Since the beginning of the new year, there has been a growing sense of crisis in the budget mobile phone industry. This is due to the fact that starting this year, budget mobile phone companies will be charged an allocation of radio fees, and the obligation for information protection management systems (ISMS) will increase the expense burden. Under these circumstances, beginning in April, the subject of negotiating wholesale prices for network usage with the three mobile carriers will be shifted from the government to individual budget mobile phone companies, which have less negotiating power, making it even more difficult to maintain price competitiveness. The repeal of the Mobile Device Distribution Improvement Act (unit pricing law), which limits subsidies from the three mobile carriers, is also expected to accelerate the migration of budget mobile phone subscribers to the larger carriers.
◇ Beginning in April, post-regulation on network usage fees... the risk of losing price competitiveness for budget mobile phones
According to the Korea Communications Operators Association on the 10th, the number of subscribers migrating from budget mobile phones to the three mobile carriers last year was 632,119, an increase of 45.4% compared to the previous year. The net increase in subscribers moving from the three mobile carriers to budget mobile phones was 377,432, which represents a decrease of about 53% compared to 2023 (800,896). The net increase in subscribers is the figure derived from the number of customers that entered budget mobile phones from the three mobile carriers minus those who migrated to the carriers.
As budget mobile phone subscribers are migrating to the three mobile carriers, coupled with a lack of signs for a recovery in the market, some budget mobile phone companies are declaring their exit from the industry. In December last year, Sejong Telecom announced its withdrawal from the budget mobile phone business, and earlier this month, Yeyu Mobile officially announced the end of its budget mobile phone operations.
The budget mobile phone industry complains that negotiations to lower wholesale usage prices with the three mobile carriers have been delayed for over two years, making it difficult to offer lower-priced rate plans, contributing to stagnation in the budget mobile phone market. An industry official stated, "Budget mobile phones are operated primarily using the 4G (fourth generation mobile communication) network, but the three mobile carriers, which are already providing services focused on 5G, have been postponing negotiations to lower the 4G network usage prices since 2022." They added, "After April this year, the method of negotiating wholesale network usage prices will change from pre-regulation to post-regulation, and after April, it will be too late for any reductions in those wholesale prices."
Pre-regulation is a method in which the Ministry of Science and ICT negotiates network usage wholesale prices with the three mobile carriers on behalf of budget mobile phone companies. In contrast, post-regulation involves individual budget mobile phone companies negotiating wholesale usage prices with the three carriers, with the Ministry reviewing the outcomes afterward. Following the amendment of the Telecommunications Business Act last year, pre-regulation will only be maintained until March of this year, with post-regulation taking effect in April. For this reason, the budget mobile phone industry argues that negotiations to lower wholesale prices must conclude by March to enable them to reformulate competitive pricing. They stress that government involvement is essential to ensure that the three mobile carriers agree to reduce wholesale prices on behalf of the smaller budget mobile phone companies, which have low negotiating power.
◇ The burden of radio fees and ISMS certification increases... adverse factors continue with the repeal of the unit pricing law
The allocation of radio fees (a management tax imposed for the use of national resources, radio waves) imposed on small budget mobile phone companies from this year can also weaken price competitiveness. Starting this year, 20% of the radio fees will need to be paid; in 2026, 50%; and from 2027, the full amount will be due. According to the industry, from 2027, an additional expense of approximately 2,000 won per budget mobile phone line will arise. Until now, the government has exempted the radio fees of small budget mobile phone companies, excluding those of the three mobile carriers' subsidiaries.
By August of this year, budget mobile phone companies will also be required to establish ISMS certification, which places further burdens on the small operators. The ISMS is a comprehensive management system certified by the Korea Internet & Security Agency (KISA) that outlines the minimum protective measures needed to respond to cyber attacks. The establishment of ISMS reportedly requires an initial expense of about 200 million won, with certification renewal fees reaching between 9 million and 15 million won every three years.
Though the removal of the unit pricing law will lift the restrictions on subsidies starting in July, there is speculation that funds may be more focused on attracting budget mobile phone subscribers rather than on competition among the three carriers to acquire new customers. An industry official mentioned, "There are internal discussions that if the unit pricing law is repealed, the subsidies from the three mobile carriers will be directed toward attracting budget mobile phone subscribers," adding, "It seems that an implicit consensus is forming around attracting subscribers from the budget mobile phone sector rather than competing for acquiring subscribers from the three carriers."
Professor Ahn Jeong-sang, a visiting professor at the Graduate School of Communication at Chung-Ang University, noted, "Budget mobile phone companies, which rely on the communication networks of the three carriers, find it difficult to independently enhance their pricing competitiveness, with the increasing burdens of radio fees and ISMS certification expenses pushing up budget mobile phone rates. The budget mobile phone industry is currently in the worst situation, facing a future with no clear prospects." Professor Ahn further pointed out, "The implementation of the subscriber support program last year and the introduction of low-priced plans by the three mobile carriers were initiated by government policy, which has also contributed to the migration of budget mobile phone subscribers," adding, "Conflicting government policies are also a problem."