, as angry customers and industry players have said the law hinders market competition and reduces customer benefits.

Under the Mobile Device Distribution Improvement Act, mobile carriers are banned from providing more than a 330,000 won ($280) subsidy per purchase of a new phone that is released at least 15 months earlier. Kocsc is considering elevating the cap to the store price of each phone, which essentially is equal to a “lift” on the ceiling.

The law first took effect on Oct. 1, 2014, as part of the Park Geun-hye administration’s goal to reduce average household spending on telecom services and to encourage fair competition in the mobile phone sales market. Phone sellers claimed the law discouraged customers from buying new phones, while customers complained about the high prices they pay because of the low subsidies. And as subsidies were provided proportionate to customers’ monthly plans, subscribers needed to register for higher monthly bills to be compensated by subsidies.

Before the law was implemented, there were chances customers could scoop up deals to buy the latest smartphones for almost free, as the nation’s three major telecommunication providers vied to grab more subscribers.

“We have been listening to feedback from different social parties, and we are reviewing the need and practicality of lifting the upper limit on smartphone subsidies,” the Kocsc said in a statement on Monday.

Once the easing is confirmed, customers may see more subsidies and better deals through spurred competition between mobile carriers.

Customers and industry insiders remain doubtful, as a simple termination of the subsidy caps may not have a big impact on phone sales.

“The subsidy cap is only a part of the Mobile Device Distribution Improvement Act, and there are other restrictions that jointly need to be revised for customers to benefit from increased amounts of subsidies,” said Lee Byung-tae, a business management professor at the Korea Advanced Institute of Science and Technology.

The law also obligates mobile carriers to notify the public of changes in prices before any discounts on selling prices are implemented.

“Prior notification essentially deters competition among mobile carriers because each would know each other’s marketing strategies before they are implemented,” Lee said. “There is no way the government can change the structural problem of the law by merely terminating the cap.”

The cap on subsidies is set to be terminated three years after its initial implementation in October 2014. The recent move by the Kocsc meant to forward the deadline by a year and a half.

“We welcome the Kocsc’s decision to lift the cap, but it is only a short-term remedy, and the government needs to think over the whole law,” said a spokesperson from the Citizens Coalition for Economic Justice, a citizens’ group.


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