Stores break law in race to pull in 5G subscribers

The commercialization of the new 5G wireless network last month has sparked competition among mobile operators in the race to secure more customers to their fledgling services, but online reports suggest the fight has become so fierce that some stores have taken to offering illegal discounts.

With the release of the V50 ThinQ - the second 5G device to hit the market - on Friday, telecommunications companies have once again ramped up their efforts to outpace each other by offering large discounts on the phone for new subscribers.

Legally, telecom firms are allowed to provide phone subsidies, but the competition has become so fierce that some retail stores have been caught giving out illegal subsidies.

Sensing the intense competition between the three mobile carriers - SK Telecom, KT and LG U+ - the Korea Communications Commission on Monday met with the executive officers of all companies to deliver a warning.

“We decided to convene a meeting following media reports that brought up [the issue of mobile firms giving out excessive subsidies],” said a spokesperson for the commission. “Imposing penalties is not yet an issue to be discussed at this point as we haven’t yet conducted a field investigation.”

Following the release of LG’s V50 ThinQ, a strings of posts detailing the subsidies offered by different retail stores dominated online forums. Some retail stores were even said to have illegally given customers up to 100,000 won in cash after they made a purchase.

When buying a new phone, customers can either receive subsidies on the price of the device from a mobile operator or a 25 percent discount on a two-year payment plan. Mobile operators tend to offer better deals on the subsidies as they are generally more attractive to most customers.

SK Telecom offers the largest phone subsidy for the V50 ThinQ, at 773,000 won, on the condition the buyer subscribes to the most expensive 125,000 won monthly payment plan for two years. The subsidy is much larger than that offered by KT and LG U+, at 570,000 won and 600,000 won respectively for their most expensive plans.

Mobile operators and manufacturers share the burden of the discounts offered on the devices, but both sides are refusing to unveil how much they pay per phone.

“Mobile carriers and manufacturers are using phone subsidies as a marketing tool after the government in September 2017 lifted a cap on the subsidies mobile carriers provide to customers for new phones,” said a source from the industry.

Before the ban was lifted, telecom companies could only offer up to 330,000 won.

Apart from subsidies, carrier’s retail stores are allowed to offer additional discount of up to 15 percent of the existing subsidy. For instance, if a customer receives a 773,000 won phone subsidy from SK Telecom, a retail store can give an additional 115,900 won discount. The total discount adds up to 888,900 won, leaving the final price for the V50 ThinQ at a little more than 300,000 won.

The phone subsidy and the additional 15 percent discount may seem excessive, but they are legal. The problem, however, is that some stores go beyond those limits.

Retail stores receive financial rewards for each new customer.

In principle, that should be added to the income of the store, but some branches use that money to provide additional discounts to new customers.

“With a rival company offering up to 1 million won in rebates, some customers who purchased the V50 received up to 300,000 won,” said a source from the industry.

According to telecoms firms, it’s not easy to crack down on every store that offers illegal discounts. SK Telecom, which offers the largest subsidies, maintains it is playing by the book.

“Raising the phone subsidy is part of our effort to give benefits to more customers, and it shouldn’t be criticized,” said a spokesperson for SK Telecom. “Firms with lower phone subsidies are [more] likely to take illegal measures to make up for the gap.”

But SK Telecom hasn’t managed to escape blame entirely.

“SK Telecom, which [reportedly] has less subscribers, are leading illegal subsidies,” said one industry insider.

KT said last month that it had passed 100,000 subscribers. No other carrier has publicly revealed their subscription figures, but SK Telecom says it is now leading the market.

Mobile operators are unable to change the size of phone subsidies for a week after they make them public. Competition may get fiercer if KT and LG U+ decide to raise subsidies on Friday.

BY PARK TAE-HEE, JIN MIN-JI [jin.minji@joongang.co.kr]