The alternative is to destroy the market economy, which was wrong then and now?!

- Marketing restrictions are not allowed under market economy principles, so
- Positive effect of the short-distance method, the terminals are the same, rational consumption settlement
- Negative effect of the short-distance method, reduced marketing of mobile carriers, operating profit only ↑ Still burdensome of terminals
- Controversy over collusion among the three telecommunication companies, and whether it is a legitimate administrative guidance is key

■ Broadcast: YTN Radio FM 94.5 (09:00-10:00)
■ Host: Reporter Cho Tae-hyun
■ Air date: November 4, 2024 (Monday)
■ Talk: Lee Sung-yeop, professor of the Graduate School of Technology and Management at Korea University

- Gap between ruling and opposition parties, discretion of contract discount operators-Manufacturer incentives disclosure
- Mandatory incentive data? Samsung's trade secret, Apple doesn't give it, but competition disadvantages also
- Going to compromised full self-sufficiency for vulnerable groups
- Easing communication costs is important, but rational communication policies such as AI investment are needed

* The text below may differ from the actual broadcast content, so please check the broadcast for more accurate information.

◆ Reporter Cho Tae-hyun (hereinafter referred to as Cho Tae-hyun): It's very hard to find the ruling and opposition parties speaking out in the National Assembly. But recently, not only the ruling and opposition parties. There is a bill that the government wants to promote in one mind. It's the short-temperature method. It's been 10 years this year. I don't think it had that much effect since they said they were going to get rid of it with one voice. But at the time, there must be something I expected when passing this bill. What happens when these parts are abolished? Let's talk about the details with Lee Sung-yeop, a professor at Korea University Graduate School of Technology and Management. Is the professor out?

◇ Lee Seong-yeop, professor of the Graduate School of Technology and Management at Korea University (hereinafter referred to as Lee Seong-yeop): Yes, hello.

◆ Cho Tae-hyun: How are you? Professor, it's already been 10 years. Please explain what this short-term law is and why this bill was made.

◇ Lee Seong-yeop: Yes, it is a law on mobile communication terminal distribution. When I made it in 2014, it was called a terminal Hogang, so the price difference is too much depending on where I go and when I buy the terminal. That's why there's a lot of discrimination among users. So in the end, it is so discriminatory that young people who work hard to sell products buy handsets cheaply and the rest of the people buy them expensive. So, the type of subscription. Is it number transfer or device change? There were also a lot of complaints among the people because the difference in subsidies is so large depending on when they bought it and where they bought it. So let's ban those parts first, so making sure that you receive the same subsidies whenever and wherever you buy them eliminates discrimination. That was the first reason. Second, telecommunication companies mainly subsidized their subscribers to move numbers rather than changing devices. As a result, devices are frequently replaced, unnecessary issues such as device consumption, increased household communication costs, and waste of resources are eliminated all at once, so let's make the level of device subsidies the same in the future so that there is no discrimination.

◆ Cho Tae-hyun: But since then, there have been many criticisms about whether these are appropriate regulations in the market economy system. What did you think, professor?

◇ [Lee Sung-yeop] That's right. In fact, in the end, how much subsidies are given is a marketing tool. So in fact, in major developed countries such as the United States, the United Kingdom, and France, this is an unacceptable and highly unusual law under market economy principles. So, I expressed my opposition at the time, but if you look at it now, we are in a situation where there is little difference in rates or quality between carriers. Then, the remaining means of competition is this subsidy competition, but in fact, even this is limited, so in the end, there is no competition between carriers. In that sense, consumers cannot benefit from competition. So, there is a discussion about whether this should be revised.

◆ Cho Tae-hyun: Okay. It was an unusual regulation that ran counter to the market economy. But the fact that there is talk of abolition now, should I say that this is taking its place in the market? Or should I say that it only grows side effects?

◇ Lee Seong-yeop: First of all, this is user discrimination as the single-line method was created and the support disclosure fee was applied equally to everyone. I think it should be considered that the point of discrimination has been resolved. So now, there are some things, but I think I should say that I'm still buying a terminal at the same price. And in fact, household communication costs decreased slightly from about 6% of our household consumption expenditure before the enforcement of the Tong Tong Act to about 5.2% after the enforcement of the Act, and recently, we choose a lot of optional contracts instead of subsidies. So, reasonable consumption, communication, and consumption are becoming a bit settled. I think this positive evaluation will be possible.

◆ Cho Tae-hyun: You gave a positive evaluation, but there are a lot of negative evaluations, so wouldn't there be a story of abolition?

◇ Lee Seong-yeop: The biggest thing is that in the end, it's too expensive for us to buy a terminal, so in the end, consumers feel that the cost of communication is usually composed of mobile communication fees, but the cost of purchasing this terminal is also recognized as a communication cost. Therefore, the overall rate itself has been reduced or so, but the cost of purchasing the device is quite difficult for consumers now. And in the end, since the subsidies are not paid like this, mobile carriers eventually reduce marketing costs, so maybe only the operator's operating profit has increased. In the end, shouldn't telecommunication companies and distribution stores compete for subsidies, and the Korean people can purchase handsets at a cheaper price? That's the reason why the Tong Tong Act was abolished.

◆ Cho Tae-hyun: Overall, discrimination has decreased, but as competition has disappeared, the burden of handsets has increased. So it's kind of a downward leveling phenomenon, right?

◇ [Lee Sung-yeop] It's kind of like that.

◆ Cho Tae-hyun: Okay. That's why the National Assembly is talking about abolition. If it is abolished, all the regulations you mentioned will disappear, so can we expect market conditions to change a lot when it is abolished?

◇ Lee Seong-yeop: In fact, the government implemented a conversion subsidy policy last time that requires more money to be paid for number transfers. When I actually implemented it, telecommunication companies did not set a lot of conversion subsidies. Since I didn't do it, I didn't get much effect from receiving a lot of subsidies. So anyway, if you look at the entire telecommunications market, there are not many factors for the three telecommunications companies to compete for marketing bleeding for this subscriber. In short, the market is almost saturated, so even if the telecommunications company or this side of the Tong Tong Act is abolished, it is a little difficult for us to guarantee that consumers will be able to buy handsets that cheaply.

◆ Cho Tae-hyun: Okay. One of the backgrounds behind the introduction of the short communication method was the issue of information asymmetry. But is there any possibility that these parts will pop up again?

◇ [Lee Sung-yeop] That's right. In the end, as I said earlier, it depends on the type of subscription, the date and place of subscription, and subsidies vary widely, so those who catch information buy them cheaply, and those who fail to buy them at high prices continue to buy them. In the end, if the subsidy is not disclosed like this, there is a possibility that side effects that occurred before the enforcement of the Terminal Distribution Act may occur.

◆ Cho Tae-hyun: Okay.

◇ Lee Seong-yeop: That was solved by post-regulation in the past. If we abolish it, we will eventually change to investigating and sanctioning such discrimination after the fact that we have decided on the disclosure support fund or additional support fund in advance, so if we don't do that thoroughly, there may be room for various problems to arise again before the Tong Tong Act is established.

◆ Cho Tae-hyun: Okay. I think we need a more precise approach. Another thing I'm worried about is the underfunded companies. So, I think there is also a concern that it could hurt this side, such as a fourth mobile communication operator or an affordable phone. What do you think of the professor?

◇ Lee Seong-yeop: As I said earlier, on the premise that telecommunications companies and retailers use subsidies considerably more than they do now, in the end, affordable phones that can't afford to pay subsidies will eventually become more difficult. In fact, affordable phones are still very cheap and are providing service at about half the price, and handsets have improved significantly, taking more than 10% of the market. As the government continues to cut communication costs, the price difference between the three existing distributors and the budget phones is significantly decreasing. In such a situation, if telecommunication companies spend so much subsidies, there is a considerable possibility that subscribers to affordable phones will leave.

◆ Cho Tae-hyun: Okay. Let's talk about one more thing and then move on to the National Assembly. After the Fair Trade Commission implemented the Short-Term Control Act, the three telecommunications companies restricted market competition through collusion and said that the benefits of users were reduced by trillions of won, which is a violation of the Fair Trade Act. However, the Ministry of Science and Technology explained that there may have been more benefits for actual users. How does the professor evaluate this part?

◇ Lee Seong-yeop: Our Fair Trade Act strictly prohibits collusion. Collusion should be banned because it deprives consumers of profits by maintaining a certain price, but according to administrative guidance, collusion under legitimate administrative guidance is legally exempted. In the end, I think it can be seen as a question of whether this is legitimate administrative guidance. However, from the perspective of the Ministry of Science and ICT and the Korea Communications Commission, as I said earlier, if the purpose of the Tong Tong Act is to prohibit user discrimination and the purpose of prohibiting user discrimination is much greater, it should be considered fair even if some prices and quantities are the same. So now there is a little disagreement between the competition authorities and the regulatory authorities on this issue. Competition authorities generally believe that competition should be stimulated and consumer profits should be increased, and regulators need some industrial policy, so it is right for the FTC not to actually intervene in that part. This continues to lead to controversy. However, overall, it is difficult to say that user benefits will be reduced that much when looking at the data. Anyway, the FTC, the Korea Communications Commission, and the Ministry of Science and Technology are likely to continue to argue about this. Shouldn't we look at this on a bigger level? The ministries should respect each other in a way, but it is a bit disappointing that only one side is talking about it.

◆ Cho Tae-hyun: In some ways, competition authorities and regulators can't agree if they agree. I think there's that part, too. Let's go into politics. I think the political community is also sympathizing with the problems and side effects that the professor said. So both the ruling and opposition parties have proposed related bills, have you seen the contents?

◇ Lee Seong-yeop: Yes, yes, I saw it for a second.

◆ Cho Tae-hyun: What kind of content was there? There are two, and I think there are some differences.

◇ Lee Seong-yeop: Yes. There is an opposition party, not the ruling party. I'm going to repeal the dangtong law anyway. This is in the same position. Instead, one of the contents of the Short Term Act is that if I don't get a subsidy, I'm supposed to get a contract discount equivalent to the subsidy. If the Dantong Act is abolished, it should also be abolished, but that is difficult. So I will transfer this to the Telecommunications Business Act. So it seems common to keep receiving contract discounts corresponding to subsidies. The slight difference is that the ruling party gave the operators some discretion to choose the part of the contract discount equivalent to the subsidy, but within the opposition party, it is not possible to lower the rate discount by more than 25%, so it gives the government authority to return the terms and conditions. The biggest part is submitting the amount of incentives for handset manufacturers now. This is because handset manufacturers such as Samsung Electronics also give incentives as a manufacturer's incentive. So, it is a little problem to submit this to the manufacturer's incentive data in 2017. So it was abolished, but it is moving toward revival. Therefore, within the opposition party, it is mandatory for mobile phone distribution manufacturers to submit data on sales incentives provided to telecommunication companies, and this part was constantly opposed by Samsung Electronics. The reason is that they are global companies, but it is a little problematic to submit such incentives, which are trade secrets. And in the case of Apple, we don't support sales incentives. In that sense, they are also at a disadvantage in competition. That's why this part is a little controversial right now, and the government is a little worried about this part.

◆ Cho Tae-hyun: Okay. We've looked at the commonalities and differences between the ruling party and the opposition party, and as an expert, what do you think needs to be supplemented?

◇ Lee Seong-yeop: So there are a number of stakeholders when it comes to distribution of the terminal distribution law. Actually, the recent trends are changing to self-sufficiency, like me. Self-sufficiency is not something we go to an agency and choose a mobile phone and a terminal, but the communication service is sold by the telecommunication company and the terminal is sold by the manufacturer. It is described as self-sufficiency in the form of individuals just buying a terminal and joining a carrier that I want, just like we buy a TV or a computer. This means that individuals purchase the handsets themselves. But in fact, in the case of contract discounts, you can get them if you want and exercise various options, so it's very meaningful in this respect. This is a way of separating the terminal from the service, but for some stores, you can service it with the terminal. So, if we completely service it and separate the terminal like this, I think it will be difficult for the vulnerable to purchase and use the terminal, so I think it can be an alternative to the compromised complete self-sufficiency system. It's because the price of the terminal is too high. If we separate it like this, we can consider the self-sufficiency system in this area.

◆ Cho Tae-hyun: Are you looking at the eclectic complete self-sufficiency as an alternative?

◇ Lee Seong-yeop: Yes, yes.

◆ Cho Tae-hyun: Okay. The National Assembly and National Defense should be held now, but this side is a little different, but it's very distracting and there are so many stakeholders that I don't know if it'll work out. If there's anything the professor wants to say last, what would you like to say?

◇ Lee Seong-yeop: In fact, as I said at the beginning, our telecommunications policy continues to focus on household telecommunications costs and easing some of the burden on consumers. But of course, this is a very important policy goal, but I want to tell you one thing that we need to discuss, including other competition policies or handset policies. As I said earlier, the telecommunications market actually has a problem that our population is decreasing, and this marketing competition is a little difficult because the market is completely saturated and the number of subscribers is no longer increasing. And telecommunication companies and manufacturers are all expanding their investments in AI. So, I think we need to focus a little more on the communication sector for the AI industry than any conventional rate problem and look at the policy. So, I hope it will be a more reasonable communication policy considering various factors such as easing consumer burden, expanding competition, and increasing AI investment. That's what I'm thinking. Lastly, it is true that our communication cost level is actually a burden for consumers to feel, but considering the quality and other countries, it is actually not that high, but similar or inexpensive. In fact, how to introduce competition in the terminal sector is another important field, but as you know, Apple and Samsung Korea are monopolized by Samsung. So, in order for terminals to lower prices through competition, I'm thinking about how to lower the price of other competitors, such as other foreign companies or used terminals, through government certification and distribution.

◆ Cho Tae-hyun: I think we need to draw a bigger picture. So far, we have learned about the controversy over the abolition of the Tong Tong Act with Lee Sung-yeop, a professor at Korea University's Graduate School of Technology and Management. Thank you for talking today.

◇ Yes, thank you.