KT recently released a 450 billion won customer compensation plan for a hacking incident, but some critics say it is merely for show. That is because it did not include bill discounts, the biggest benefit for subscribers, in the plan. It stands in contrast to SK Telecom, whose operating profit in the third quarter last year plunged 90% after it implemented a 50% bill discount for the month of Aug.
KT on the 30th of last month released a 450 billion won compensation plan (customer appreciation program) related to the unauthorized small-sum payment hacking incident. The compensation consists of 100 gigabytes (GB) of data provided for six months, online video service (OTT) vouchers, and partner membership discounts. It also pledged to invest 1 trillion won in information security over the next five years, bringing total spending to 1.45 trillion won. By amount alone, this is 250 billion won more than SK Telecom's investment (1.2 trillion won) in Jul. last year. SK Telecom pledged a 500 billion won customer appreciation package (50GB of data for five months, 50% partner membership discounts, and a 50% bill discount for the month of Aug.) along with a 700 billion won information security investment.
What stands out most in KT's plan, however, is the omission of bill discounts. Why did KT exclude bill discounts, the biggest benefit for subscribers, from its plan? Industry watchers say it was a decision mindful of earnings impact. SK Telecom implemented a 50% bill discount for all customers for the month of Aug. last year. The industry estimates SK Telecom spent about 350 billion won on the bill discount alone. As a result, operating profit in the third quarter last year came to 48.4 billion won, down 91% from 533.3 billion won a year earlier. This was not merely a 350 billion won drop in revenue; it had the effect of the same amount being deducted from operating profit. Due to the characteristics of the telecom business, fixed expenses exist, so revenue declines from bill discounts translate directly into operating profit declines.
As of the end of the third quarter last year, KT's average revenue per user (ARPU) was 35,295 won. A 50% discount would yield about 17,647 won in savings per person, and applying that to the entire subscriber base (13.68 million) would cost an estimated 241.4 billion won. A telecom industry official said, "If KT implements a 50% bill discount for the month of Jan., 241.4 billion won would be taken straight out of first-quarter operating profit," adding, "That may be why the company included more than double the additional data—something that costs no extra money—compared with SK Telecom."
Kwon Hee-geun, head of KT's Customer Division Marketing Innovation Headquarters, said, "We wanted to provide a variety of benefits over a long period, not a one-off," adding, "Another reason is that the scope of data exposure in the hacking incidents at SK Telecom and KT is fundamentally different. For about 22,000 victims, there was an actual personal data leak, and in Oct. we implemented not only bill discounts (150,000 won per person) but also free data and penalty waivers for them."
KT is limiting the scope of the leak to about 22,000 victims. But looking at the actual scale of the hacking, KT surpassed SK Telecom. SK Telecom was found to have 33 types of malware and 28 servers infected, while KT had 103 types of malware and 94 servers infected. The route through which personal data used for unauthorized small-sum payments was leaked remains unknown.
KT has also previewed benefits for partner membership discounts, but the specific discount rate has not yet been disclosed. This contrasts with SK Telecom, which released a 50% membership discount rate on the very day it announced the final hacking investigation results in Jul. last year. Shin Hyun-doo, head of the Korea Consumer Association, said, "For customers who do not need 100GB of extra data or partner membership discounts and for those who do not watch OTT, this is effectively no compensation," adding, "Excluding bill discounts for all customers is an insult to consumers."