Apple Goes Against S. Korean Gov't Efforts to Reduce Telecom Expenses

Apple is going against the South Korean government’s policy to reduce consumers’ telecom expenses, while making huge profits in the South Korean market. An increasing number of local consumers are complaining about the company’s business practices.

Apple recently released new high-priced iPhone models -- the iPhone XR, iPhone XS and iPhone Max. The company provides no subsidies to consumers who purchase these expensive devices. This is in stark contrast to South Korean smartphone manufacturers, who provide subsidies to consumers together with mobile carriers.

“When it comes to Samsung Electronics and LG Electronics, the ratio of smartphone subsidies they provide to consumers ranges from 10% to 50%,” said an industry source, adding, “However, Apple provide no subsidies to consumers, shifting the burden to local mobile carriers.”

Besides, Apple is continuing to raise the prices of the iPhones, going against the government’s policy to reduce households’ telecom expenses. The latest iPhones are priced at almost two million won. The company is taking advantage of the Korean government’s policy to reduce consumers’ telecom expenses. In South Korea, a mobile carrier is required to provide a discount of up to 25% when a customer purchases a smartphone at its store. The purpose of this policy is to block mobile carriers from raising the prices of their services. Apple is currently taking advantage of this policy to shift the cost burden to mobile operators.

As a result, local mobile carriers are witnessing a decline in profitability while Apple’s profits are increasing. Under the circumstances, experts point out that the application of the policy should be limited to inexpensive phones. “Then, mobile phone manufacturers will provide subsidies to customer who purchase their expensive phones and wasteful mobile phone consumption will be reduced on the part of consumers,” an analyst said.

Apple’s business practices against the government’s policy are witnessed on the Apple App Store as well. At present, controversy is heating up due to inadequate taxation on the company’s annual App Store profits, which are estimated to reach one trillion won to two trillion won in the South Korean market alone. Based on international tax treaties, the South Korean government currently imposes corporate and income taxes related to Internet business profits only on business operators that have their servers in South Korea. Apple’s App Store servers are located abroad.

Apple has paid little regard to its business partners and consumers in South Korea, too. “The company has put pressure on us by saying that it cannot allocate new iPhones unless we preorder the products a couple of years ahead,” said a local mobile carrier.