Replacement for Subsidy
Owners of used phones and those who use phones directly purchased through overseas websites do not require mobile phone subsidies, and are expected to get a 10 percent discount in smartphone bills starting in Oct. As a result, used phones and mid-to-low-range phones made by foreign companies are likely to become more popular in the Korean mobile phone market dominated by the latest expensive smartphones.
According to the Ministry of Science, ICT and Future Planning (MSIP) and the mobile telecommunication industry on Sept. 14, it is possible to get nearly a 10 percent discount on monthly mobile fees with the introduction of the system.
The system is one of major facets of the act on the improvement of the distribution channel structure of mobile telecommunication terminal equipment, which will put into effect on Oct. 1. Under the system, people can get a discount in mobile phone bills if they cannot receive mobile phone subsidies. The law was introduced to address the inequality where those who buy cell phones through retailers and cell phone stores can get hundreds of thousands of won in subsidies. In contrast, those who subscribe to mobile telecommunication services with used phones, directly-purchased phones via overseas websites, or phones directly sold by manufacturers cannot get any benefits.
The MSIP is going to apply 10 percent this year, but annually change the discount rate starting next year, by calculating the ratio of total mobile phone subsidies to cell phone fees.
Meanwhile, the system is likely to have a huge influence on the monthly fees of Samsung and LG Electronics. If an increasing number of customers use mid-to-low-end phones or used phones to get a newly-introduced discount in monthly fees, mobile phone manufacturers cannot but lower the launch price of new smartphones or strengthen the lineup of mid-to-low-cost phones in order to maintain their market share.
An official at the MSIP remarked, “The system to select the monthly fees is to prevent discrimination between customers who purchase mobile phones through retailers of mobile carriers and those who do not. The system is also aimed at lowering the price of the latest cell phones by encouraging the use of used phones and entry-level and mid-range phones.” The official concluded by saying, “If the number of consumers who purchase mid to low-range phones and get discounts in mobile phone bills goes up, there will be mounting pressure on manufacturers to reduce the price of mobile phones as well.”