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Subsidy lift shows muted effects

Oct 03,2017
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Customers are not expected to see huge discounts on premium phones like Samsung’s Galaxy Note8 despite the government on Sunday lifting a cap on subsidies for new phones.

Instead, the loosened restrictions will likely result in better deals for mid-to-low-priced phones, industry sources said Monday.

For years, mobile carriers in Korea have offered subsidies to customers who purchase new phones with a cellular plan, and since 2014, the government has capped the subsidy that companies can offer at 330,000 won ($290).

On Sunday, that limit was scrapped, and KT immediately raised the subsidy on its low-priced Galaxy J7 phones to a maximum 345,000 won. Considering the retail price of a Galaxy J7 is 396,000 won, customers can almost get the phone for free if they subscribe to a cellular plan of 60,000 won a month or more.

Other mobile carriers, too, raised the amount of subsidies offered on some phones, though they did not exceed the previous cap of 330,000 won. SK Telecom is giving 250,000 won to purchasers of Chinese TCL’s cheap Sol Prime smartphone, while LG U+ is offering 278,000 won for LG Electronics’ Stylus 2.

Both amounts were set based on the condition that customers subscribe to phone plans that cost 32,890 won per month, the cheapest available. Customers will only have to spend a little or pay nothing at all to buy these low-priced phones with the new subsidies, industry analysts said.

However, since these phones are off the radar compared to hot releases like Samsung’s Galaxy S8 and Apple’s iPhone 8, many believe the eased regulation will do little to satisfy customers.

“We already raised the discount ceiling on monthly phone bills from 20 percent to 25 percent for long-term plan subscribers on Sept. 15,” a source in the telecom industry said. “With the government likely to push for additional policies to cut down on monthly household phone bills, it is hard for mobile carriers to increase the amount of subsidies.”

In Korea, customers who buy a new phone can forgo the subsidy altogether and instead opt for a monthly discount on their cellular bill.

President Moon Jae-in during his campaign promised to lower phone bills, calling the costs a major burden on households. Since he took office in May, his administration has considered various ways to fulfill the pledge, including having manufacturers allow customers to buy unlocked phones and having mobile carriers offer cheaper plans that come with minimal services like 210 minutes of voice calling and less than 1.3 gigabytes of data.

With the subsidy cap lifted, the Korea Communications Commission said it would spend this month closely watching the market. With Chuseok, one of the country’s biggest holidays, running through the first week of this month, the commission presumed it could be a period of chaotic competition between carriers to attract more customers with eye-catching deals.

“The market will have to wait at least until November to see the real impacts of the policy,” said Ahn Jeong-sang, a Democratic Party member of the National Assembly Secretariat. “It will be better for consumers to wait and see for a while before they make a new phone purchase.”


BY LEE CHANG-KYUN, KIM JEE-HEE [kim.jeehee@joongang.co.kr]