New telecom regulation deals blow to smartphone producers

 A recently reformed telecommunications law has weakened the grip of Korean smartphone makers in their home country and offered a boon for foreign rivals like Apple, market analysts said on Wednesday.

The Ministry of Science, ICT and Future Planning and the Korean Communications Commission implemented the so-called Mobile Device Distribution Improvement Act on Oct. 1 last year to fix excessive competition among device makers and network operators.

After its implementation, the market share of California-based Apple in Korea soared significantly from 2.9 percent in September to 27 percent in February this year, according to research firm ATLAS Research & Consulting. It reached a high of 34.2 percent in November, a month after the law took effect.
 

“The U.S. firm usually does well in the fourth quarter since it releases new flagship smartphones at the time, but it is rare to see Apple keep its momentum until the second month of a year,” a market official said.

The market official explained that the reformed bill had forced telecom firms and manufacturers to reduce the amount of subsidies given to customers which led to a decrease in the market share of domestic handset makers.

“The U.S. firm, which had been stingy in doling out subsidies to attract consumers, on the other hand, was able to avoid the ramifications caused by the law,” the market official said.

Samsung Electronics saw its domestic market share drop from 60 to 52 percent during the September-February period, while LG’s market share decreased from 31 to 15 percent.

Pantech, which is undergoing a debt-workout program, also suffered a decrease, from 6 to 5 percent.

“The telecom law also took away Pantech’s hope of getting back on track as the firm has been constantly losing its footing in the domestic market since the law went (into) effect,” an industry official said.

Korean smartphone manufacturers’ presence has also decreased in the global market and the KCC’s regulation is often referred to as the main culprit. With their decreasing market share, Korean manufacturers have also lost an opportunity to use the domestic market as a test bed for their new flagship products.

Samsung sold around 73 million smartphone units in the fourth quarter last year, letting Apple, which sold 74.8 million iPhones, take over the top spot place of the world’s smartphone market, according to research institute Gartner.

The fourth quarter result came as a blow to the Korean tech giant, which posted sales of 83.3 million units a year earlier, while the iPhone maker sold 50.2 million units.

Criticism against the law aimed at improving the distribution system of the handsets is also on the rise within and outside the market.

An association that represents mobile retailers in Korea lashed out at the ICT Ministry and the KCC, claiming the telecom law threatens the business of mobile retailers.

“The government is trying to impose excessive rules on corporate marketing, and that has done nothing but increased prices of handsets,” said an official from the Retailers Association.

Lawmaker Jun Byung-hun proposed a bill to strike down the act that hampers the growth of the Korean smartphone manufacturers and the retail sector.

In regard to the decreasing sales of Korean smartphone manufacturers, an official from the ICT ministry said “the ministry is gathering relevant information and conducting surveys to deal with the issue.”

Some market analysts, however, said the act would encourage Korean smartphone-makers to focus more on producing great products featuring appealing factors, rather than relying on marketing tactics.

Some companies are already responding to the challenge. Samsung is gearing up to deal a counterblow to its rivals with the S6 and S6 Edge.

“The Galaxy S6 will help Samsung regain a competitive edge in design over other handsets,” said Kim Hye-yong, an analyst from NH Investment & Securities, forecasting the upcoming marquee phone would outpace its predecessor in sales.

Aiming to increase its presence in the global smartphone market, LG is also preparing to up the ante by unveiling the new the G4 smartphone and its variant phablet G4 Note this year.

By Kim Young-won (wone0102@heraldcorp.com)