[At the Brink of the 단통법] The Complicated Battle of Wits... A Look at the Proposed Bills

3 Bills Proposed and 1 Underway in the 21st National Assembly
Heated Debate: Abolishing vs. Amending the Mobile Device Distribution Act
Positive Effects of Choice Discount and Price Discrimination Ban
Introduction of Separate Disclosure and Full Self-Supply Systems

[Asia Economy Reporters Koo Chae-eun and Han Jin-joo] The 21st National Assembly is pouring out a variety of measures regarding the 'Device Distribution Structure Improvement Act (Device Distribution Act),' which has been plagued by effectiveness controversies for six years since its implementation. While both ruling and opposition parties agree that the current Device Distribution Act has reached the end of its lifespan, their solutions differ slightly. Some argue that the details of the Device Distribution Act should be refined through the introduction of a separated disclosure system and reform of the penalty system, while others contend that the general framework of the Device Distribution Act should be abolished and the market should return to the pre-introduction state to encourage price competition among distribution stores.

Introduction of Separated Disclosure System...Supplementation Theory

According to the National Assembly on the 6th, discussions on the Device Distribution Act are largely narrowed down to abolition (proposed by Kim Young-sik of the People Power Party) and supplementation (proposed by Jeon Hye-sook, Jo Seung-rae, and Kim Seung-won of the Democratic Party). The bills proposed by Democratic Party lawmakers Jo Seung-rae, Jeon Hye-sook, and Kim Seung-won focus on amendments centered on the separated disclosure system and penalty system reform. They maintain the 'positive function' of the Device Distribution Act, which lowered household communication costs through the introduction of a 25% selection discount and eliminated user discrimination where some bought devices at high prices and others at low prices, but argue that some systems need further supplementation. Jeon Hye-sook, who led the separated disclosure system bill on the 18th of last month, stated, "At the time of the law's enactment in 2014, the 'separated disclosure system' clause was deleted due to opposition from manufacturers and telecom companies, which undermined the purpose of the Device Distribution Act. This part needs to be corrected," adding, "The source of subsidies should be clearly disclosed to enhance user choice and convenience."

The position is that the introduction of the separated disclosure system → disclosure of subsidy sources → prevention of inflated retail prices can increase transparency in mobile phone pricing. If the subsidies from telecom companies and manufacturers are separated and made known, price discrimination that concentrates excessive subsidies on expensive plans can be reduced, and if the pure device price excluding marketing costs is disclosed, it could also lead to pressure to lower retail prices.

However, there are criticisms that the 'link' between the separated disclosure system and the reduction of communication fees is weak, so the system design needs to be supplemented. Professor Shin Min-soo of Hanyang University pointed out, "Since distribution is currently monopolized, if the separated disclosure system is poorly implemented, it could cause double margins and merely redistribute bargaining power, so the system needs to be examined more carefully."

Need to Activate Competition...Abolition Theory

The bill prepared by Kim Young-sik of the People Power Party is a 'Device Distribution Act abolition bill.' It argues that core obligations such as user notification under the Device Distribution Act should be transferred to the Telecommunications Business Act, and other government interventions are unnecessary. The logic is that since smartphone retail prices rise every year, it is a priority to reduce the burden of purchasing mobile phones by allowing subsidies to be freely distributed through market autonomy. Kim emphasized, "The most effective way to reduce the burden of phone prices is to activate competition in the distribution market, and for this, the artificial market intervention regulations of the Device Distribution Act must be abolished." He holds the view that the system failed due to 'excessive regulation → fixed device subsidies → smartphone retail price increase → increased consumer burden.'

Accordingly, Kim Young-sik plans to simultaneously propose the Device Distribution Act abolition bill and amendments to the Telecommunications Business Act to minimize government intervention and promote subsidy competition. However, if the Device Distribution Act is abolished and subsidy competition is induced, price discrimination issues may resurface. An industry insider expressed concern, saying, "If the Device Distribution Act, which focuses on prohibiting price discrimination, is completely abolished, the rationale for the '25% selection discount' system, which corresponds to the subsidy rate, will disappear, and the three major telecom companies may again engage in marketing cost bleeding competition, causing side effects."

Effectiveness is Most Important

Experts mention that the National Assembly should more thoroughly examine the effectiveness of the bills proposed to revise the Device Distribution Act. Yeom Soo-hyun, a research fellow at the KISDI Telecommunications and Radio Research Laboratory, said, "From the perspective of device buyers after the Device Distribution Act, it may seem that the opportunity to buy devices cheaper has disappeared, but there are positive effects such as a reduction in unwanted device replacements," adding, "The current difficulties in complying with the law are due to various intertwined issues, such as too many distribution stores. Various problems need to be reviewed and supplemented." Professor Shin said, "The mobile phone sales distribution ecosystem is so complex that it is difficult to completely nullify the existing Device Distribution Act, and there are always problems when modifying it," emphasizing, "Whether moving toward abolition or supplementation, the goal should be set as one and predictability must be guaranteed."