South Korean carriers take up to 70% off smartphones to lock customers into contracts
On the Galaxy S5's official global launch day, a report by beSUCCESS shed more light on the government sanctions that made South Korean carriers sell the flagship smartphone ahead of Samsung's schedule. The media describes Samsung's homeland as "one of the most technologically advanced markets in the world" with the highest number of smartphone owners. There's hardly any more room for growth inside the highly saturated market, which is pushing the three domestic telecoms into fierce competition.
To whisk customers away from each other, SK Telecom, KT Corp, and LG U+ resort to large smartphone subsidies - up to 70% off the retail price, together with a contract. In their growth pursuits, the carriers breach legal regulations that place the subsidy barrier at a maximum of $260 (270,000 won) off, and undercut prices, leading to government intervention.
In the most recent case, each carrier was banned from selling smartphones for a 45-day period between March and May - a measure which rendered them unable to sell the Samsung Galaxy S5 after its official April 11 launch date.
Previously, the Korea Communication Commission (KCC) fined KT Corp and imposed a 7 day business suspension last July, and last December, all three carriers were fined a combined amount of $102 million (106.4 billion won).
The KCC would rather have South Korean carriers decrease the prices of their mobile usage plans.
This pricing model is borrowed by carriers from the United States, although the country's major carriers have been behaving themselves in terms of pricing. The last time the Federal Communications Burreau fined a US carrier was last November, which saw Conexions Wireless, I-wireless, and True Wireless fined about $33 million altogether for breaching rules of the government's Lifeline program. There have been no recent business suspensions.
While increased subsidy probably looks like a great thing from consumer point of view, the KCC would rather have the carriers decrease the prices of their mobile usage plans, which would be more beneficial to both the clients and the industry. The penalties are said to be temporary solitions until the regulatory organ implements a long-term solution.