Fair Trade Commission: "SK Telecom Unduly Supports Melon Operator 'Loen' by Charging Lower Fees... Future Prohibition Order"

SKT Lowers Commission Fees to Support Loen's Market Settlement
Reduced Billing Agency Commission from 5.5% to 1.1%, Providing 5.2 Billion KRW Support

SKT: "A Normal Decision Considering Settlement Relations... Will Review Legal Response"

[Sejong=Asia Economy Reporter Joo Sang-don] The Korea Fair Trade Commission (KFTC) has decided to sanction SK Telecom for unfairly supporting its subsidiary Loen Entertainment in 2009 by lowering commission rates to help Loen settle early in the online music service market.

On the 14th, the KFTC announced that it has imposed corrective orders (future prohibition orders) on SK Telecom for unfairly supporting Loen during 2010-2011.

According to the KFTC, in January 2009, SK Telecom transferred Melon, which it operated, to its subsidiary Loen, which was facing business difficulties at the time. As Melon's operator separated from SK Telecom, Loen signed a 'mobile phone payment billing agency' contract with SK Telecom, the mobile carrier, like other music service providers. This contract allows SK Telecom subscribers to purchase music on Melon via small mobile payments, which SK Telecom then aggregates and collects with the mobile phone bill.

SK Telecom initially applied a billing agency commission rate of 5.5% to Loen in 2009, similar to other music service providers. Shin Yong-hee, Director of the KFTC's Holding Company Division, explained, "In 2010-2011, SK Telecom lowered the commission rate to a significantly low 1.1% without reasonable grounds, thereby not collecting approximately 5.2 billion KRW from Loen. In 2012, when Loen solidified its position as the top player, SK Telecom raised the billing agency commission rate back to 5.5%, the same as in 2009, thus ending the support."

The KFTC judged that this support began with the intention to reduce costs so that Loen, which acquired Melon in the increasingly competitive online music service market in 2010-2011, could settle early in the market without bearing the cost burden. It also found that SK Telecom was aware that its actions could constitute unfair support. Internal documents obtained by the KFTC included expressions such as "exposure to unfair support risk under the Fair Trade Act for affiliates" and "very high possibility of detection by the KFTC and legal risks."

The KFTC concluded that through this support, Loen was able to maintain and strengthen its position as a leading player in the domestic online music service market. In fact, Melon's streaming product market share rose from 4th place in 2009 to 1st place in 2010, and its download product ranking improved from 2nd to 1st during the same period. Although Melon maintained the overall top market share, the gap with the second-place competitor widened from 17 percentage points in 2009 to 26 points in 2010 and 35 points in 2011.

Director Shin stated, "Aggressive marketing is important to secure market dominance, and marketing requires substantial funds. Therefore, this financial support played a crucial role in helping Loen gain an advantage over competitors," adding, "We expect that this measure will enable a sound market competition principle based on price and quality to function properly in the online music service market, fostering a fair competitive environment."

In response to the KFTC's sanction decision, SK Telecom expressed opposition and is reviewing legal action. A SK Telecom official said, "The Melon billing agency commission level at the time was a normal and reasonable decision comprehensively considering the settlement relations of various transactions between the two companies, and we regret that this was not properly recognized," adding, "We will review whether to take legal action after receiving the decision document."

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