From Fines to 5G Quality Evaluation... A Daunting July for the Three Major Telecom Companies

[Asia Economy Reporter Seulgina Jo] The three major mobile carriers are on high alert as July begins. Starting with sanctions on illegal 5G subsidies, the first-ever 5G quality evaluation, which is a matter of pride, is scheduled to be released this month. The 'largest ever' frequency war involving trillions of won has also officially begun. Additionally, with the government's investment pressure under the banner of the 'Digital New Deal' expected to intensify from the second half of the year, the burden on the three carriers, already hit hard by the COVID-19 pandemic, is growing heavier.

◆Tension over 5G fines forecast=According to industry sources on the 29th, executives from SK Telecom, KT, and LG Uplus will attend a standing committee meeting this afternoon ahead of the full meeting of the Korea Communications Commission (KCC) next month. At this meeting, the executives plan to appeal for leniency, emphasizing the inevitability of violations of the 'Act on the Improvement of Distribution Structure of Mobile Communication Terminals (Mobile Device Distribution Act)' such as illegal subsidy distribution immediately after the commercialization of 5G last year. The KCC will put the related agenda on the table at the full meeting on the 8th of next month to decide the level of sanctions and the amount of fines.

The key issue is whether the fact that the Blue House and the relevant ministries directly drove the activation of 5G, that this initial market overheating helped the establishment of 5G, and that consumers also benefited to some extent will be reflected as reasons for reducing fines. Currently, among the KCC standing commissioners, opinions are sharply divided between those who argue for strong sanctions to correct market distortion and those who believe that the economic downturn due to COVID-19, market peculiarities, and the need for increased investment should be considered.

If the largest-ever fines are imposed, not only the three carriers but also sales and agency distribution networks will inevitably be affected. This could pour cold water again on the domestic market, which had barely started to recover due to government-led economic revitalization measures. This is why voices from inside and outside the market are pouring out, saying "Sanctions alone are not the answer" and "Sanctions for the sake of sanctions are unacceptable." Earlier, when speculation arose that the KCC might impose large fines, the market ironically saw a surge in illegal subsidies with people saying, "Either way, we lose." A sales store representative lamented, "If we're going to be fined anyway, shouldn't we sell even one more unit to survive?" and added, "Small business owners are suffering under the government's blade that completely ignores market conditions."

A carrier official said, "We hope that contributions to the early establishment of 5G will be considered as reasons for reducing fines," and added, "At the standing committee meeting, we will explain mainly about future investment expansion plans and measures to prevent recurrence."

◆Growing investment burden... frequency war also intensifies=The fines are not the only thing making the three carriers nervous. The Ministry of Science and ICT will also release the results of the first half 5G quality evaluation in July. This is the first official announcement of the quality evaluation of 5G services commercialized last year by each carrier. Since the title of '5G leadership' is at stake, competition among the three carriers is inevitable.

However, the impact of COVID-19 has made 5G network investment difficult, creating a dilemma for the three carriers. In the first quarter, the three carriers' capital expenditures (CAPEX) amounted to only 1.0881 trillion won. Previously, the carriers had planned to expand investment to 4 trillion won for the first half of the year through early execution, but this also reportedly did not go smoothly. This is also why there are expectations that the government's investment pressure will intensify further along with the 'Digital New Deal' project. A Ministry of Science and ICT official said, "Ahead of the first half quality evaluation, large-scale investments by the three carriers were made in May and June," and added, "We will accelerate efforts to expand investment."

Yesterday, the Ministry of Science and ICT announced the upcoming reallocation of 2G, 3G, and 4G frequencies (310 MHz) whose usage periods expire next year, and controversy over the reallocation fees is expected to intensify. The key issue is whether past auction winning bids will be included in the calculation of reallocation fees. Depending on this, the reallocation fees the three carriers must pay to the government could range from 1.44 trillion won to 2.88 trillion won, nearly doubling.

Industry insiders argue that including past auction winning bids in the reallocation fees when reallocating previous frequencies is unreasonable and demand a 'reasonable calculation method.' They claim that the reallocation fees, which approach 8% of sales, are excessively high compared to overseas countries such as France (2.65%), the United States (2.26%), and Japan (0.73%). On the other hand, the government maintains that there is no essential difference between reallocation and new allocation. The Ministry of Science and ICT plans to announce specific calculation methods by the end of November.

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