Telecom regulator Korea Communications Commission (KCC) says it will punish SK Telecom and KT if the two local telcos offer illegal subsidies to attract more iPhone 5 customers.
According to The Korea Times on Tuesday, the regulator will conduct a thorough investigation of the mobile carriers from Dec. 7 onward, the date which Apple's latest iPhone launches in the market. "We believe chances are high that the carriers will offer illegal subsidies to attract more customers. That's against the law," an official from the agency said in the report.
KCC also summoned marketing executives from the local carriers and ordered them not to give excessive subsidies for the new Apple handsets, the official noted. These executives confirmed with the Korean news site they had been warned by the regulator, but their company's official spokespersons declined to confirm due to the sensitivity of the issue.
It is expected KCC will prevent carriers from signing up new customers for a week if they violate rules related to handset subsidies, according to the officials from the regulator.
SK Telecom and KT are South Korea's two largest mobile operators.
Subsidies already promised to customers with pre-orders
The move comes after local distributors and retailers started providing large subsidies to customers pre-ordering the iPhone 5, under the condition they would change mobile operator. A 16GB iPhone 5 is expected to cost 814,000 won (US$751.37), but customers who agree to change carriers can purchase the phone for 400,000 won (US$369.23) with the subsidies.
Baek Jong-min, a salesclerk at Seoul's Yongsan Electronics Market, told the news site the subsidies were meant to discourage customers from moving to a competing operator. "That's why SK Telecom and KT are not too concerned about the possible penalties by the regulator. This is a bread-and-butter issue," Baek said.
Both SK Telecom and KT received more than 200,000 pre-orders for the new handset in just two hours after they were made available on Nov. 30, noted KCC officials. Pre-orders are expected to exceed 700,000 by Dec. 7, indicating a large stand-by demand from customers whose two-year contracts for the iPhone 3GS, released in Nov. 2009, would expire.
The iPhone 5 supports long-term evolution (LTE) so more iPhone 5 users would mean more customers will boost telcos' play in the LTE race, an unnamed SK Telecom official told the news site. He also believed his company will continue offering more subsidies than its rival KT.