8 Years of the Mobile Device Distribution Act: No More Ho-Gaengs, but Phone Prices Soar

Achieved Market Stabilization but
Encourages Collusion Hindering Free Competition
Deprives Consumers of Benefits

Proposal to Double Subsidy Limits
Industry Criticizes 'Increased Market Confusion'

[Asia Economy Reporter Lim Hye-seon] It has been eight years since the Act on the Improvement of Distribution Structure of Mobile Communication Terminals (Terminal Distribution Act) was implemented. Controversy over its effectiveness remains. Although the initial goal of stabilizing the mobile communication market has been achieved, criticism continues that it is a ‘regulatory bad law’ that hinders market competition and effectively encourages collusion, thereby depriving consumers of benefits.

Eight Years Since Implementation, ‘Sbulgae’ Disappeared but...

The Terminal Distribution Act was introduced in October 2014 with the aim of establishing a fair and transparent distribution order in the terminal market to enhance users’ rights and interests. The purpose of this law is to ensure that any user can accurately know the price and subsidies of mobile phones and purchase phones at the same price. Thanks to this, those who bought phones at the normal price and were called ‘Hogaeng (foolish customers)’ have disappeared, but the perceived price of mobile phones has soared. As terminal subsidies decreased, the cutthroat competition among the three major mobile carriers also disappeared.

According to the Korea Telecommunications Operators Association (KTOA), the number of monthly number portings, which exceeded 1 million in 2013, has now decreased to about 380,000. In terms of daily portings, the number has dropped from 20,000 to less than 5,000, a quarter of the previous figure. With competition limited, the three carriers drastically reduced marketing expenses, and benefits for customers naturally decreased. Market shares have also solidified at SK Telecom 50%, KT 30%, and LG Uplus 20%.

‘Free Phones’ Still Thriving in the Shadows

The industry points out that illegal subsidies and ‘free phones’ are still rampant. Some distributors covertly offer additional incentives as extra subsidies to customers who subscribe to expensive plans and sell free phones. Stores that comply with the Terminal Distribution Act are forced to close due to lack of price competitiveness. According to the telecommunications industry, the number of mobile phone stores, which was about 20,000 before the Act’s implementation, has now decreased to around 10,000. Although the Korea Association for ICT Promotion (KAIT) manages the situation by imposing penalty points on carriers through a voluntary purification system, there are no other sanctions besides penalty points, leading to criticism of ineffectiveness.

Terminal manufacturers have also disappeared after the Terminal Distribution Act. Companies like Pantech and LG Electronics struggled and eventually exited the business. Only Samsung Electronics, Apple, and Xiaomi currently release smartphones in the domestic market. Apple, in particular, is considered a major beneficiary. Its domestic market share soared vertically from 5.3% in the third quarter of 2014 to 27% in just one quarter.

Subsidy Limit Doubled, Industry Criticizes as ‘Desk-bound Administration’

The Korea Communications Commission (KCC) is pushing for an amendment to the Terminal Distribution Act to raise the additional subsidy limit from 15% to 30% of the existing publicly announced subsidy. They believe that raising the additional subsidy limit will reduce illegal subsidy competition. The industry criticized this as a typical desk-bound administration. The Korea Mobile Distributors Association (KMDA) said that raising the additional subsidy limit would deepen the disparity in incentives, increase market confusion, and lead to more user discrimination. KMDA Chairman Yoo Tae-hyun stated, "The KCC has tightened the distribution industry with a simplistic approach of adding regulation to regulation. While encouraging some distributors’ deviations trying to survive by evading regulations, they repeatedly strengthen fragmented regulations targeting the entire distribution, even when abnormal markets like ‘holy sites’ (stores operating illegal subsidies) emerge." Accordingly, the National Assembly held a bill subcommittee meeting on the 21st of last month to discuss the amendment to the Terminal Distribution Act but postponed the review.

Professor Hong Myung-soo of Myongji University said, "Raising the publicly announced subsidy was approached from the consumer’s perspective, but side effects may arise. To preserve the purpose of the Terminal Distribution Act, the utilization of the terminal self-supply system should be increased to reduce the influence of carriers on terminal prices."

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