Regulation Paradox
Deregulations over leading players in the telecommunication market, including SK Telecom, will trigger positive effects such as lowered telecommunications charges and better service quality.
The government has always strengthened regulations over leading telecommunication service providers so far. The government worked on the assumption that deregulations over market leaders would motivate them to excessively lower the charges to leave market followers behind, then monopolize the market by radically raising the charges, and eventually harm the consumers.
However, different from this theory, deregulations for market leaders have brought a positive influence, including lowered charges and better service quality in the U.S. and Japan. Accordingly, the telecommunication service industry as well as academic professionals insist that government regulations should be relieved, since these regulations ironically harm consumers. This is the so-called paradox of regulation.
According to the telecommunication industry on August 25, the biggest telecommunication service provider, NTT DoCoMo, introduced “Kake-hodai & Pake-aeru,” a new subscription plan based on a flat rate, in June. The essence of these plans is to be able to use unlimited voice calling with a monthly payment of 20,000 to 30,000 won (US$19.63 to 29.47). During the same period of time, another Japanese telecommunication service provider company, Softbank, released a similar plan. KDDI also plans to launch a similar system soon.
NTT DoCoMo, which has dominated the Japanese communication market with over a 50 percent of market share, initiated the price competition as the company cannot resist challenges by third player Softbank. Similar to Korea, the Japanese telecommunication market has three big players: NTT DoCoMo with a market share of 50 percent, KDDI with 30 percent, and Softbank with 18 percent.
However, as third player Softbank gained popularity with iPhone services and lower charges, the competitiveness of NTT DoCoMo dropped radically, and the company has been suffering from losses for the last few years. During the second quarter this year, the operating profits of NTT DoCoMo shrank by 15.3 percent compared to the same period last year.
Professionals in the telecommunication fields of Japan analyze that the competition has been very active due to deregulation by the Japanese government. The Japanese government transformed regulations over telecommunication service charges into ex post facto permission in late 1990, and started to set the upper limit of the price of some services, including wired telephones, in 2004.
Therefore, market leaders like NTT DoCoMo are free to join price competition upon its own necessity. Without government regulations, free competition in the market is being created.
The U.S. also has state regulations over local telephones only, and no prior permission system. Traditionally, in the U.S., there is no government regulation other than against a monopoly, but market competition is maintained.
Price competition is very fierce in the U.S. telecommunication service market in which two strong and two weak players exist. Consumers could actually feel this competition these days. Sprint, number three in terms of market share, introduced an unlimited plan for voice calls, text messages, and data with a monthly payment of about 60,000 won (US$58.94). Consumers who would like to sign up for this plan, though, need to purchase the mobile device on their own or at a fixed price. No subsidies are available for this purchase. Accordingly, the market number four T-Mobile started unlimited data promotion. As markets number three and four are experiencing intense price competition, Verizon Wireless and AT&T, the number one and two respectively, are also considering lowering the charges.
Korea has a prior permission system on telecommunication service charges, which means that service providers need to obtain approval from the government before they raise charges or launch new billing plans. This system has been established in order to preemptively prevent a monopoly that could be created by market leaders by pushing market followers out of the market with indiscriminately low charges.
However, consumer organizations and academic professionals advised, “Under the circumstances in which the market share of market followers is over 20 percent, we need to carefully examine if a prior permission system is really for consumers. The OECD already proposed to abolish the prior permission system in Korea since telecommunication market in Korea is strong enough. We need to review the overall regulation policies all over again.”