Galaxy Note20 'Minimal Subsidy' Continues... Carriers Reconfirm "No Increase in Subsidies"

[Image source=Yonhap News]

[Asia Economy Reporter Joeslgina] "There are no plans to increase the publicly announced subsidies for the time being." "It hasn't been long since the Korea Communications Commission imposed fines for illegal 5G subsidies, so why would we engage in a price war? If a competitor starts, we have no choice but to follow, but all three carriers are quiet."

The Galaxy Note20, hailed as the 'big catch' in the smartphone market for the second half of the year, was officially released on the 21st, but the mobile carriers' 'stingy subsidies' remain unchanged. As carriers, who have been cautious after receiving large 5G fines, are expected not to raise subsidies for the time being, attention is focused on whether the pre-order sales frenzy will continue. There is also speculation that more consumers will turn to the self-sufficient purchase system, where they buy smartphones directly without going through carriers.

◆Stingy subsidies remain... Will it dampen Galaxy Note20's success?

According to the industry on the 22nd, the three carriers?SK Telecom, KT, and LG Uplus?maintained the Galaxy Note20's publicly announced subsidies at about half the level of the previous model, which was officially released the day before. The subsidies set during the pre-order period ranged from 170,000 to 240,000 KRW based on the highest 5G rate plan. This is half of the previous model's maximum subsidy of 450,000 KRW. By carrier, KT offers the highest subsidy ranging from 86,000 to 240,000 KRW depending on the plan. SK Telecom provides 87,000 to 170,000 KRW, and LG Uplus offers 82,000 to 227,000 KRW.

As a result, consumers find it much more advantageous to choose the 25% selection discount rather than receiving the publicly announced subsidy when purchasing a phone. The retail prices of the Galaxy Note20 standard and Ultra models are 1,199,000 KRW and 1,452,000 KRW, respectively. The standard model is about 50,000 KRW cheaper than the previous Galaxy Note10's retail price (1,248,500 KRW), but since the subsidy has been halved, the amount consumers have to pay has actually increased by several hundred thousand KRW. In particular, the maximum subsidy of 240,000 KRW is only available if the consumer maintains the 5G highest rate plan, which costs over 100,000 KRW.

Although the three carriers are at the date when they can change the publicly announced subsidies according to regulations, they are expected not to raise them for the time being. It is said that it is difficult to engage in aggressive marketing since they recently received large fines from the Korea Communications Commission. Major issues requiring large-scale funding, such as 5G facility investment and frequency reassignment in the second half of the year, are also lined up. Offline sales and agencies are also expected to be more passive in distributing subsidies or marketing until the Korea Communications Commission's enforcement order compliance inspection period ends. A carrier official reaffirmed, "We are currently not considering raising the publicly announced subsidies."

Unlike the pre-order period, when the share of self-sufficient purchases is large, sales effects tend to continue only when carrier subsidies are released after the official launch. This is why Samsung Electronics is concerned about potentially missing the sales golden period immediately after the launch despite the pre-order sales frenzy.

However, depending on the initial success, there is still a possibility of subsidy competition among carriers. From the carriers' perspective, the Galaxy Note20 is a 'big catch' in terms of sales. Samsung Electronics is also putting all its efforts into the Galaxy Note20 to make up for the poor performance of the Galaxy S20 in the first half of the year. The Galaxy S20, hit hard by the COVID-19 pandemic, sold only 60-80% compared to its predecessor and was labeled an 'unfortunate phone.'

◆Consumers flocking to self-sufficient purchases... Direct purchase with 25% selection discount

To boost the sales momentum, Samsung Electronics decided to give early Galaxy Note20 buyers a choice of gifts starting from this day, including wireless earphones 'Galaxy Buds Plus,' Xbox Game Pass controller, Nemonic Mini, or a one-year Samsung Care Plus subscription. Compared to the Galaxy S20 launch, when Galaxy Buds+ could be purchased for 99,000 KRW, the benefits have significantly increased. Benefits such as four months of free YouTube Premium, three months of free Millie's Library, and three months of free Willa subscriptions, which were provided to pre-order customers, are also offered.

In particular, unlike the frozen offline agencies due to the carriers' subsidies being set at half the previous level, the self-sufficient purchase system, where consumers buy smartphones directly without going through carriers, is gaining momentum. It is also expected that the Galaxy Note20 launch will serve as a catalyst for expanding the self-sufficient purchase market, which accounts for about 10% of the total market.

Samsung Electronics estimates that about 700,000 units of the Galaxy Note20 were sold through the three carriers during the pre-order period. The share of self-sufficient purchases, which was about 10% of the total market, has risen to around 16%.

In recent years, the number of people who carefully compare prices and prefer self-sufficient purchases to receive various discount benefits such as credit card discounts has been increasing. This is also a result of the Device Distribution Structure Improvement Act (DASIA) establishing the 25% selection discount on communication fees instead of carrier subsidies. Self-sufficient smartphones allow free choice of rate plans without a two-year mandatory contract period, and no penalty fees occur when changing plans.

The government is also supporting the activation of self-sufficient purchases. The prolonged COVID-19 pandemic and the normalization of the untact (contactless) era are also cited as factors expanding self-sufficient purchases. Market research firm Strategy Analytics (SA) predicts that the share of self-sufficient phone purchases will reach 11.8% this year.

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