"Why Is It Illegal to Buy Cheaply?" The Crossroads of the Dantong Law

6 Years of the Terminal Distribution Act, How Will It Change?
Ruling Party "Amendment" VS Opposition "Abolition"
Limited Full Self-Supply System Discussed
Separation Disclosure System → Weak Basis for Price Reduction

[Asia Economy Reporter Koo Chae-eun] The Device Distribution Structure Improvement Act (commonly known as the DanTong Act), which has been embroiled in controversy over its effectiveness throughout its six years of enforcement, now stands at a crossroads in the 21st National Assembly. This is due to movements demanding its repeal or revision. Three bills?one proposing the repeal of the DanTong Act (by Rep. Kim Young-sik) and two proposing amendments for its improvement (by Reps. Jeon Hye-sook and Cho Seung-rae)?have been introduced simultaneously, complicating the political maneuvering.

Enacted in 2014, the DanTong Act was introduced to prevent price discrimination where some people buy mobile phones cheaply while others pay more. The fierce subsidy competition had subsided, and the profitability of the three major telecom companies improved thanks to reduced marketing expenses.

However, it failed to achieve its original goal of lowering household communication expenses. Due to minimal subsidies, the retail prices of mobile phones were standardized at a higher level, and mobile phone "holy sites" advertising "XX phone for 0 won" were still frequently caught. The DanTong Act was criticized for encouraging price collusion among telecom companies, and consumers expressed dissatisfaction, saying, "If you buy cheaply, it's illegal; if you buy expensively, it's legal."

Legislative Battle Intensifies

According to the National Assembly on the 21st, the number of bills to amend the DanTong Act increased from two to three (in the 21st National Assembly) following Rep. Jeon Hye-sook’s proposal on the 18th. Her bill mainly focuses on reforming the separate disclosure system and the penalty system. Earlier, on the 9th, Rep. Cho Seung-rae also proposed a bill aimed at inducing a reduction in device retail prices through the separate disclosure system.

The bill proposed by Rep. Kim Young-sik of the People Power Party calls for the repeal of the DanTong Act. It includes loosening the scope of official subsidies (supporting phone costs under certain conditions of using specific plans for a set period) and incorporating this into the Telecommunications Business Act amendment. The logic is that since smartphone retail prices rise every year, allowing the market to freely distribute subsidies first would reduce the burden of purchasing mobile phones.

Additionally, the concept of a "limited complete self-supply system" is also being discussed inside and outside the National Assembly. This is similar to the complete self-supply bill proposed by Park Hong-geun of the Democratic Party in the 20th National Assembly in 2017. The idea is to promote partial self-supply while designating small and medium-sized distribution stores as small business suitable industries to prepare for employment issues.

DanTong Act Failed Due to Overambitious Policy Goals

The DanTong Act, enforced for six years, is pointed out as a "practically failed" policy because its goals were too many: ① lowering device retail prices, ② reducing household communication expenses, ③ transparency in distribution structure, and ④ prohibition of consumer discrimination. As a result, conflicting interests became entangled, increasing confusion and failing to guarantee effectiveness.

Professor Shin Min-soo of Hanyang University said, "The policy intent was too broad?whether to make devices cheaper, reduce communication fees, or ensure fairness in the distribution market?making it difficult to achieve all goals. Realistically, lowering household communication expenses is not a goal achievable through the DanTong Act. It is necessary to set a single clear goal, such as lowering retail prices, and design the system simply."

There are also calls to carefully examine the effectiveness and side effects of new systems emerging from revisions to the DanTong Act. For example, in the case of the "complete device self-supply system," telecom companies cannot be legally forced to provide the "25% discount on selective contracts" offered when selling mobile phones, raising concerns about increased communication fees. At the 2018 National Assembly audit, SK Telecom CEO Park Jung-ho stated, "Even if we move to a complete self-supply system, the 25% contract discount will be maintained," but KT and LG Uplus have not expressed their positions.

While it is pointed out that self-supply could induce retail price reductions by fostering competition between foreign phones like Nokia, Motorola, and BlackBerry and domestic phones, the issue of threatening the livelihoods of telecom agency and retail stores must also be addressed. Ahn Jeong-sang, senior expert of the Democratic Party, said, "It is necessary to gradually move toward a limited complete self-supply system to create a competitive environment for device sales, lower device prices, and prepare alternatives such as designating retail stores as small business suitable industries and restricting indiscriminate device sales by large retailers to address employment and profit issues."

Will the Separate Disclosure System Be Effective?

Mobile Phone Stores Quieted Down After the Terminal Distribution Act

The "separate disclosure system," promoted by the Korea Communications Commission as one of President Moon Jae-in’s seven pledges to reduce household communication expenses, is also an issue whose effectiveness must be examined. While the separate disclosure system is meaningful in promoting consumers’ right to know and designing a transparent price structure, there are many criticisms that the link between "introducing the separate disclosure system → lowering mobile phone retail prices" is unclear.

An industry insider said, "When sales incentives are announced, there may be criticism that they are too small compared to the revenue earned, but that alone does not guarantee a price reduction. Yet, only futile debates are taking place over the system’s introduction, so discussions seem to be going nowhere." Professor Shin pointed out, "Since distribution is currently monopolized, the separate disclosure system could cause double margins or merely redistribute bargaining power if implemented poorly."

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