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S. Korea regulator mulls more penalties for illegal subsidies

Korea Communications Commission is considering imposing more penalties on SK Telecom and other telcos for continuing to offer high handset subsidies, despite an earlier fines and bans.
Written by Ellyne Phneah, Contributor

The Korea Communications Commission (KCC) is considering imposing extra penalties on local telco SK Telecom for continuing to offer high handset subsidies despite prior warnings.

In December, the country's three telcos--SK Telecom, KT, and LG Uplus--were banned from signing up new subscribers from January 2013 for allegedly offering illegal handset subsidies on Apple's iPhone 5. The suspension by KCC was expected to last between 20 to 90 days, and was meant to prevent the market from overheating and maintaining parity in competition.

The Korea Times noted on Monday that SK Telecom will be banned from signing new customers for 22 days between January 31, 2013 and February 21, 2013, while KT will face similar restrictions from February 22, 2013 to March 31, 2013. LG Uplus is the first to serve its ban, which spans 24 days and ends on January 30. All three telcos were also fined a total of 11.89 billion won (US$11.2 million).

Despite the hefty penalties, the KCC has found SK Telecom to be flouting the law by continuing its practice of offering illegal amounts of handset subsidies to entice customers. In investigations conducted between December 25, 2012 and January 8, 2013, SK Telecom had the highest violation rate, which measures the proportion of excessive subsidies for new customers, the report noted.

Currently, SK Telecom is selling the iPhone 5 at 199,000 won (US$186.99) if the customer agrees to switch to its service. Similarly, a 16-gigabyte Samsung Galaxy S3 smartphone costs 904,000 won (US$849.42), but by switching to SK Telecom, customers need only pay the subsidized rate of 150,000 won (US$140.75).

"[KCC] has been monitoring the market since announcing the suspension and confirmed that SK Telecom is continuing to violate the rules," Jeong Jong-ki, an official from KCC's customer policy bureau, said in the report. It will also be hard for the carrier to avoid additional punishment, he added.

Yang Moon-seok, a member of KCC's standing committee, also said that even though the multibillion dollar fine and business suspension were "harsh penalties," it is still not enough because the regulator's internal report indicated that the telcos are ignoring the warnings and penalties.

"That means we need to penalize them further," Yang said.

Jeong declined to comment on whether the regulator is considering imposing additional penalties on just SK Telecom, or all three telcos.

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