The budget mobile phone industry is introducing ultra-low-cost 5G (fifth-generation mobile communication) plans to attract subscribers. This is because a policy has recently been established to reduce the wholesale prices (network rental fees) that budget mobile phone companies pay to the three major telecom providers (SK Telecom, KT, LG Uplus).
This policy was implemented to provide a foundation for budget mobile phone companies to be able to achieve significant revenue without relying on government support. However, questions about the policy's effectiveness have arisen as the funds saved from the wholesale prices are essentially being used again for the sale of ultra-low-cost plans, which are not generating profits.
According to the budget mobile phone plan comparison site "Budget Phone Hub" as of the 27th, there are currently a total of 49 types of 5G budget mobile phone plans with monthly fees under 10,000 won. This includes 16 plans under 5,000 won and 4 plans under 1,000 won. Among them, the lowest priced plan is from Story Mobile, which offers 1GB of data, 100 minutes of voice calls, and 100 text messages for 100 won per month. The 5G low-cost plans under 1,000 won will transition to about 7,000 won after 6 months.
As of June of last year, there were 25 types of 5G budget mobile phone plans under 10,000 won, and only 7 types under 5,000 won. At that time, the cheapest 5G plan was 990 won per month. The number of 5G low-cost plans has nearly doubled in a year, and the price floor has also been lowered further.
In January, the Ministry of Science and ICT announced it would lower the volume-based wholesale rates that budget mobile phone companies must pay to the three major telecom providers (SK Telecom, KT, LG Uplus) by up to 52% (from 1.29 won/MB to 0.62 won/MB) without distinguishing between 5G and LTE (fourth-generation mobile communication). Budget mobile phone plans are divided into flat-rate and volume-based (RM) systems. Flat-rate plans refer to services that are relatively cheaper by reselling products configured similarly to those of the three major telecom providers, while volume-based plans refer to those created by budget mobile phone companies themselves.
With the Ministry of Science and ICT significantly lowering the volume-based wholesale rates, budget mobile phone companies have recently started launching 5G plans that provide 28GB of data for around 10,000 won. Currently, budget mobile phone companies that have completed negotiations on wholesale prices with SK Telecom are offering more than 20 types of plans, and it is expected that companies that have completed negotiations with LG Uplus will also add similar plans.
The Ministry of Science and ICT established this policy to ensure that budget mobile phone companies do not rely on subsidies received from the three major telecom providers when launching low-cost plans. The intention is to enable the budget mobile phone industry to achieve a certain scale of revenue through their own products and become self-sustaining. The industry estimates that budget mobile phone companies receive between 50,000 and 100,000 won in sales incentives from the three major telecom providers for each subscriber they attract.
It is reported that when budget mobile phone companies sell flat-rate 5G plans, they must pay 60% of the revenue per subscriber as a wholesale price to the three major telecom providers. This essentially means that no revenue can be generated from 5G low-cost plans.
However, from the perspective of budget mobile phone companies, it is urgent to prevent subscriber loss through low-cost plans. According to the Korea Telecommunications Operators Association (KTOA), the net increase in budget mobile phone number transfers was 42,426 in February, down 35% from 65,245 in February of last year.
Additionally, with the anticipated increase in subsidies from the three major telecom providers to attract subscribers after the abolition of the Device Distribution Act (Dan-Tong Law) in July, it is expected that budget mobile phone companies will lose more subscribers to the three major telecom providers. The three major telecom providers are also expected to offer various additional benefits. On that day, KT announced that starting May 8, it will remove limits on discounts available with points and revamp the membership system to allow more diverse benefits at partner locations. The industry expects SK Telecom and LG Uplus to strengthen their membership benefits as well.
Professor Kim Byung-jun of the Catholic University of Korea noted, "Budget mobile phone companies that have gained some leeway through government support are starting to engage in bloody competition with low-cost plans again," adding, "The operational model of attracting subscribers with low-cost plans while sacrificing revenue will be difficult to sustain in the long run."