Court backs phone subsidy caps

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Court backs phone subsidy caps

The Constitutional Court unanimously ruled on Thursday that a nearly three-year-old law that imposes ceilings on subsidies that mobile carriers and phone manufacturers provide to buyers of new phones was constitutional.

The case was filed by eight plaintiffs on Oct. 4, 2014, just three days after the law went into effect. The petitioners, which included law students at Youngsan University in South Gyeongsang, argued that the act infringes on consumers’ right to pursue a fair contract and goes against principles of the market economy.

However, the Constitutional Court said in its ruling Thursday that the act has played a bigger role in protecting consumer rights and contributed to the progress of the mobile telecommunications market. “The subsidy ceiling helps block excessive subsidy competition and assists the industry’s healthy growth,” the court said, “and has established a fair and transparent mobile device retail structure.”

The ruling is in line with the Korea Communications Commission’s stance that the act has “greatly contributed” to getting rid of exhaustive competition among businesses and stabilizing the market.

But the reality is different. The latest smartphone from Samsung, the Galaxy S8, has been sold sporadically at hefty discounts of almost 600,000 won ($540) with mobile carriers and Samsung scrambling to offer illegally high subsidies, leading to fairness dispute among earlier buyers who paid fair amount.

Under the law, mobile carriers could only provide up to 345,000 won, which includes the ceiling of 300,000 won plus up to 45,000 won depending on the phone store. The law also made it mandatory for phone manufacturers to disclose the retail price and subsidies of products on their websites and to phone sellers. The goal was to fix Korea’s abnormal smartphone retailing structure and make the market more transparent. Since mobile carriers are the ones that retail smartphones, they have no choice but to compete against each other to attract more subscribers by offering bigger subsidies.

The act is scheduled to expire on Sept. 30, after the Park Geun-hye administration last December decided not to extend the law’s valid period of three years. The possibility lingers that President Moon Jae-in could move up the law’s expiration date because one of his campaign vows was to scrap the subsidy ceiling system, saying it would improve the lives of citizens. He also promised to entirely get rid of basic fees in monthly phone bills.

For consumers, the bigger the subsidies, the better. The Korea Communications Commission has insisted that severe subsidy competition among carriers will raise phone prices, eventually leading to the effect of relaying the cost to consumers.

But the argument does not seem to have materialized, as seen from the fact that phone prices have hardly gone down ever since the law’s enactment.


BY SEO JI-EUN [seo.jieun@joongang.co.kr]

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