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Mobile carriers fined W50 billion for phone scheme

Korea’s telecommunications regulator fined the country’s three largest carriers more than 50 billion won ($47 million) on Wednesday for unfair marketing practices.

SK Telecom, KT and LG U+ face penalties for breaking the Mobile Device Distribution Improvement Act, which limited the amount of subsidies that mobile carriers could offer to customers for new phones. The law was meant to prevent telecom companies from focusing too much on enticing subscribers with discounts at the expense of service improvements.

The government scrapped the limit last October, but the Korea Communications Commission found that mobile carriers had violated the law between January and August, before the cap was lifted. SK Telecom was fined 21.35 billion won, KT 12.54 billion won and LG U+ 16.75 billion won.

The commission said the three companies offered 300,000 to 680,000 won extra for customers who purchased new phones with their mobile plans, on top of subsidies that they were legally allowed to give.

This led to huge discrepancies in phone prices, especially during holiday periods when companies ramped up their marketing. Samsung Electronics’ Galaxy S8, for instance, sold for nearly 200,000 won during a long holiday in May, even though its official price tag was 935,000 won for a 64-gigabyte model.

Such discounts were possible through extra benefits granted by carriers as well as separate discounts offered by retailers when customers got a new phone with their plan. While these retailers could separately offer subsidies at their own discretion, the law limited the amount to 15 percent of subsidies given by mobile carriers.

However, 171 stores were caught offering more than they were allowed and fined accordingly. These stores often provided the extra benefits by giving cash rebates to customers after they signed their plan contracts.

The commission accused the stores of generating excessive competition in the market and fined each between 1 million and 3 million won, totaling 192.5 million won.

BY KIM JEE-HEE [kim.jeehee@joongang.co.kr]