First Sanction Imposed on Three Major Telecoms for Illegal 5G Subsidies...512 Billion Won Fine (Comprehensive)

[Asia Economy Reporter Koo Chae-eun] On the 8th, the Korea Communications Commission (KCC) imposed a total fine of 51.2 billion KRW on the three major telecom companies for violating the Act on the Improvement of the Distribution Structure of Mobile Devices (Device Distribution Act). The initial fine amount was 93.3 billion KRW, but considering the economic downturn caused by the COVID-19 pandemic and the unique characteristics of the early 5G market, a reduction rate of 45% was applied, resulting in a final fine of 51.2 billion KRW.

On the 8th, the KCC held a plenary meeting chaired by Chairman Han Sang-hyuk and imposed fines on SK Telecom, KT, and LG Uplus for violations of the Device Distribution Act. The final amounts were a total of 51.2 billion KRW for the three companies combined, with SK Telecom fined 22.3 billion KRW, KT 15.4 billion KRW, and LG Uplus 13.5 billion KRW. The reduction rate was uniformly set at 45% for all three companies.

After applying the penalty rate based on total sales and other performance metrics?2.2% for SK Telecom, 2.0% for KT, and 2.2% for LG Uplus?a 45% reduction was applied. Additionally, 125 distribution points were issued corrective orders along with fines ranging from 1 million KRW to 36 million KRW, totaling 272.4 million KRW in fines.

The KCC’s investigation revealed that from April to August last year, the three telecom companies paid an average of 246,000 KRW more than the publicly announced subsidies at 119 distribution points. Discrimination in user subsidies based on subscription type or plan was also confirmed. It was found that more subsidies?about 222,000 KRW?were paid for number portability or device changes than for new subscriptions.

Before deciding the fine amounts, the KCC held a standing committee meeting on the 29th of last month, inviting executives from the three telecom companies for final explanations. The telecom companies appealed for consideration, stating that excessive competition occurred in line with government policies to promote 5G activation and that they contributed to the early stabilization of the market by attracting 5G subscribers.

In response, the KCC decided on a 45% reduction rate, taking into account the stagnated mobile phone distribution market due to COVID-19, the difficult situation of small and medium-sized distribution points, and the telecom companies’ large-scale investments in 5G infrastructure. The KCC Secretariat proposed 30% and 40% reduction options at the plenary meeting, but the commissioners finalized the 45% reduction. The three telecom companies pledged support worth 710 billion KRW for distribution point operating funds, survival funds, management funds for small and medium-sized partner companies, and early investment in network equipment.

Chairman Han Sang-hyuk of the KCC stated, "Despite repeated administrative guidance from the KCC, violations continued, prompting an investigation. However, considering that the three telecom companies have since operated the market stably, actively cooperated with the investigation, and voluntarily implemented measures to prevent recurrence, the fine reduction rate was determined." He added, "The fact that the three telecom companies promised large-scale financial support such as coexistence subsidies, operating funds, and management funds for small distribution points and merchants amid the national disaster situation of COVID-19 was also taken into account in determining the penalty level."

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