Dilemma over subsidies

KCC plans to ban SKT, KT, LG Uplus from attracting new customers

KCC Chairman Lee Key-cheol

The nation’s telecommunications regulator is expected to ban the nation’s three mobile carriers ― SK Telecom, KT and LG Uplus ― from signing up new customers for violating rules related to handset subsidies.

The move comes as the regulator believes that the firms have offered unacceptable subsidies to sell devices to new customers.

The Korea Communications Commission (KCC) said Monday that it plans to order the carriers to stop taking on new customers for one week in early December as soon as it wraps up an ongoing probe over illegal subsidies late this month.

“Nothing has been decided but the KCC has reached a consensus to order a business suspension because we have no big questions that the amount of subsidies supported by the carriers has reached what we feel is an unacceptable level,’’ said one KCC official, asking not to be identified.

Under the current telecommunications law, the KCC could ban the carries from attracting new customers for up to three months if they believe they engaged in illegal marketing activities.

“But it’s tough to order a three-month business suspension because that measure will limit consumer choices for better handsets. A one-week suspension is highly likely for the time being,’’ said the official.

Should the ban come into force, then the corporate image of the carriers is bound to suffer. The KCC has already instructed marketing executives of the companies to discontinue giving excessive subsidies. This is the third time that the KCC is investigating alleged reports of illegal marketing activities.

Before making a final decision, KCC plans to meet and hold a hearing with the firms.

“Market leader SK Telecom started the trend. It recently reduced its fees and we are under increasing pressure to effectively follow SK Telecom in cutting tariffs,’’ said a high-ranking KT executive by telephone, asking not to be named.

SK Telecom spokesman Won Jong-rok declined to comment, while LG Uplus spokesman Kim Sang-yeop also refused to discuss the matter. KT spokeswoman Kim Yoon-jeong said; “KT will try our best to protect consumer rights by sticking to our fair price policy.’’

iPhone 5

During the third quarter of this year, carriers have witnessed a steep decline in profits. Revenue fell short of their targets largely because of a failure to offset the costs of their promotional campaigns as well as investment in long-term evolution (LTE).

For this reason, most have resorted to selling their core-assets to raise money. “The local telecommunications industry is involved in a game of chicken,’’ said Hwang Sung-jin, an analyst at HMC Securities.

In order to provide more subsidies, SK Telecom secured 440 billion won in cash by selling a 1.43 percent stake in the nation’s steel giant POSCO, while SK decided to sell three of its buildings in downtown Seoul after it suffered a downgrade of its corporate rating by S&P, Moody’s and Fitch in February this year.

The situation is similar for KT. It is in talks with private investment firms to sell land and buildings, while LG Uplus is in emergency mode after its net borrowings exceeded 4.2 trillion won in a bid to catch up with KT and SK Telecom in the smartphone race.

For the first nine months of this year, SK Telecom invested 2.5 trillion won for LTE networks compared to the 1.71 trillion won it spent last year. KT, a latecomer to the smartphone market, decided to increase its investment for networks from 300 billion to 3.8 trillion won by the end of this year.

“Personally, I would like to see the KCC’s decide on a business suspension. That will help us save costs, tentatively,’’ said an official from LG Uplus.

Korean consumers are expecting to be able to buy Apple’s latest iPhone 5 sometime this month or early next month. “We have high expectations for the LTE-supported iPhone 5. The suspension will freeze the local telecom market. This is what we are worried about,’’ said another SK Telecom official.

The KCC said 25,883 people changed carrier on Nov. 6 alone, up from 16,642 on Nov. 1, meaning the carriers don’t have any imminent plans to stop their subsidy campaigns.

Samsung Electronics’ Galaxy Note II phablet is sold at under 400,000 won on two-year contracts and a customer’s pledge to change mobile carrier. The suggested retail price for the Samsung phablet is 1.15 million won.

If a customer agrees to the conditions, then they could buy LG Electronics’ latest Optimus Vu2 mobile for 610,000 won from an original price of 966,000 won, while the customer will receive 600,000 won in cash for the purchase of Pantech’s Vega R3 smartphone, said phone salesclerks. <The Korea Times/Kim Yoo-chul, Cho Mu-hyun>