"Market Freeze Feared" Caution Rises Ahead of 5G Illegal Subsidy Sanctions

[Asia Economy Reporter Joselgina] As the Korea Communications Commission (KCC) prepares to impose its first sanctions on illegal subsidies in 5G mobile communication services, voices of caution are emerging both inside and outside the industry. There are concerns that the already contracted telecommunications market due to the COVID-19 pandemic could suffer irreparable damage from the government's excessive management and supervisory ambitions.

Since the subsidy frenzy has contributed to the activation of 5G to some extent, the KCC is urged to uphold the rationale of 'market order' while simultaneously considering the practical benefits of 'industry promotion.' Suggestions for policy flexibility are also increasing, similar to the recent reduction of fines by the Ministry of Land, Infrastructure and Transport in consideration of the difficulties faced by the aviation industry.

◆ "Sanctions should not be for the sake of sanctions" = According to related industry sources on the 1st, the KCC completed its investigation into illegal subsidy distribution by mobile carriers from April to August last year but has yet to send preliminary notices of sanctions to the operators. Although the level of sanctions was initially expected to be decided as early as March, the commission appears to have entered a 'pause.' This is interpreted as taking into account the contraction of not only the mobile market but the overall domestic economy due to the COVID-19 crisis. The government, which has been openly demanding 5G activation, could appear to be pouring cold water on the market with its own hands. This reflects the KCC’s careful consideration of economic conditions and policy goals from multiple angles.

It is analyzed that this reflects the intention of KCC Chairman Han Sang-hyuk, who believes that "sanctions should not be imposed just for the sake of sanctions." This is based on his usual conviction that the KCC’s authority should maintain a balance between policy implementation and industrial development, rather than simply acting as a tool to 'punish mobile carriers.' In a recent interview with Asia Economy, Chairman Han emphasized regarding the 5G illegal subsidy sanctions, "We will carefully examine factors such as COVID-19 and market impact," and added, "We will not focus on penalties. The core is public benefit." It usually takes about a month for the KCC to complete the process from preliminary notice and opinion collection from operators to a plenary meeting resolution.

◆ Concerns that "the market and investments may freeze" = Voices in the market are increasingly saying that sanctions alone are not the answer. If strong sanctions such as business suspension are imposed while the domestic economy, hit hard by COVID-19, is gradually improving thanks to government-led economic revitalization efforts, it will inevitably impact not only mobile carriers but also small business owners connected through agencies and retail stores. So far, the largest fine imposed by the KCC on the three major carriers for violating the Act on the Improvement of Mobile Device Distribution Structure was KRW 50.639 billion in 2018.

Mobile carriers, which took a direct hit on their first-quarter earnings this year, are currently struggling over their annual investment and management plans for the year. SK Telecom, KT, and LG Uplus all lowered their 5G subscriber forecasts for this year during their first-quarter earnings announcements, and they also expect capital expenditures (CAPEX) to decrease compared to the previous year. This inevitably has a negative impact on the government’s 'Korean New Deal' project, which aims to expand infrastructure investment in the post-COVID era.

An industry insider said, "If high-intensity sanctions are announced while the entire distribution network is unstable, it could further shrink the market, which is worrisome." Some also point out that the government, which has openly encouraged competition since the commercialization of 5G, bears some responsibility for the overheated competition. This is also the background to the ongoing policy discord between the Ministry of Science and ICT, which prioritizes 5G activation, and the KCC, which holds the card of illegal subsidy sanctions.

◆ "Should lead with investment rather than sanctions" = Economic experts emphasize that in the special situation of COVID-19, rather than arbitrarily increasing the level of sanctions on companies, it is necessary to determine a reasonable level considering the economic situation and focus on inducing investment instead.

The business community is paying attention to the Ministry of Land, Infrastructure and Transport’s recent decision to reconsider the fine imposed on Jeju Air in light of the aviation industry’s management difficulties. The recently announced draft amendments to the Enforcement Decree and Enforcement Rules of the Aviation Safety Act aim to reduce the burden on the aviation industry by allowing installment payments of fines and expanding the scope of aggravation and mitigation.

An official from a large corporation said, "This is an example of policy flexibility in operation," and added, "It is time to consider measures to revive the economy by giving industries facing the worst crisis some breathing room." He also stressed that investments related to the Korean New Deal should be accompanied by institutional support such as tax incentives.

This content was produced with the assistance of AI translation services.