Subsidies for budget phones start to rise

Following the lifting of an upper cap on smartphone subsidies provided by mobile carriers effective as of Monday, the amount of grants offered by the firms and handset makers have started to rise, although just gradually, according to the telecom industry.

The South Korean government has decided to remove the upper limit of 330,000 won ($289) for the subsidies as part of the efforts to lessen the telecommunication cost burden on consumers and to make subsidies’ packages more transparent.

The limit had been in place for the past three years to cool down excessive competition among three mobile carriers attracting subscribers by offering higher subsidies upon new phone purchases. The limit, however, was highly criticized for egging on expedient ways of providing higher discounts to only select, well-informed customers, or only offering high subsidies for expensive devices.

After the latest change in the regulations, low- and mid-end smartphones were the first beneficiaries, as the mobile carriers poked around the market mood by modestly raising subsidies for those devices.

KT, the second largest mobile carrier by subscriber figures, increased the subsidy amount for Samsung Galaxy J7 smartphones with a price tag of 396,000 won from 300,000 won to 345,000 won on Sunday, which charges a consumer just 51,000 won for purchasing the device. If the consumer chooses to subscribe to a monthly calling plan priced over 60,000 won, KT offers the device for free.

SK Telecom upped the subsidy for 253,000 won LG X-300 smartphones from 200,000 won to 220,000 won, and offers the phones for free if the device users subscribe to any SKT services.

Since the Korean mobile carriers manage the subscription of handsets under the international mobile equipment identity system, or widely known as the whitelist system, prices of mobile devices and calling plans have been inevitably interlocked, blinding consumers to how much they actually pay for the devices and for the plans.

The lifting of the upper cap, however, is also feared by some in the industry for further complicating the market.

Some from the industry also say that mobile carriers are unlikely to radically raise their subsidies even without the cap as they prefer competing through rebates by luring customers of rival telecommunication services.

Meanwhile, consistent efforts by the governments are seen to have reduced the telecommunication burden. According to data by the Ministry of Science and ICT, the average household spending on mobile services has been declining, from 150,350 won in 2014 to 144,001 won as of 2016. The average mobile plan cost also fell 8.4 percent from 45,155 won to 41,345 won as of July.

“We aren’t yet seeing abnormal signs in the market,” said an official at the Korea Communications Commission. “The commission has launched a crackdown team on excessive subsidy increases or illegal cash paybacks during the Chuseok holiday.”

Later this year, the KCC plans to push for a full implementation of a blacklist system for mobile devices and a mandatory system for handset manufacturers and mobile carriers to report their spending on sales promotion.

Due to the watchful eyes of the authorities, both mobile carriers and consumers are likely to observe the market atmosphere for a while.

“Subsidies for the newest premium phones like Samsung Galaxy S8 and Note 8 smartphones that are priced over 1 million won are not likely to benefit from the cap removal,” said an official at SKT. “Independent distributors still face a 15 percent limit on the amount of additional subsidies they can provide of what the mobile carriers officially support, so there is not much room yet for the subsidies to bounce back soon.”  

By Song Su-hyun (song@heraldcorp.com)