[At the Brink of the 단통법] How to Find a Solution... Three Key Issues

The Subsidy Dilemma
Employment and Livelihood Issues at Distribution Stores
Effectiveness of Communication Cost Reduction

[Asia Economy Reporters Chae-eun Koo and Jin-ju Han] The Device Distribution Structure Improvement Act (commonly known as the DanTong Act), which has been plagued by controversy over communication blockages since its implementation, has become a harmful law over the six years since its introduction, entangling stakeholders such as telecom companies, manufacturers, distributors, and consumers. In fact, opinions favoring amendment or repeal have become dominant in the National Assembly, making it practically difficult to maintain the current law.

However, experts advise that for the successful market establishment of the 'post-DanTong Act' era, social discussions on three key issues?subsidies, jobs, and communication costs?are necessary alongside legal amendments. Specifically, these include the paradox of subsidies that cause dissatisfaction whether present or absent, the livelihood and employment issues of approximately 25,000 distribution outlets, and the issue of 'household communication cost reduction,' which has been used as a populist tool.

① The Paradox of Subsidies

The dilemma of subsidies is a core issue in the Device Distribution Act. When subsidies were liberalized to promote perfect competition, the telecom market became chaotic and price discrimination emerged. When regulations were imposed, the so-called 'stingy' subsidies caused smartphone prices to level upward, resulting in side effects. This is known as the 'subsidy dilemma.' Experts mention the need for discussions on whether the frame of 'subsidies = illegal' truly benefits consumer welfare. Kim Young-sik, a member of the People Power Party who is promoting a bill to legalize device subsidies, stated, "To reduce the burden of phone prices, telecom companies should be encouraged to provide more support funds than currently."

The reason why current proposed amendments include alternatives that allow differentiated subsidies, such as permitting differential official subsidies based on subscription types and raising the legal limit on additional subsidies from distribution networks, is due to this issue. Lee Jong-cheon, director of the Korea Mobile Distribution Association (KMDA), said, "Although the purpose and intent of the DanTong Act were excellent, there is debate about whether the results have actually benefited users," adding, "It is time to consider how to design the system so that benefits return to consumers."

② Distribution Outlet Employment Issues

The employment and livelihood issues of device distribution outlets (agencies and sales points) are also important topics to consider. Since the enforcement of the Device Distribution Act in 2014, distribution outlets have rapidly disappeared from the market. According to the Ministry of Science and ICT, the number of mobile phone distribution outlets nationwide was 25,724 in 2018, a 37% decrease compared to over 40,000 before the Act's enforcement. Recently, the increase in online mobile phone sales channels such as Coupang and 11st, along with the rise in non-face-to-face self-supply demand due to the COVID-19 pandemic, have dealt a direct blow to device distribution outlets.

There have been discussions about designating distribution outlets as small and medium enterprise (SME) suitable industries to address livelihood and employment issues (proposed by Park Hong-geun of the Democratic Party in 2017), but this requires social consensus. An Jeong-sang, senior expert at the Democratic Party, suggested, "Employment and profit issues of distribution outlets should be addressed by preparing alternatives such as SME suitability designation and restricting indiscriminate device sales by large retailers." Yeom Soo-hyun, a research fellow at the Korea Information Society Development Institute (KISDI), noted, "Consumers still benefit from convenient services through distribution outlets," adding, "The government and ruling party's push for a complete self-supply system should proceed gradually, but solutions for employment issues are necessary."

③ Reduction of Household Communication Costs

It is also important to examine whether the goal of reducing household communication costs (device and service prices) can be achieved through the policy tool of the Device Distribution Act. The Act originated from the Park Geun-hye administration's pledge to reduce communication costs, and the alternative proposed for the current Act, the 'device self-supply system,' ultimately focuses on 'activating competition → reducing communication costs.'

However, experts diagnose that government intervention to 'control market prices' is not easy, considering the six years of the Act's enforcement. It is also necessary to consider that ineffective and hasty measures related to the device distribution market crackdown have been repeatedly issued under the name of 'reducing household communication costs' in every administration. Professor Shin Min-soo of Hanyang University said, "Reducing communication fees is a policy goal that is difficult to handle under the Device Distribution Act," pointing out, "There is an invisible power dynamic between manufacturers and telecom companies, and if the government tries to regulate all market logic, competition will weaken and consumer welfare may decline."