Apple Granted 'Get-Out-of-Jail-Free Card,' Will Abuse of Power Disappear?... Carriers Watch Closely, Distribution Networks 'Groan'

[Image source=Yonhap News]

[Asia Economy Reporter Joselgina] Will Apple's unfair practices disappear? Although the unfair trade practices of Apple, which have continued for as long as 12 years from advertising funds to after-sales service (AS), have been concluded through the Fair Trade Commission's consent decree, concerns remain that the deeply rooted unfair practices permeating the telecommunications distribution network need to be monitored until they are completely eradicated. Some frontline retailers have expressed worries as the recent corrective order did not include Apple Korea's practice of charging the full cost of display iPhones to the retailers.

According to industry sources on the 6th, the final consent decree announced by the Fair Trade Commission earlier this month included ▲exclusion of some products from the advertising fund application ▲deletion of warranty repair promotion costs and arbitrary contract termination clauses ▲introduction of a mutual mechanism to prevent patent disputes ▲adjustment of minimum subsidies, among other measures. The consent decree is a system where the Fair Trade Commission quickly closes a case without determining illegality if the voluntary corrective plan submitted by a company is deemed reasonable. The Fair Trade Commission also announced plans to conduct semi-annual inspections through compliance monitors along with the corrective order.

The telecommunications industry welcomes the corrective order aimed at improving transaction order following the Fair Trade Commission's investigation that began in 2016. Apple has long been accused of shifting advertising and repair costs to Korean mobile carriers such as SK Telecom, KT, and LG Uplus. Since launching the iPhone 3GS in Korea in 2009, Apple has required Korean carriers to bear advertising costs for TV and outdoor media, in-store display and exhibition costs, and repair costs. Moreover, the 'advertising fund' collected from carriers was used when producing advertisements for iPhones, iPads, and Apple Watches. The structure requires carriers to bear the cost of purchasing Apple products for display in stores as well as part of the free repair costs provided to consumers.

In particular, the advertising fund is a representative example of Apple's unfair practices not seen with Samsung Electronics or LG Electronics. Through this consent decree, some products unrelated to carriers have been excluded from the application target. An industry insider said, "Not all have been eliminated," but added, "It is meaningful that carriers now have autonomy." AS also saw the deletion of warranty repair promotion costs. Going forward, if carriers act as agents for Apple product AS, they will be granted the same conditions as other AS providers.

Additionally, Apple's arbitrary contract termination clause has been removed. Minimum subsidies will be adjusted considering carriers' fee discounts and will be mutually agreed upon in case of non-fulfillment. A mutual mechanism to prevent patent disputes will also be introduced. However, regarding the minimum subsidy, Apple is already considering the '25% selective discount' as a subsidy, so this is seen as having little significance.

Carriers, as the weaker party, are quietly observing without making any particular statements. One official said, "We welcome changes such as the deletion of the advertising fund and unilateral contract termination rights," but pointed out, "The key is whether these are properly observed." However, considering the manufacturer's superior position, there is a pessimistic view that it will be difficult to completely eradicate unfair practices that have permeated for over 10 years.

Within the distribution network, concerns are pouring in that unfair practices will continue as the issue of forced purchase of display iPhones was not included. Typically, most manufacturers fully support and retrieve display devices from the distribution network. However, Apple sells these devices to the distribution network. In particular, display devices can only be sold after one year, forcing distributors to hold unsold inventory. The Fair Trade Commission did not include this issue in the corrective order, citing the absence of related reports.

Some criticize the consent decree itself as a cheap pardon. The burden from Apple's advertising cost shifting amounts to 270 billion KRW, whereas the coexistence support fund Apple plans to establish is only about 100 billion KRW. Apple intends to invest this 100 billion KRW in establishing a manufacturing R&D support center, developer academies, discounts on paid repairs and insurance for Apple devices, and support for digital devices in public education.

Apple will implement the voluntary corrective plan over the next three years. If it is confirmed that the consent decree is not implemented without justifiable reasons, a daily penalty of 2 million KRW may be imposed or the consent decree may be canceled. Apple stated in a press release, "We are pleased with the final approval of this consent decree and intend to expand and accelerate existing investments while making greater contributions to domestic suppliers, manufacturers, small businesses, startups, and the education sector through new investments."

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