Recently, the repeal of the Telecommunications Device Distribution Structure Improvement Act (also known as the Device Support Act) has lifted the restrictions on the subsidies that telecommunications companies provide to subscribers when signing up for mobile phones. As 'free phones' have begun appearing across the country, there are growing concerns that consumers who have purchased smartphones at full price and signed up for low-cost mobile plans will defect. Inside and outside the low-cost mobile phone industry, there are calls for policy improvements to allow manufacturers to provide device subsidies previously given to telecommunications company customers to low-cost mobile plan subscribers as well. However, there are indications that making manufacturer subsidies mandatory for low-cost mobile subscribers could expose the scale of the subsidies, which are considered trade secrets, making implementation practically difficult.
◇ The low-cost mobile association president's plea for 'manufacturer subsidies'
According to the industry on the 25th, to prevent a decline in subscribers due to the repeal of the Device Support Act, discussions are emerging in and out of the low-cost mobile phone industry, stating, 'We also need to improve the market structure to provide device subsidies.' Recently, Ko Myeong-soo, president of the Korea Low-Cost Mobile Business Association, also made this argument. President Ko noted, 'If the device subsidies provided by telecommunications companies increase following the repeal of the Device Support Act, the low-cost mobile phone industry, which primarily serves self-purchase phone customers, will be hit hard,' and added, 'There needs to be a system improvement to provide the device subsidies that manufacturers currently offer only to telecommunications subscribers to low-cost mobile plan subscribers as well.'
It is somewhat natural that the low-cost mobile phone industry feels a sense of crisis due to the repeal of the Device Support Act. To subscribe to a low-cost mobile plan, one must purchase a self-purchase phone or a used phone. However, if consumers can get a free phone from a telecommunications company, there is no longer a reason to pay full price for a self-purchase phone or a used phone that costs 40–50% of the full price. As a result, subscribers who would have switched to low-cost mobile plans may have no choice but to go to telecommunications companies. Additionally, the allowance for providing extra subsidies to subscribers who choose a 25% rate discount from telecommunications companies has heightened the sense of crisis within the low-cost mobile phone industry. Telecommunications companies can offer more attractive benefits, making it more likely that self-purchase phone or used phone buyers will opt for telecommunication companies for the 25% rate discount instead of low-cost plans.
◇ 'Manufacturer subsidies are considered a payment for sales agency'
Originally, telecommunications company subsidies are structured to be shared between manufacturers and telecommunications companies. Since telecommunications companies directly sell devices on behalf of manufacturers, the structure evolved to one where manufacturers share their subsidies with telecommunications companies. This was not mandated legally but formed naturally according to market logic. In contrast, low-cost mobile plans do not sell manufacturer devices directly like telecommunications companies. Even if manufacturers were to provide subsidies, they do not have the nationwide offline distribution network needed for such sales like telecommunications companies.
Customers who purchase devices through telecommunications companies receive subsidies, while customers who buy from manufacturers receive no subsidies at all. This may seem unfair at first glance. On the flip side, is it fair for a consumer who buys a device that a manufacturer has invested in maintaining a distribution network and selling directly to, to then receive a subsidy when they subscribe to a low-cost mobile plan? Some in the telecommunications industry argue that 'the claim that manufacturers should provide subsidies merely because low-cost mobile plans are struggling contradicts market logic, since low-cost mobile plans have done nothing to promote the sale of manufacturer devices.'
◇ Manufacturers wary of exposing trade secrets
If manufacturers provide subsidies exclusively to low-cost mobile plans, the amount of discounts given per device would be clearly exposed to the public. For this reason, from the perspective of manufacturers, making 'low-cost mobile subsidies mandatory' could be burdensome. Competing in the global market against smartphone manufacturers from the U.S. and China, if subsidy information becomes public, there might be demands for similar subsidies abroad, just as in Korea. This could inevitably disrupt overseas operations.
On the 22nd, alongside the repeal of the Device Support Act, a new obligation was introduced requiring manufacturers to submit information related to sales incentives (rebates) to authorities. If the provision of manufacturer subsidies to low-cost mobile subscribers is made mandatory in the future, the industry perceives that manufacturers will have no choice but to eliminate or drastically reduce both subsidies and sales incentives.
Sales incentives are utilized as promotional funds that can be employed by distribution points, separate from public subsidies. Manufacturers have hesitated to expose the smaller scale of sales incentives compared to public subsidies. Although it has been stated that such information is only submitted to government authorities, concerns over external leaks have sparked significant opposition to the newly established obligation. However, making low-cost mobile manufacturer subsidies mandatory would publicly disclose the scale of manufacturer subsidies, which would likely result in widespread opposition from manufacturers. At the same time, low-cost mobile operators, which lack sufficient resources, cannot publicly reveal combined amounts of their own subsidies along with manufacturer subsidies like telecommunications companies can. An industry insider noted, 'The burden of having subsidy and sales incentive amounts—which are considered trade secrets—exposed may lead manufacturers to considerably cut them, resulting in negative effects.'