The battle among South Korea’s five mobile phone carriers has become so intense that the Ministry of Information and Communication has prodded the carriers to voluntarily address problems brought on by the unrestrained competition.
The fervent competition began last October when three personal communications services operators-Hansol PCS, LG Telecom Ltd. and Korea Telecom Freetel-launched service, competing with incumbent cellular operators SK Telecom and Shinsegi Telecomm Inc. Not only has the PCS trio’s entrance triggered massive price cuts, but advertising and marketing practices have hurt operators’ profits and caused high churn rates.
An SK Telecom spokesman confirmed all five operators have reached an agreement to stop slandering each other, avoid placing misleading ads, end practices of attracting young students to the service, shorten contract lengths and reduce subsidies.
“A lot of people don’t pay their bills,” said the SK Telecom spokesman. The “accumulated total amount is about [$161.3 million]. It’s partly because of severe competition and young subscribers who don’t have the ability to pay … We are going to reduce subsidies to avoid unnecessary competition, luring young people and losing the profits.”
The number of mobile phone customers in South Korea reached the 10-million mark earlier this summer. SK Telecom has more than 5 million customers, while Shinsegi has about 1.6 million. Korea Telecom and LG Telecom have more than 1 million customers, and Hansol PCS has about 900,000 subscribers.
South Korea’s Fair Trade Commission recently ruled the service contracts required by the country’s mobile phone operators constitute unfair trade practices, said published reports. All five operators have agreed to shorten gradually the contract period-now ranging from one-and-a-half to two years -eventually scrapping contracts entirely next year.
Eliminating long-term contracts and heavy subsidies may take its toll on the mobile phone industry in South Korea as carriers expect to see a drop in revenues and slower demand for higher-priced handsets.
A severe economic crisis that has plagued the country since last fall already has affected subscriber numbers. SK Telecom’s and Shinsegi’s customers today number about 50,000 more than year-end 1997. In late 1997, the country’s operators were accustomed to adding about 400,000 customers each within three months.
