Low-cost phone subsidiaries affiliated with the three mobile carriers are jumping into a "felt zero won" rate plan battle by front-loading cash-like perks such as Naver Pay, Coupang Cash and gift certificates. The list price of the plan stays the same, but freebies are attached to lower the amount consumers actually pay to around zero won. The Ministry of Science and ICT has restricted carrier-affiliated subsidiaries from launching products below wholesale rates to ensure fair competition in the low-cost phone market, but industry officials say a workaround competition using cash-like benefits is undermining the purpose of the regulation.
◇ List prices unchanged… "felt zero won" via N Pay, Coupang Cash and gift certificates
According to the industry on the 19th, LG Uplus's low-cost phone subsidiary U+ Mobile is running a "May only, same price with 10GB more data" promotion through May 24. By entering the event code "Lucky day" and activating an eligible promotional plan, users receive Naver Pay points worth 90,000 won, paid as 15,000 won per month for six months. An extra 10 gigabytes (GB) of data is also included.
Based on the monthly payment shown on the U+ Mobile website, all six eligible plans fall to a felt price of zero won or below when factoring in Naver Pay points. LTE 10GB·100 minutes and 5G 10GB·200 minutes are 9,900 won per month, 5G 10GB·basic calling is 12,500 won per month, 5G 15GB·200 minutes is 13,900 won per month, and 5G 15GB·300 minutes is 14,400 won per month, while Naver Pay points worth 15,000 won are paid each month. Even the 5G 15GB+·300 minutes plan at 16,900 won per month provides points worth 20,000 won monthly, so the benefits exceed the phone bill. For consumers, the effect is close to a "negative rate plan."
KT's low-cost phone subsidiary KT M Mobile is also running a "the more you use Coupang, the lower your phone bill" event through May 31. For the 18,500 won-per-month 7GB+ plan (up to 22GB with data benefits applied), it pays 5,000 won in Coupang Cash each month as an affiliate perk, and by going through M Shopping Discount (a shopping rewards and bill discount service for KT M Mobile customers) when shopping on Coupang, users can earn 1.8% of the purchase amount and get up to 20,000 won off their phone bill, according to its promotion. KT M Mobile is touting the plan as having a "felt monthly price of zero won the more you use Coupang."
SK telink's Seven Mobile, affiliated with SK Telecom, also recently ran a similar gift certificate promotion. While pricing the LTE SIM 10GB+·1,000 minutes plan at 18,900 won per month, the 8GB+·1,000 minutes plan at 16,900 won per month, and the 6GB+·1,000 minutes plan at 15,400 won per month, it guided consumers to a "felt zero won per month." It pays an Olive Young gift certificate worth 10,000 won every month for 12 months, and for unlocked Galaxy and iPhone subscribers, it adds another 10,000 won gift certificate each month for five months. For the 10GB plan, benefits exceeded the monthly payment during the first five months.
Inside and outside the industry, some say this method effectively circumvents and violates the restriction on selling below wholesale rates. Wholesale rates are the expense paid by low-cost operators to rent the mobile carriers' networks. If a carrier subsidiary sells a plan below the wholesale rate, small and midsize low-cost operators that lease the same network find it hard to withstand price competition. This is why the government has attached separate registration conditions to carrier subsidiaries to restrict the launch of products below wholesale rates. An industry official said, "If the list price is kept above the wholesale rate while attaching cash-like freebies, you can avoid controversy over below-wholesale sales but make it look to consumers like a de facto zero-won plan," adding, "The regulation's form may be observed, but its purpose can be weakened."
◇ Small low-cost operators counter with 10-won plans… "competition with no real gain"
The ultra-low-price fight led by large corporate subsidiaries is squeezing the profitability of small low-cost operators. Smaller players such as Eyes Mobile, Tplus and Fin Direct are also running steep discounts at around 10 won per month for more than five months to defend their subscriber bases. Considering wholesale rates, spectrum usage fees and call center operating costs, the industry says this is competition with almost no real gain.
The low-cost phone market was originally introduced to spur competition in a carrier-dominated telecom market. But if carrier-affiliated subsidiaries use cash-like benefits to absorb subscribers, small operators inevitably lose ground. Large corporate affiliates with strong capital can absorb losses for a period to secure subscribers, but small firms find it hard to sustain long-term promotions of the same kind.
The industry believes that if the current restriction on sales below wholesale rates is enforced by looking only at the nominal price of plans, it will be hard to block a workaround competition via cash-like benefits. While price competition in the low-cost phone market does translate into consumer benefits, there is growing concern that long-running, subsidy-like promotions by large corporate affiliates could lead to the exit of small operators and market concentration.
A low-cost phone industry official said, "Small operators cannot maintain zero-won plans for long," adding, "If carrier subsidiaries pull in subscribers by front-loading freebies, small operators have no choice but to mount counter-promotions while taking losses."