[THE INVESTOR] South Korea’s mobile carriers are considering legal action in response to the government’s forceful measures to cut consumers’ mobile costs, according to the industry on Aug. 20.
The country’s three major telecom companies -- SK Telecom, KT and LG Uplus -- on Saturday received an official document from the Ministry of Science and ICT to implement the government-led 25 percent selective discount rate for new subscribers starting Sept. 15.
KT CEO Hwang Chang-gyu
Since announced in June as part of the Moon Jae-in administration’s plan to help reduce households’ burdens of mobile fees, the ministry and mobile carriers have been clashing over the past two months regarding the 25 percent discount rate for ordinary subscribers, up from the current 20 percent.
Claiming that there was not sufficient discussion about the measure, the telecoms are mulling administrative litigation as counteraction, citing a need to prevent further falls in sales and depreciation in assets.
“One of the major grounds upon the possible legal action is the companies’ constitutional right to protect their assets in cases which the government may afflict harm to the companies,” an industry official said. “In addition, if we fail to prevent such expected losses, there are possibilities that shareholders at home and abroad sue the company on breach of trust.”
Foreign investors have been paying keen attention to the regulatory measures sought by the Moon government.
According to a recent report by Deutsche Bank, the government’s calculation of the selective discount rate could be faulty due to possible use of a wrong denominator.
The report pointed out the selective discount rate may have to be “significantly lower” than what the government has come up with now, considering the mathematical method laid out in the county’s Handset Distribution Reform Act.
“Potential confusion in the discount rate calculation method itself may provide a new fundamental reason for telecoms to push forward with a lawsuit,” said the report co-authored by analysts Dan Kong and Peter Milliken.
As of Friday, foreign investors owned 43.02 percent of SK Telecom’s shares. Foreign investors owned 49 percent of KT shares. Some 48.6 percent shares of LG Uplus were owned by non-Korean investors as of the same day.
The mobile carriers have also been jittery over how the discount rate increase to 25 percent is not a permanent figure, and may be raised further in the course of time.
“Mostly, mobile plans are two-year contracts, so the ministry considers it would be better to review an appropriate discount rate every two years,” said Yang Hwan-jeong, chief of telecom industry policy at the ICT Ministry.
To that possibility, telecom companies say the ministry is making an arbitrary decision on the rate.
“In 2015, the ministry raised the discount rate from 12 percent to the current 20 percent similarly as it is doing now based on arbitrary reasons,” another official said.
ICT Minister You Young-min had attempted to hold a meeting with CEOs of the three mobile carriers last week, but failed to book the appointment. Some news reports said the meeting would be held Monday, but the schedule had not yet been set as of Sunday, according to public relations officials of the firms.
If pushed as the government announced, the 25 percent selective discount rate for new mobile phone subscribers would benefit about 19 million consumers every year, helping cut the country’s mobile costs by around 1 trillion won ($880 million), according to the ministry’s estimation.
“Currently, the total number of subscribers to the selective discount plans of the three companies is around 15 million, and considering their average bills, the telecom firms would face about 300 billion won fall in sales,” said Kim Joon-sop, analyst at KB Securities. “If the government forces the firms to expand the 25 percent rate to existing subscribers, the losses could reach 600 billion won.”
The ICT Ministry said there is no legal means to enforce the expansion, but will continue efforts to discuss with the telecom firms to pound out an agreement.
The government has been stepping up pressures on the telecom companies on their overall consumer policies.
The Korea Communications Commission has embarked on an investigation into the mobile carriers’ movements with the new discount rate, while the Fair Trade Commission is currently inspecting into possible collusion among the three market players on mobile fees.
By Song Su-hyun / The Korea Herald (firstname.lastname@example.org)