The South Korean cell phone market has been rather noisy in recent weeks. A new Mobile Device Retail Reform Act (known as Dantong Beop in abbreviated Korean) that went into effect starting October 1st has come under fire from various communities of interest.
With the purpose of simplifying mobile device pricing standards, the Act ended up taking away certain discounts that consumers were able to enjoy when purchasing new phones with carrier contracts. Subsidies that came from various sources – manufacturers, dealers, retailers, in addition to the carrier – were no longer possible under the new law.
The Act has drawn immediate criticisms from consumers for driving up cell phone prices, and has spurred political debate about who is to blame for all the public discontent. For the most part, the Korean public is expressing frustration at the government, while administrators of the Act explain that people have simply misunderstood the bill’s intentions.
But politics aside, here are the essentials of what it’s all about.
What does the Mobile Device Retail Reform Act do?
The Reform Act (link in Korean) prohibits discriminatory subsidies granted by sales agents. The core of the legislation bill is as follows:
- Carriers can’t subsidize phone purchases above the ceiling amount of $300 as prescribed by the Korea Communication Commission.
- Sellers are required to display a transparent breakdown of final prices – original factory price, discount amount coming from whom, etc.
- Carrier-affiliated dealers and individual retailers can’t subsidize above 15% of what carriers are providing.
- Carriers are required to equally subsidize customers that are only purchasing service subscription (i.e. not buying a new phone under carrier contract, but only a rate plan for network usage).
Why did these measures seem necessary?
Under previous regulations, there were many, convoluted ways of getting a cheaper phone. Subsidies came from multiple channels, each with its own individual standard for granting discounts. While some gave more to those subscribing to more expensive rate plans, others rewarded carrier switchovers or number changes. As an effect, prices were inconsistent across different stores, and consumers paid varying amounts for the same device model under the same carrier plan subscription.
What are the results?
By effectively eliminating some of the mystery rebates granted by dealers and retailers (through enforcing #3 above), consumers ended up having to pay more upfront for getting a new phone.
Consumers have become rather hesitant to purchase new devices. One news agency reported that Samsung and LG smartphone sales (two brands that were typically most subsidized) during the first week the Act went into effect dropped by more than 50% from the same period last year.
Government administrators are busy figuring out how to appease the public. The Minister of Science, ICT, and Future Planning (the chief institution behind the bill), demanded increased cooperation from carriers and manufacturers, namely to increase subsidies granted on their part.
Currently, carriers on average subsidize around $100-$150 for each purchase. As this is at most half the prescribed ceiling amount, administrators claim that carriers have more room for generosity toward their customers. Carrier company executives, however, have responded with doubts about the feasibility of immediate price cuts. Some openly resented the administration for scapegoating the private sector for failed policy implementation.
Whether these reactions are temporary jerks to a major overhaul remains to be seen. Depending on how the administration chooses to respond, the Korean mobile retail market may see the enactment of follow-up measures to counter the slump in sales, or simply settle down with the new rules.