It has been more than ten days since the 'Act on Improvement of Distribution Structure of Mobile Communications Devices (the Device Subsidy Act)', which regulated the mobile communications market for 11 years, was abolished, but the market continues to flow relatively calmly without significant disturbance. When the repeal of the Device Subsidy Act was imminent, there were prevailing forecasts both inside and outside the industry that subsidies competition would intensify, but as we are now beyond the second week of its implementation, the strategies of telecommunications companies appear to be cautious.
According to the telecommunications industry on the 3rd, the number of number transfers from the 22nd to the 31st of last month, after the repeal of the Device Subsidy Act, amounted to 152,411, averaging about 15,000 per day. This is a figure that has increased by as much as two times compared to early to mid-April before the SK Telecom hacking incident (about 7,000 to 10,000 daily), but compared to May and June, when subscriber churn was concentrated due to the hacking aftermath, it is not a remarkable change.
The main reason is that consumers do not perceive substantial price advantages in the device replacement process that would make them switch telecommunications companies in large numbers. According to recent reports from online communities and offline retailers, the distribution network is offering additional subsidies of 600,000 to 800,000 won when purchasing a Samsung Electronics flagship model and maintaining a high-cost plan of over 100,000 won per month for about six months.
The common subsidy provided by the three telecommunications companies (previously known as the public subsidy) is also at a similar level, leading to little perceived difference from before the repeal of the Device Subsidy Act from the consumer's standpoint. Although some 'holy sites' have aggressive support policies on their own, this cannot be viewed as a trend for the entire market.
The industry cites 'taking caution' as the biggest background for this atmosphere. There is a burden that if someone releases excessive subsidies first, it could trigger a fierce competition that becomes a major cause of market confusion. There are also concerns that engaging in excessive marketing without a reorganized enforcement decree could attract the monitoring of the Korea Communications Commission.
Another factor is the lack of new products. Although Samsung Electronics' 'Galaxy Z Flip7 and Fold7' have just been released, the prices for the Fold7 are still high, at 2,379,300 won for the 256GB model and 2,537,700 won for the 512GB model, making it a significant entry barrier.
The structure of the telecommunications market has also changed from the past. Back in 2014, when the Device Subsidy Act was first implemented, the offline stores of the three telecommunications companies were the main distribution network, but recently the combination of self-sufficient phones and budget phones has become the trend. According to the Ministry of Science and ICT, as of June last year, the utilization rate of self-sufficient devices was 32.6%, meaning that one out of every three devices was purchased directly from online sources without going through a telecommunications company.
The market share of budget phones is also increasing. The proportion of budget phones among all mobile communication lines rose from 6.85% in December 2019 to 17.47% in May of this year, narrowing the gap with LG Uplus (19.45%) to about 2 percentage points. As the distribution structure shifts from offline to online, illegal subsidy competition like in the past has decreased, and benefits are now distributed through various methods such as card partnerships, membership discounts, and coupons, which has also lowered consumer perceptions.
However, the industry is paying attention to the possibility that the atmosphere may change after the third quarter. With the impending release of Apple's iPhone 16 series, which is seeing a surge in demand despite its high price, competition among telecommunications companies to attract subscribers could intensify, and the forthcoming release of Samsung Electronics' 'Galaxy S26' series in the first half of next year could also act as a catalyst.