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Korean mobile operators pledge to stop illegal subsidies

In the first joint statement issued by the country's mobile operators, SK Telecom, KT, and LG Uplus agree to refrain from offerings device subsidies beyond the legal limit, in a move to stabilize the market.
Written by Eileen Yu, Senior Contributing Editor

Mobile operators in South Korea have pledged to stop giving device subsidies that are prohibited by law as part of efforts to stabilize the local telecom market and improve customer service.

In the first joint statement of its kind, the country's three operators--KT, LG Uplus, and SK Telecom--on Thursday said they would not offer subsidies on mobile devices including smartphones and phablets beyond the legal limit of 270,000 won (US$251.32) per subscriber, reported The Korea Times

Excessive subsidies had previously landed all three operators in trouble with local industry regulator, Korea Communications Commission (KCC), which in 2012 banned the mobile carriers from signing up new customers for between 20 and 90 days. The move was aimed at cooling down the market, where 70 percent of consumers owned smartphones, and ensuring a level playing field. 

Just last week, the regulator instructed SK Telecom and LG Uplus to suspend its mobile business for 7 and 14 days, respectively. It also fined all three operators 30.4 billion won (US$28.3 million) for repeatedly defying orders to stop offering illegal subsidies, reported Yonhap News Agency.  

The three operators said in their joint statement Thursday: "We are totally responsible for illegal subsidies for mobile devices, hurting the soundness of the telecom industry. We will strictly abide by the law, which limits subsidies to 270,000 won per person. 

"Sales outlets will be strictly monitored. If an outlet violates the subsidy law, then its online network will be blocked," they said. 

At a media briefing, Yoon Won-young, head of SK Telecom’s marketing division, said the operator was in discussion with KCC to work out further details in the new agreement. The operators added that they would also be meeting with handset makers since slashing illegal subsidies could result in the need to lower handset prices, hence, impacting the profitability of these manufacturers. 

According to the Yonhap report, the three carriers would set up a joint surveillance team to stem the problem. "We will refrain from self-injuring competition and make efforts to lower prices and improve service quality, lending support to the development of the country's ICT industry," they added in their statement.

The agreement, however, could impact prices of handsets in the market.

The Korea Times report cited an official from Samsung to say the smartphone maker will meet with mobile operators to determine whether it should reduce suggested retail prices of its high-end handsets. "Samsung Electronics will discuss it, but we can't cut the price of our mobile devices by much. Our pricing policy reflects consumer needs. Samsung is better positioned to release high-end and mid-tier mobile devices according to demand," said the official, though a spokesperson from the Korean handset manufacturer declined comment. 

Samsung said its upcoming Galaxy S5 smartphone will be available from April 11 as originally planned, and the company is finalizing the price of the device. 

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