The possibility that the three telecommunications companies (SK Telecom, KT, LG Uplus), focusing on new businesses such as artificial intelligence (AI), will immediately increase their subsidies due to the repeal of the Mobile Device Distribution Improvement Act (MDDA) is low. This means it will be difficult to see significant short-term effects on reducing communication costs. If the subsidies from the three telecom companies increase, there will be a rise in subscribers leaving the budget mobile phone sector, leading to inevitable stagnation in the industry. Information submission regarding subsidies by smartphone manufacturers will become mandatory, and even if the government pays attention to security, it is highly likely that related information will leak. In this case, the competitiveness of domestic smartphone manufacturers could decline in overseas markets.
Lee Jong-ho, former Minister of Science and ICT, noted this during an interview with Chosun Biz at the Koreana Hotel in Jung-gu, Seoul, on the 24th. Lee was appointed as the first Minister of Science and ICT under President Yoon Suk-yeol's government in May 2022 and served until August 16 this year, advocating for the repeal of the MDDA.
The Mobile Device Distribution Improvement Act (MDDA) was introduced in 2014 to prevent excessive competition by setting caps on the standard subsidies and additional subsidies provided by telecom companies and manufacturers, and to prevent only certain users from receiving substantial benefits. However, with the reduced competition in subsidies among businesses, opportunities for consumers to purchase devices at lower prices were limited, leading to overall decreased consumer welfare. In this context, the MDDA repeal bill passed the National Assembly on the 26th, marking its end after 10 years. The repeal bill is set to be officially implemented from July next year, six months later.
Former Minister Lee expressed a positive outlook on the repeal of the MDDA, as he did during his tenure, but questioned its short-term effectiveness. He stated, "The proportion of individuals activating phones through a self-sufficiency system has increased, and as the three telecom companies see their operating profit margins declining, it is urgent for them to seize the initiative in AI, so they may not have the capacity to invest heavily in subsidies. This means the effect of reducing users' communication costs will also not be significant."
Former Minister Lee expressed concern that if the three telecom companies increase their subsidies, it would accelerate the stagnation in the budget mobile phone sector. He said, "When I visited the field during my tenure as Minister, there was significant dissatisfaction among budget mobile phone operators regarding the MDDA repeal bill. In a situation where support for budget phones has decreased, if the three telecom companies increase their subsidies, there is a fear that subscribers could leave." He added, "Since the stagnation of the budget mobile sector could lower market competition, support for the budget mobile sector should also be provided after the repeal of the MDDA."
Former Minister Lee also expressed concerns regarding the newly established obligation for manufacturers to submit information about the incentive subsidy. He mentioned, "Manufacturers will submit information only to the government regarding their contributions to the standard subsidy, but if related issues arise in the National Assembly later and they demand the submission of that data, it would be legally difficult to refuse. In this case, the likelihood of subsidy levels leaking to the outside will significantly increase." He continued, "As domestic and international conditions worsen and raw material prices rise, if foreign markets become aware of the domestic subsidy levels, they will demand similar or even larger amounts, inevitably increasing cost burdens."
However, former Minister Lee predicted that the repeal of the MDDA could lead to greater effects in reducing communication costs in the long term. He said, "Even if the three telecom companies do not significantly increase subsidies for their AI business investments right now, they will ultimately need to secure a large number of subscribers for their learning data. Therefore, it is likely that they will gradually invest more in subsidies to attract subscribers, leading to increased communication cost reduction effects in the long term."
Former Minister Lee emphasized that not only policies targeting the three telecom companies but also the development of technologies that can reduce the cost of telecommunications itself must be pursued. He noted, "I frequently heard complaints that the three telecom companies are suffering from increased electricity costs, and the government should actively support the development of new technologies that allow them to operate network equipment with lower power consumption." The following is a Q&A session with former Minister Lee.
─I have consistently advocated for the repeal of the MDDA during my term.
"The MDDA was established with the intention of allowing everyone to purchase mobile phones at lower prices without discrimination. However, over time, it has deviated from its original purpose. Even when visiting sites such as telecom company dealerships, the consensus was that the MDDA should be repealed. I believe it is necessary to repeal the MDDA to revive a free market competition system in the telecommunications sector."
─Will the effect of reducing communication costs appear immediately after the repeal of the MDDA?
"I believe it will be difficult to see effects in the short term. Telecom companies are in a situation where they need to accelerate investments in new businesses such as AI and cloud. In other words, they do not have the capacity to invest a lot in subsidies to attract subscribers. Smartphone manufacturers are also facing increased raw material burdens due to recent surges in exchange rates. Therefore, manufacturers are unlikely to expand their subsidies immediately."
─Are there any other side effects?
"There are concerns about stagnation in the budget mobile market. If the subsidies from the three telecom companies increase, even slightly, it is inevitable that budget mobile subscribers will leave due to price sensitivity in their plans. This could also weaken the competitiveness of domestic smartphone manufacturers. Even if the scope of the manufacturers' subsidies is submitted only to the government and not disclosed publicly, there is a possibility of leaks due to reasons such as government audits. In this case, users in overseas markets may also demand similar or larger subsidies, leading to increased burdens for manufacturers."
─Will there be no positive effects from the repeal of the MDDA?
"I believe that in the long term, consumer benefits will increase. In particular for telecom companies, securing subscribers is essential to maintain new businesses like AI. For example, in order to enhance AI performance through learning, data provided by subscribers is essential. If the confusion that arises in the market right after implementation is resolved well, it can lead to positive effects."