KCC fines mobile carriers for illegal 5G kickbacks

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KCC fines mobile carriers for illegal 5G kickbacks

The logo of Korea's three mobile carriers [YONHAP]

The logo of Korea's three mobile carriers [YONHAP]

 
The Korea Communications Commission (KCC) has fined Korea's three mobile carriers a combined total of 51.2 billion won ($42.8 million) for offering illegal kickbacks to customers that bought 5G phones last year.
 
The fines, issued Wednesday, are the largest penalty ever handed out by the KCC for violations of the Mobile Device Distribution Improvement Act since the law went into effect in 2014. 
 
The law is intended to prevent mobile carriers and phone retailers from giving out excessive rebates and discounts on phone prices to lure customers to subscribe to their networks.
 
The 51.2 billion won in fines breaks down to 22.3 billion won for SK Telecom; 15.4 billion won for KT; and 13.5 billion won for LG U+.
 
The KCC separately slapped 272.4 million won in fines on 125 phone retailers that gave out excessive subsidies between April and August of 2019. Among them, 119 were official retailers under the three mobile carriers that exclusively serve customers of that service provider. They offered rebates that averaged 246,000 won over the legal threshold for phone discounts.
 
Retailers also offered “discriminative” subsidies to customers according to how expensive their subscription plans were, the KCC said. Those that purchased new devices or changed their phone numbers were offered higher rebates as well.
 
The government body, which oversees telecommunications and media regulations, said in a Wednesday statement that not only had the three mobile carriers been lax in supervising retailers, but their incentive system motivated stores to offer “discriminative” subsidies to general customers.
 
When 5G first launched in 2019 — with Korea the first country in the world to commercialize a 5G network — all three mobile carriers embarked on a fierce promotional battle to pull in new subscribers, as did retail stores.  
 
At the time, online forums were flooded with customer accounts of the huge subsidies offered by different retail stores. In some instances, the 5G handsets were found to have been sold at a cheaper price than 4G devices.
 
While phone subsidies offered in exchange for long subscriptions are not forbidden under Korean law, retailers are not allowed to try to sweeten the deal beyond what is officially offered by the mobile carrier. However, these retailers receive incentives for attracting new customers, which frequently leads to some stores using that fund to provide illegal kickbacks.
 
Following media reports on the practice and LG U+’s complaint that its two rivals were giving out illegal subsidies for 5G phones, the government body launched an investigation into the matter that lasted from September 2019 through January this year.
 
When the fines were announced, KCC Chairman Han Sang-hyuk said the final amount took into consideration pledges made by the carriers.
 
“After the investigation started, the three mobile carriers made efforts to bring stability to the market, showed active participation in the probe and voluntarily implemented preventive measures — these factors were all taken into account,” he said.
 
Another factor that stopped the KCC from imposing higher fines was the difficult market situation caused by the Covid-19 pandemic.
 
The pandemic has reduced sales and stopped customers from visiting brick-and-mortar stores. Mobile carriers have agreed to provide 710 billion won in financial support and investments to help retailers.  
 
BY SONG KYOUNG-SON   [song.kyoungson@joongang.co.kr]

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