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[Editorial] Scrapping outdated rules

Govt., lawmakers from rival parties must join forces to remove ineffective regulations

Jan. 26, 2024 - 05:31 By Korea Herald

The Yoon Suk Yeol administration on Monday announced it would push for a set of reform measures designed to lift regulations that hinder people’s livelihoods or cause inconvenience.

Among the measures, two plans stand out: scrapping a handset subsidy ban and doing away with big retailers’ mandatory Sunday closures. These regulations have long been criticized for their questionable effects while placing extra burden on the public.

Behind the government's attempt to abolish the Mobile Device Distribution Act are unexpected adverse effects. When it was legislated in 2014, the government wanted to put a legal limit on the maximum amount for handset subsidies so that mobile carriers could not offer excessive discounts or illegal subsidies to woo more customers.

If things had gone as planned, customers would have received the same handset subsidies across the nation and mobile carriers would have lowered their monthly subscription fees -- a real benefit to customers -- instead of pouring huge amounts of subsidies into the hypercompetitive market.

Unfortunately, mobile carriers did not opt to cut monthly fees. They simply secured greater profits by saving the money that would have gone to those handset subsidies.

By restricting free competition artificially, the government ended up distorting the handset and subscription mechanism in a way that put Korean customers at a disadvantage compared to those in other nations such as the United States.

Before the controversial handset subsidy limit was introduced, mobile carriers offered handsome subsidies in return for obligatory subscription periods, mostly two or three years. This way, carriers retained subscribers and people were able to use the latest handsets at a big discount.

Such handset market mechanism has had side effects such as excessive or illegal handsets, usually sparked by fierce competition among mobile carriers keen to attract more subscribers. Despite the flaw, from the perspective of customers, getting new handsets at a discount is way better than paying the full price of a new smartphone.

Handset costs are increasingly burdensome for Korean people as the price continues to go up each year. The trend has only deepened since LG Electronics withdrew from the mobile business in 2021, leaving Samsung and Apple to dominate the market. For instance, Samsung Electronics’ newly launched flagship S24 Ultra starts at a price of 1,698,400 won ($1,270), up from the S23 Ultra’s 1,599,400 won last year.

Plus, Korean consumers tend to replace smartphones at an average pace of 27 months, far faster than the global average of 43 months. No wonder, then, that parents complain about pricey smartphones they have to buy for their children at meager discounts due to the existing handset regulation.

While consumers pay more for new handsets, the country’s three major mobile carriers enjoy bigger profits thanks to the handset subsidy ban that dramatically lowered their overall marketing costs. In 2014, their combined operating profits stood at 1.6 trillion won. Now, they have recorded around 4 trillion won in operating profits three years in a row.

Once the handset subsidy ban is lifted, mobile carriers are expected to provide more subsidies to customers. This will help alleviate burdens for many people, given that top-of-the-line smartphones are priced over $1,500 here and households spend more than 130,000 won on average per month for mobile services.

As with the handset subsidy ban, the regulation that forces big-box retailers to close their businesses on the second and fourth Sunday of each month has long been under criticism. The mandatory shutdown was to protect traditional markets and small stores struggling to compete with big discount chains.

But the regulation failed to help traditional markets stay competitive and created only inconveniences for ordinary shoppers. The city of Daegu, meanwhile, moved the mandatory closure from Sunday to a weekday, resulting in higher sales in traditional markets as well as nearby small stores. In a survey, 87.5 percent of respondents in Daegu also expressed satisfaction with the change.

Scrapping ineffective regulations is certainly a positive step. To implement the deregulatory measures, however, the government and the ruling People Power Party must persuade the lawmakers of the main opposition Democratic Party of Korea. Considering the immediate impact on the people, lawmakers from both parties should work together to pass the related laws without delay.