With 10 Million Users Approaching... Altteul Phone Still Has a Long Way to Go

9.81 Million Subscribers by Late July
34% Increase Compared to Same Period Last Year
Limitations in Activation Support Measures
Urgent Need for Development Plan for 4th Mobile Carrier

[Asia Economy Reporter Cha Min-young] The domestic budget phone service, which marked its 11th anniversary this year, is approaching the milestone of 10 million customers. However, the market response is that there is still "a long way to go." There are calls for long-term industrial development plans to help the entire budget phone market grow.

The Era of ‘10 Million Budget Phone Users’ is Coming

According to the Ministry of Science and ICT’s wireless communication service subscriber statistics on the 16th, as of the end of July, the number of subscribers was approximately 9.81 million, an increase of about 7.7% compared to 9.11 million in December last year. Compared to the same period last year (7.32 million), it is a 34% increase. Even considering Machine-to-Machine (M2M) subscribers such as Hyundai Motor Company, this is regarded as a significant figure. A 5G industry official said, "Based on the average monthly growth rate, there is a consensus that the number of budget phone subscribers will reach 10 million around November this year."

Consumers burdened by the 5G plans of the three major mobile carriers, which cost over 70,000 KRW per month, have increasingly chosen budget phone plans priced between 10,000 and 30,000 KRW, seeking cost-effectiveness (performance relative to price). Strategic flagship smartphones released by Apple and Samsung Electronics cost between 1 million and 2 million KRW per device. The increase in sales of unlocked smartphones on e-commerce platforms such as Coupang and 11st has also had an impact. The fact that self-activation is possible using a SIM card purchased at convenience stores has attracted MZ generation customers. The gift competition that took place in some quarters is also believed to have influenced this trend.

Support Measures Needed to Revitalize Budget Phones

Budget phone operators point out that legal restrictions must be lifted for the long-term development of the market. They argue that institutional changes are necessary so that budget phone service providers can grow into a ‘fourth carrier,’ like Rakuten Mobile, a subsidiary of the Japanese e-commerce company Rakuten. An industry insider said, "There was anticipation when KB Kookmin Bank entered the market with ‘Liiv M,’ but currently there is no significant change due to internal issues. Incentives are needed for the market pie itself to grow."

There are also calls to expand flexibility in the criteria for calculating wholesale fees and to strengthen investment incentives. Currently, the law stipulates that wholesale fees are calculated by excluding avoidable costs (such as sales and advertising costs that can be avoided when the service is not directly provided) from retail fees. Budget phone operators struggle every year during the wholesale fee calculation season. The wholesale service provider is SK Telecom, the number one operator in Korea, and it is subject to a three-year term sunset clause. Discussions for this year’s wholesale fee calculation have already begun, but the industry expects the agreement to be reached around the same time as last year.

The issue has also been pointed out in the National Assembly. The ‘Partial Amendment to the Telecommunications Business Act’ proposed by Kim Young-sik of the People Power Party in December last year is still pending in the National Assembly. This bill includes provisions to abolish the sunset clause for the mandatory wholesale provision period and to expand mandatory providers to the three major carriers. However, the current conditions, procedures, methods, and fee calculation criteria for mandatory wholesale services are stipulated by ministerial notification. The Science, Technology, Broadcasting and Communications Committee’s review report pointed out that "expanding the scope to all wholesale providers may excessively restrict contractual freedom."

Negative Image Must Also Be Improved

The negative image attached to the budget phone industry is a challenge that the industry itself must resolve. Because the relatively easy activation and low usage fees have been exploited for fraudulent crimes involving ‘ghost phones.’ Among 27,039 ghost phones detected by the National Police Agency’s National Investigation Headquarters over two months from April 21 this year, 25,142 units (92%) were budget phone carriers. Issues with insufficient customer centers have also been pointed out.

The Ministry of Science and ICT, the competent authority, recently distributed the final version of the ‘Guidelines for Protecting Budget Phone Users,’ reflecting the opinions of the budget phone industry. The guidelines include measures such as self-monitoring to prevent incomplete sales and identity verification functions through private electronic signatures. Incomplete sales refer to failing to properly explain contract terms during the contract process.

The industry is promoting a plan to share information on ‘bad retailers’ among association members to restore trust. Through an integrated computer system, a so-called ‘blacklist’ of entities frequently involved in ghost phone crimes will be created and shared within the industry. They plan to request information sharing on crackdowns from the National Police Agency and others to enhance the system’s effectiveness. A representative of the Korea Mobile Virtual Network Operator Association (KMVNO Association), which has 19 budget phone operators as members, said, "If even one company is involved in ghost phone crimes or responds poorly, the entire budget phone industry is criticized. We will prepare joint countermeasures to improve our image."