Korea to enhance telecom competition, lower consumer costs

[Image source: Gettyimagesbank]

Mobile phone subscribers in Korea will now be able to sign up for their carrier opt-in contracts on a one-year basis, instead of the current two-year basis, according to a government announcement on Thursday.

Consumers will also have more flexibility in choosing their payment plans, even when purchasing new devices through telecom carriers as part of a tie-up deal for network subscriptions, enabling them to save on communication costs.

The Ministry of Science and ICT revealed these measures on Thursday as part of its plan to boost competition in the telecommunications market, believing that those opt-in contracts have led the three telecom carriers to lock in customers. As of April, the majority of the 48 million mobile phone subscribers of the three major telecommunications carriers were under a minimum two-year contract. If they cancel their contracts within two years, they face a penalty depending on the remaining period.

“The government formed a task force consisting of external experts and research institutes, and has come up with these measures designed with the aim of breaking the existing cartel and monopoly in the telecommunications market and improving it to be more market-friendly,” said Minister Lee Jong-ho.

With the government’s new measures, customers of the three major telecommunications carriers will now be able to set their installment payment plans for devices and network subscriptions separately, as they sign up for subscription deals offered with discounts.

For example, a customer can choose to buy a Samsung Galaxy S23, which costs 1 million won ($764), in three-year installments while signing up for a discounted one-year contract for the network subscription.

Up until now, most consumers have been bound by a two-year contract that covered both the installment payment for their devices and the network subscriptions. The government’s plan is to change the penalty policy of the carriers to charge penalties on a one-year basis, even if customers sign up for a two-year deal due to the high cost of the device.

This means that the three major carriers will have to spend more on marketing expenses to attract consumers if they sign up for one-year contracts.

“Under the new government measures, it basically means that customers can switch carriers every year, regardless of how many years they choose to pay for the device, putting the carriers in a position where they need to offer something to retain their consumers,” said an unnamed industry insider.

The government also plans to change the practice of carriers forcing consumers to sign up for 5G plans when buying expensive phones costing more than 1 million won through the carriers and to allow customers to choose LTE plans instead of 5G plans so as to enhance consumer choice. An additional measure to lower costs for LTE plans is also in consideration, aiming to offer LTE plans at a cheaper rate than 5G plans at major carriers.

In addition, the government will seek to increase the additional subsidy to 30 percent of the published subsidy, up from the current 15 percent, through relevant law amendments to lower device prices. The government believes that increasing the additional subsidy provided to stores by the three major carriers will benefit customers.

The new government measures are focused on reducing household communication costs. According to a household trend survey by Statistics Korea, household telecom spending reached 130,000 won in the first quarter of this year, steadily increasing from 120,000 won in 2020.