T-Broad, Agency Abuse... Merged SKB Fined 350 Million Won

Commission Standard Change Despite Obvious Dealer Performance Decline
Forcing Payment of Communication Subsidies Even Without Using Company Inventory Phones

[Asia Economy Reporter Moon Chaeseok] The Fair Trade Commission (FTC) imposed a fine of 351 million KRW on SK Broadband (formerly T-Broad) for illegal activities such as changing the commission payment criteria to the disadvantage of its agencies and forcing them to replace work devices with its own products.

On the 11th, the FTC stated that SK Broadband and Broadband Nowon Broadcasting violated the Agency Act and the Fair Trade Act, issuing corrective orders along with fines.

According to the FTC, SK Broadband and others abused their superior bargaining position against agencies responsible for attracting customers to their comprehensive cable broadcasting and high-speed internet services.

Specifically, they unilaterally changed the commission payment criteria disadvantageously during the contract period, forced the replacement of about 500 personal digital assistants (PDAs) used for work with their own budget phone products, and unilaterally transferred the names of digital broadcasting and high-speed internet service products held by existing agencies to new agencies, forcing continued use.

As of the end of December 2018, SK Broadband and others had 76 agencies. Agencies receive commissions based on the number of customers they attract after performing entrusted tasks such as subscriber recruitment. The dependency on SK Broadband and others for transactions is 100%.

Commission Changed Disadvantageously Despite Expected Performance Decline

Source=Korea Fair Trade Commission

First, SK Broadband and others planned to change the commission payment criteria applicable during the existing contract period from February 2016 to December 2017.

The proposed changes required agencies to increase their recruitment performance by about 20% to receive the same commission as before. However, a decline in performance was expected in 2017 compared to 2016.

As a result, among 26 agencies, 20 experienced a decrease in their 2017 commissions by 1.837 billion KRW compared to the previous year, causing contraction in business activities and a shift to deficits.

Forcing Agencies to Use Unsellable Budget Phones

SK Broadband engaged in so-called "push sales," forcing agencies to purchase its inventory.

Around August 2013, SK Broadband compelled field staff at agencies to replace 564 work PDAs with its unsold budget phone (product name: ZTE ME) intended for consumers.

From September 2013 to July 2014, agencies purchased 535 budget phones, losing the option to use other devices with superior performance.

Moreover, when agency field staff used their personal mobile phones, they had to receive separate communication fee subsidies. A total of 194 budget phones (36.2% of the total) were canceled during the contract period, and penalties for early termination had to be paid.

Forcing Agency Owners to Change the Name on Digital Broadcasting Products

▲CatchOn standalone portal service. [Photo by T-broad]

SK Broadband forced agency owners to change the names on digital broadcasting and high-speed internet products.

In August 2014, the company unilaterally changed the names of 30 digital broadcasting and 35 high-speed internet service lines held by the previous agency owner to those of a new agency against the new agency's will.

They then forced the new agency to fulfill the remaining '3-year contract' period (until February 2017). Requests by the new agency to refuse the name change were ignored.

As a result, the new agency had to pay 15,765,000 KRW over two years and six months for products that were unnecessary for their business activities and not used.

"Unilateral Actions to Cut Agency Commissions Are Illegal"

Source=Korea Fair Trade Commission

The FTC judged that SK Broadband's actions violated Article 7, Paragraph 1 and Article 9, Paragraph 1 of the Agency Act, as well as Article 23, Paragraph 1, Item 4 of the Fair Trade Act. Accordingly, it issued corrective orders and imposed a fine of 351 million KRW.

Seok Dongsu, head of the Agency Transaction Division at the FTC, explained, "This measure is significant because it simultaneously corrected chronic illegal acts in the agency sector such as imposing disadvantages, forced purchases, and burdens to maintain performance."

He added, "The FTC will continue to strengthen monitoring of various unfair trade practices by suppliers against agencies in the paid broadcasting market, where sales activities are mainly conducted through agencies, and will strictly sanction any violations detected."

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