Recently, from the chairperson companies to new operators with less than a year of experience, the budget phone industry has been leaving due to worsening business conditions. Although the government announced supporting measures this month to revive the struggling budget phone market, there is a 'half-hearted' atmosphere regarding their effectiveness both inside and outside the industry.
According to the industry on the 17th, it has been confirmed that OPASnet reported the termination of its budget phone business to the Ministry of Science and ICT in December last year. This decision came about 10 months after entering the budget phone market in February last year.
The company exceeded 3,300 subscribers in May last year, but it is known that the number of subscribers sharply declined to the 1,700 range by December of the same year, when it terminated its business. Due to worsening business conditions, the budget phone company Yeooy Mobile also ended its operations at the end of December last year, and SEJONG Telecom, the chairperson company of the Korea Budget Telecommunications Association, officially announced the sale of its budget phone business last month.
The repeated termination of businesses by budget phone operators is because there seems to be no sign of improvement in business conditions. This year, the payment of radio usage fees that had been exempted until now will begin, and there are expected to be increased cost burdens, including the mandatory implementation of the Information Security Management System (ISMS). The impact of the 'conversion support fund' (providing separate support funds for number porting subscribers) that started last year is accelerating the migration from budget phones to mobile carriers. According to the Korea Telecommunications Operators Association, the number of subscribers migrating from budget phones to the three major mobile carriers last year was 632,119, a 45.4% increase from the previous year.
In this situation, the Ministry of Science and ICT announced measures to revitalize the budget phone market on the 15th. The government's measures can be summarized into two main points: lowering the wholesale rate (network usage fee) of mobile carriers from 1.29 won per MB to 0.82 won, a reduction of about 36%, and providing a 25% additional discount on the wholesale rate for budget phone companies that pre-purchase more than 50,000 TB (terabytes) of data annually from mobile carriers.
In the case of fixed-rate wholesale pricing, budget phone companies resell products with the same structure as the mobile carriers at a lower price, with a certain percentage of the fixed rate set as the wholesale price. In contrast, for pay-as-you-go wholesale pricing, budget phone companies configure their own rate plans and settle the wholesale price afterward based on the amount used by subscribers. With fixed-rate pricing, only the wholesale price set at the time of the contract with the mobile carrier needs to be paid, but with pay-as-you-go pricing, the more data the budget phone subscriber uses, the higher the expense paid to the mobile carrier.
There is skepticism among some that the government's measures lack effectiveness. This is because most budget phone operators pay fixed-rate wholesale prices to sell their rate plans. A representative from the budget phone industry noted, 'Because of profitability issues, less than 10% of budget phone companies pay the pay-as-you-go wholesale rate,' adding, 'The majority of budget phone companies pay fixed-rate wholesale prices, but the government continues to focus solely on reducing the pay-as-you-go wholesale rate, which is frustrating.'
The last wholesale price negotiation with mobile carriers took place in December 2022, during which the government focused on reducing the pay-as-you-go wholesale rate. At that time, the pay-as-you-go wholesale rate was lowered from 1.61 won per MB to 1.29 won, a reduction of about 20%, while the fixed-rate wholesale price was only decreased by 2 percentage points, from the existing 62% to 60%.
According to the Ministry of Science and ICT, while the pay-as-you-go wholesale rate has decreased by about 43% from 2.28 won per MB in 2020 to 1.29 won in 2022, the average revenue per subscriber (ARPU) for budget phone subscribers rose by 7.1%, from 10,421 won in 2020 to 16,008 won in 2023. An industry insider stated, 'The rise in ARPU indicates that the rates in the budget phone sector have not decreased, and it has been proven that reducing the pay-as-you-go wholesale rate has not been effective in lowering budget phone rates.'
Regarding the government's announcement of the large data pre-purchase discount policy, criticisms have emerged that small budget phone companies are unlikely to benefit. This is because the annual data usage of upper-budget phone companies, such as those affiliated with mobile carrier subsidiaries, is only around 10,000 to 20,000 TB, meaning that there are currently no companies eligible for additional reductions in wholesale rates.
An Jeong-sang, an adjunct professor at Chung-Ang University's Graduate School of Communication, stated, 'Excluding mobile carrier budget phone subsidiaries, there are no companies capable of pre-purchasing this level of data,' and added, 'It is unlikely that mobile carrier subsidiaries used over 50,000 TB of data last year. The government is implementing policies that do not align with reality, which only exacerbates market confusion.' He further remarked, 'The government's measures this time can be likened to a 'hollowed-out argument' missing core elements.'