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Korea keen to scrap controversial ban on handset subsidies

Heavily-discounted flagships could soon be back on the shelves in South Korea as part of a broader reform package designed to tackle the cost of living.

Nick Wood

January 24, 2024

3 Min Read

The issue was top of the agenda at the government's fifth annual Livelihood Debate. Hosted by the Office for Government Policy Coordination (OPC), it gives a cross-section of the populace an opportunity to air their concerns and hear what the government plans to do about them.

"With the smartphone market focusing on premium models with recent launches, and with smartphone prices continuously rising, it is time to make efforts to lower the burden of people's device purchase costs," said the OPC, in a statement (in Korean) attributed to director Bang Ki-sun.

Enacted in 2014 as the Mobile Device Distribution (MDDI) Act, but now referred to by the government as the Terminal Distribution Act, the law placed strict legal limits on the subsidies that operators and retailers could offer on new handsets.

It was designed to promote healthy competition. Faced with a saturated mobile market, SK Telecom, KT Corp and LG Uplus had been competing so aggressively to poach subscribers from one another that it was wiping out their profits.

The MDDI put a stop to that, capping subsidies at around $300. Any operator or retail partner caught flouting the law could be fined up to 3 percent of their turnover. Operators were also threatened with 7-day bans preventing them from signing up new subscribers.

The law was also designed to improve transparency. Before it came into effect, the level of subsidy could vary depending on a customer's age, location, current price plan and so-on. Under the MDDI, operators and retailers had to publish a handset's list price and subsidy amount to ensure that all customers were treated equally.

While there was support for this aspect of the legislation, the subsidy cap was controversial from day one.

It attracted criticism from consumers for making flagship devices unaffordable. Handset makers weren't thrilled by it either, because it encouraged customers to opt for cheaper models instead.

Resellers saw a drop in business, as cut-throat competition between operators eased off. It also restricted the ability of handset retailers to compete with one another.

"I believe the reality is the terminal distribution law introduced 10 years ago only serves vested interests while failing to properly protect the interests of the people, and that this needs to be corrected," Bang said.

As a result, the OPC said the government aims to reform the terminal distribution act, and will discuss with the National Assembly the prospect of abolishing it completely.

This would doubtless be welcomed by the likes of Samsung. Since the law came into force, it has consolidated its position as the most popular smartphone maker in Korea, ahead of Apple. Samsung's local rival LG pulled out of the market altogether in 2021.

Removing the subsidy cap would encourage more consumers to fork out for Samsung's high-end models.

Funnily enough, it unveiled the latest one of these – the Galaxy S24 – only last week, mere days after it emerged Samsung has pledged to invest $363 billion in Korea's planned semiconductor mega cluster.

It's probably just a coincidence that handset subsidies have now popped back onto the political agenda, right?

About the Author(s)

Nick Wood

Nick is a freelancer who has covered the global telecoms industry for more than 15 years. Areas of expertise include operator strategies; M&As; and emerging technologies, among others. As a freelancer, Nick has contributed news and features for many well-known industry publications. Before that, he wrote daily news and regular features as deputy editor of Total Telecom. He has a first-class honours degree in journalism from the University of Westminster.

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