"Not a Source of Profit" Three Major Telecoms Oppose Investigation into Mobile Phone Installment Fee Collusion

[Asia Economy Reporter Joselgina] SK Telecom, KT, and LG Uplus, the three major mobile carriers, are under investigation by the Fair Trade Commission for alleged collusion over mobile phone installment fees. While market interest rates have steadily declined for over 10 years, mobile phone installment fees have maintained a high interest rate of around 5%. However, the carriers argue that these fees cannot be simply compared to bank loan interest rates and that, considering the operational costs of the system, they cannot be regarded as a source of profit.

According to industry sources on the 11th, the Fair Trade Commission began on-site investigations at the headquarters of SK Telecom, KT, and LG Uplus this week. This follows concerns raised last month in the National Assembly about the possibility of collusion, as the three carriers have maintained the device installment interest rate at an annual 5.9%. Hong Ik-pyo, the Policy Committee Chair of the Democratic Party of Korea, pointed out, "When the carriers introduced the device installment interest rate 10 years ago, it was 5.9%, and it remains 5.9% now," adding, "During this period, the base interest rate dropped from 3.25% to 0.5%, and market loan interest rates have also fallen significantly." Separately from the Fair Trade Commission’s investigation, the Korea Communications Commission is negotiating with the three carriers to reduce installment fees.

The device installment fee was first introduced by SK Telecom in 2009 at an annual interest rate of 5.9%. LG Uplus applied the same rate starting in 2012. KT raised its rate from 5.7% in 2012 to 6.1% in 2015, then adjusted it back to 5.9% in 2017. Since then, the rate has remained at the same level.

The carriers protest the collusion allegations as unfair. They explain that if there were differences in installment interest rates, some carriers would be criticized for having higher rates, so they adjusted to the same level. Despite criticisms that the fee rate is high, they argue that it includes guarantee insurance fees, securitization costs, IT integration costs, and management and operational expenses, so it cannot be simply compared to bank loan interest rates.

An industry insider explained, "We purchase large quantities of expensive devices from manufacturers to allow consumers to buy in installments, so charging installment interest is inevitable," adding, "Since these are unsecured, no-credit loans, guarantee insurance fees are also incurred." It is reported that in the process of financing the purchase of mobile phone devices, the average financial interest on installment receivables is about 3.1%, and guarantee insurance fees amount to approximately 3% of the installment amount. Another carrier official also rebutted, saying, "The fee rate is actually lower compared to the costs incurred," and "It is significantly lower even when compared to long-term installment purchases via credit cards."

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