The government released the final findings on the KT hacking breach on the 29th, saying it holds the position that KT is responsible for waiving termination fees for all subscribers. The telecom industry expects subscriber defections from KT to worsen, as number porting to other mobile carriers will be possible without termination fees even if contract periods remain. Some in the industry also say that with Kim Young-shub deciding not to seek another term as KT president and no control tower in place to manage the current hacking fallout, there is a need for the early appointment of a new CEO.
◇ Concern over mass subscriber defections due to termination fee waivers
The Ministry of Science and ICT said on the 29th that KT must apply the termination fee waiver provision in its terms of service to all subscribers. The ministry said it focused on determining whether KT was negligent in the hacking breach and whether it violated its primary obligations in providing telecommunications services to all users.
Although the Ministry of Science and ICT, the lead ministry, decided to waive termination fees, the specific waiver period has not been set. Second Vice Minister Ryu Je-myeong said, "I think KT will make an appropriate decision on the termination fee waiver period in line with public expectations, as in the SK Telecom case."
SK Telecom waived termination fees for 10 days from July 5 to 14 this year, the day after the final hacking breach findings were released. Because it applied the period retroactively to Apr. 22, when the hacking came to light, it effectively waived fees for a total of 85 days. According to the telecom industry and the Korea Telecommunications Operators Association (KTOA), during the fee waiver period (from Apr. 22 to July 14), SK Telecom's net subscriber decline (excluding budget phones) reached 601,376.
The problem is that trust has plummeted among subscribers. Although the Ministry of Science and ICT released the final findings, even though unauthorized small-amount payment damages occurred through hacking of femtocells (small base stations), the route of personal information theft has not yet been identified. As a result, subscribers' anxiety is not expected to be fully resolved. The drop in trust due to KT's poor femtocell management and the issue of uncollected femtocells are also raising the likelihood of subscriber churn. In terms of hacking scale, it surpasses SK Telecom. SK Telecom had 33 types of malware discovered and 28 infected servers, but KT was exposed to 103 types of malware, and 94 servers were found infected.
◇ A looming subsidy war targeting customers with termination fee waivers
On top of this, many expect that if a subsidy war intensifies among carriers targeting KT customers eligible for termination fee waivers, subscriber defections at KT will worsen. The prevailing view is that the situation will unfold differently from when SK Telecom waived termination fees in July. According to the telecom industry and KTOA, from July 5 to 14 this year, when SK Telecom began waiving cancellation fees, the net subscriber decline was 79,171, averaging 7,917 per day.
A telecom industry official said, "From late April to June, right after the SK Telecom hacking incident, rival carriers (KT and LG Uplus) poured in large subsidies to induce SK Telecom subscribers to switch," adding, "When fees were waived in July, subsidies did not exceed expectations because carriers had largely exhausted their marketing budgets." The official added, "The situation is different now. Since September, when the KT hacking incident surfaced, there has been no subsidy competition among carriers, and in January next year carriers' marketing budgets will increase, so if SK Telecom and LG Uplus sharply raise subsidies to target KT's canceling subscribers, defections could worsen."
◇ "The bigger problem is the absence of a control tower"
Another reason SK Telecom was able to minimize subscriber churn despite announcing fee waivers in July was its swift response. At the time, SK Telecom unveiled a 1 trillion won customer compensation plan and focused on expanding benefits for existing subscribers. It said it would offer a 50% discount on August phone bills, provide an additional 50 gigabytes (GB) of data each month through December this year, and give 50% discounts at major membership brands.
Even comparing only the decision on the fee waiver application period, KT is slower than SK Telecom. SK Telecom announced its fee waiver period on the same day the Ministry of Science and ICT released the final hacking findings. But KT is said to be still discussing the agenda. A telecom industry official said, "The bigger problem KT faces is that swift decision-making is impossible due to the absence of a control tower until March next year, when a new CEO will be appointed," adding, "If it fails to quickly roll out a compensation plan to keep existing subscribers from leaving, there will be no way to prevent mass defections."
Some in the industry say there is a growing need for an early start by Park Yun-young, the former KT president selected as the final candidate for the next CEO of KT. Kim Kyeong-won, a chaired professor in the Department of Business Administration at Sejong University, said, "For telecom companies, subscriber churn, given the nature of the business, causes major losses, and leaving it unaddressed runs counter to shareholders' interests," adding, "To protect shareholder value, a control tower must be established so that swift decisions can be made in a crisis. It is a situation where an extraordinary shareholders meeting should be convened to discuss the agenda of appointing a new CEO."