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South Korean Carriers Receive Sales Ban, Fines – Because of Subsidies

December 28, 2012 - Written By Kody Frazier

Did you sign a contract the last time you purchased a new mobile device? Probably, at least if you live in the U.S., where subsidizing the cost of new devices for a signature on a new contract has become the norm for most carriers, and expected by most consumers who generally scoff at the idea of paying full price for a new phone or tablet. The same could be said for South Korean consumers, but it looks like the era of cheap phones is over for them, following the decision of the Korea Communications Commission (KCC) who have imposed hefty fines and a sales ban on all three of the countries major carriers for providing “discriminative subsidies” to lure in customers.

The KCC began their investigation into the subsidization practice of South Korean carriers in September 2012, following their discovery that the carriers had paid on average KRW 270,000 (US$252.91) for certain customers since July, and were unfairly using the practice to bring in new customers, at least according to the regulatory agency. LG Uplus was the largest offender, followed by SK Telecom, then KT. The KCC has given the carriers one month to generate a plan that will allow them to move out of the subsidization process and “correct” their system as well as details on how they will execute those plans. SK Telecom spoke out directly about the unfairness of the KCC move, claiming the fines were bad enough, but adding a sales ban on top was too much. The carriers are all essentially banned from gaining any new customers during the month of January 2013 while under a temporary suspension, time during which they are expected to generate their plans and submit them to the KCC.

LG Uplus will stop gaining customers on January 7, and won’t be able to start again for 24 days. SK Telecom is banned for 22 days and KT for 20 days, their bans and fines apparently based on the level of their offenses. Their combined fines total KRW 11.89 billion (US$11.1 million). Despite the fines and major changes in their business practices, some analysts are claiming that this regulatory move will actually increase earnings for all three companies. How South Korean consumers react to the changes has yet to be seen, but with any major change in common product there is likely to be backlash.

Source: telecompaper