Last Year's Telecom Price Inflation Hits 'All-Time Low'... Intense Price Competition Begins Even for Expensive 5G

[Asia Economy Reporter Seulgina Jo] Last year, the price of telecommunications services, including smartphone fees, hit an all-time low. This is a result of the growing number of 'value-conscious consumers,' mainly among younger generations who choose relatively affordable budget phone plans and the 25% discounted subscription system. Despite previous criticism for being expensive, 5G subscriptions surpassed 10 million users, and full-scale price competition is expected to begin this year.

◆Last Year’s Telecommunications Price Index Hits Record Low

According to Statistics Korea on the 6th, the telecommunications consumer price index (CPI) last year was 95.22, down 2.08% from the previous year. This is the lowest level since related statistics began being compiled in 1985. The telecommunications price index has remained below the baseline of 100 for three consecutive years. A Statistics Korea official explained, "The previous lowest record was broken within a year." The telecommunications CPI includes postal services, telephone and fax services, but smartphone fees account for the majority.

This trend in telecommunications prices is interpreted as the result of an increase in users opting for the 25% monthly discount subscription system instead of the traditional subsidy system in recent years. Especially last year, a 'self-supply' craze emerged, where consumers purchase devices directly without going through the three major carriers, and many also chose affordable budget phone plans. This is the so-called 'self-supply + budget phone plan' combination.

Kim Ji-young, in her 20s, who switched to a budget phone plan after purchasing a new smartphone from an online mall last October, said, "My average monthly telecommunications fee decreased by about 30,000 KRW," adding, "Since it is easy to purchase a SIM card at convenience stores, the number of budget phone subscribers among acquaintances is increasing." According to the Korea Telecommunications Operators Association (KTOA), the net increase in subscribers switching from the three major carriers to budget phones has been growing for seven consecutive months. More than 40,000 people switched just last month.

◆Price Competition Signals Even for Expensive 5G

However, criticism that telecommunications fees are still expensive, especially for 5G plans, continues. The 5G service, which was embroiled in controversy over high-priced plans, is expected to ignite price competition starting this year, the third year since commercialization.

Following SK Telecom’s report to the government of a '5G Untact Plan' that is 30% cheaper than existing plans, LG Uplus plans to launch two 5G plans priced between 40,000 and 50,000 KRW as its first move of the new year. Based on the 6GB data plan (5G Slim+), the monthly cost can be reduced to the mid-30,000 KRW range with the 25% discounted subscription applied.

The three major carriers are currently considering launching various mid-to-low priced 5G plans, including untact (non-face-to-face), specialized plans, and bundled products, to expand the 5G market. A related industry official said, "At the beginning of last year, the industry expressed that the government’s request for mid-to-low priced 5G plans would only be possible once the subscriber base reached at least 10 million, but now that the 10 million era has arrived, it can no longer be delayed," signaling the start of 5G price competition.

Particularly, attention is focused on SK Telecom’s 5G Untact Plan, the first case under the deferred notification system, which was reported last month. The Ministry of Science and ICT is expected to decide on the acceptance of this plan next week. As this case serves as an example to gauge the government’s detailed standards regarding the deferred notification system, the outcome is expected to gradually influence the direction of the three carriers’ plan discussions.

5G budget phone plans are also expected to become cheaper. Currently, SK Telecom and LG Uplus are negotiating wholesale prices for budget phone network usage with the Ministry of Science and ICT. Accordingly, a 5G budget phone plan with 9GB of data priced in the mid-30,000 KRW range is expected to be released soon. KT, which is not subject to wholesale price negotiations, has also stated its intention to lower prices to a level similar to its competitors.

As the prolonged COVID-19 pandemic has worsened household economic difficulties, pressure from the government and political circles pledging to reduce telecommunications fees has intensified. Kim Young-sik, a member of the Science, Technology, Information and Broadcasting Committee from the People Power Party, pointed out, "The reason why 5G service subscriptions are not rapidly increasing amid high price controversies is that the data allowance tiers of 5G plans are poorly designed," adding, "It is necessary to activate 5G by introducing plans with data allowances of 50GB and 100GB."

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