[Comprehensive] '10 Million Altteul Phones' Must Discover New Markets Beyond Price Competition to Continue Growing

On the 24th, at the 'Altteul Phone Square,' an Altteul phone promotion center near Seodaemun Station in Seoul, a commemorative event celebrating the achievement of 10 million Altteul phone subscribers was held. From the left, Park Jong-seok, Head of the Korea Post, Kim Hyung-jin, President of the Korea Altteul Telecommunications Business Association, Lim Hye-sook, Minister of Science and ICT, Cho Seung-rae, Democratic Party of Korea lawmaker, Yang Jeong-suk, Independent lawmaker, and Kim Young-sik, People Power Party lawmaker, are posing for a commemorative photo.

[Asia Economy Reporter Eunmo Koo] The budget phone sector has entered the era of 10 million subscribers, marking its 11th anniversary since launch. The government is reviewing restrictions on the combined market share of subsidiaries of the three major mobile carriers to ensure continuous growth of budget phones and is promoting wholesale price reductions. Meanwhile, voices are emerging that to achieve qualitative growth beyond quantitative expansion in the budget phone market, it is necessary to discover new markets beyond price competition.

Budget Phones Surpass 10 Million Subscribers

On the 24th, the Ministry of Science and ICT held a commemorative event for ‘achieving 10 million budget phone subscribers’ at the ‘Budget Phone Square’ near Seodaemun Station in Seoul, announcing that the number of budget phone subscribers in Korea has exceeded 10 million. The budget phone system was introduced in September 2010 to reduce household communication expenses, and as of the 21st, the number of subscriber lines reached 10.07 million. Among them, 5.98 million are mobile phone subscribers (1.63 million prepaid, 4.35 million postpaid), and 4.35 million are Machine-to-Machine (M2M) subscribers.

Introduced in September 2010 to alleviate household communication costs, the budget phone system surpassed 5 million subscribers in 2015 and reached 10 million in the first week of November this year, 11 years after its introduction. Compared to the end of last year (9.11 million), the number increased by nearly 1 million in about 10 months.

Subscriber Growth Trend Since the Introduction of Budget Phones

At the event, Minister Hyesook Lim of the Ministry of Science and ICT said, “This year marks a very meaningful achievement as budget phone subscribers exceeded 10 million in just 11 years since its introduction,” adding, “We hope the budget phone industry will unite to take a step forward by providing various and innovative services that the three major carriers do not attempt, in addition to price competitiveness, and the government will spare no support to this end.”

Kim Hyungjin, Chairman of the Korea Budget Telecommunications Operators Association, also said, “Today’s achievement was realized through the continuous government support such as exemption from radio usage fees and wholesale price reductions, combined with the earnest desire of operators to popularize budget phones,” and added, “Budget phone operators will actively pursue efforts to get closer to customers through budget phone advancement and do their best for continuous growth.”

Budget phones (MVNOs, Mobile Virtual Network Operators) are mobile communication services that rent networks wholesale from existing mobile network operators (MNOs) such as SK Telecom, KT, and LG Uplus, and provide communication services under their own brands. While maintaining the same communication quality, they reduce sales, distribution, and advertising costs, resulting in lower rates.

Recently, unlike existing carriers, the freedom from contract terms combined with unlocked devices has accelerated subscriber growth. The perception that purchasing unlocked devices from e-commerce platforms like Coupang and 11st and combining them with affordable budget phone plans is a reasonable way to use mobile communication is spreading mainly among younger generations.

Government Continues Growth... From Wholesale Price Reduction to Mobile eSIM Introduction

The government announced activation measures to diversify services and expand user accessibility so that budget phones can maintain competitiveness continuously.

First, to prevent excessive concentration of the budget phone market in subsidiaries of the three major carriers, the government is reviewing limiting the combined market share of subsidiaries. Contrary to the original intention of promoting competition, the budget phone market is showing signs of becoming another battlefield led by subsidiaries of the three major carriers. The market share of budget phones by subsidiaries of mobile carriers, which was about 37% in 2019, increased to 46.6% as of last July.

The government will also create an environment where budget phone companies can launch more competitive plans. First, it will lower the wholesale price for usage-based billing. The usage-based wholesale price is the fee that budget phone operators pay to carriers based on voice, data, and SMS usage. Data wholesale price will be reduced from 2.28 KRW per MB to 1.61 KRW, and voice from 10.61 KRW per minute to 8.03 KRW. The data wholesale price entered the 1 KRW range for the first time this year after a 22.8% reduction last year and a 29.4% reduction this year, and the voice wholesale price was also lowered by 24.3%.

To enhance competitiveness in the LTE market, the main market for budget phones, the revenue-sharing rate for SK Telecom’s T-Plan will also be reduced by 2 percentage points. For example, the wholesale price for a 69,000 KRW plan with 100GB data will be reduced from 62% (42,780 KRW) to 60% (41,400 KRW), creating conditions for budget phone operators to offer cheaper plans.

Additionally, starting next month, the comprehensive portal ‘Budget Phone Hub’ where users can search and subscribe to customized budget phone plans will operate unlocked phone damage insurance for 4,750 KRW per month to strengthen the combination of budget phones and unlocked devices.

The government will also improve user convenience. Budget phones, which are mainly activated online, have faced difficulties in subscriber acquisition due to limited online identity verification methods, restricted to universal public certificates and credit cards. However, since the revision and enforcement of the Electronic Signature Act in December last year, various private electronic signatures have been expanded as identity verification methods, and from the third week of next month, many budget phone operators will be able to adopt Payco certificates, Naver certificates, and others.

The introduction plan for mobile eSIM will also be prepared within the year after industry consultations. Currently, when subscribing to budget phones online, users receive a SIM card by courier and must connect to a call center, which can take 2 to 3 days for activation. The introduction of eSIM service is expected to alleviate some of the inconvenience of SIM activation for budget phones, which are mainly activated online. Additionally, KB Kookmin Bank and the KMVNO Association will open an additional budget phone exclusive promotional center, ‘Budget Phone Square,’ next year to expand the market base.

Need for New Market Discovery by Operators

There are also voices that to expand and solidify the budget phone market beyond its current scale, it is necessary to discover new markets beyond price competition. Since continuous growth is difficult relying solely on government support such as wholesale price reductions, growth policies are needed where large operators, small and medium operators, and non-telecom operators create and target different markets and services.

For example, large operators such as subsidiaries of mobile carriers would invest in innovative services, while small and medium operators would adopt strategies targeting low-cost and niche markets. Non-telecom operators should also pioneer markets in various industries and fields such as IoT-based data new businesses, online-to-offline (O2O) services, and smart factories.

Professor Minsoo Shin of Hanyang University’s Business School said, “It is difficult for the market to grow by focusing only on low prices, so operators should consider ways to operate in different markets,” adding, “The low-cost market can be left to small and medium operators, and mobile carrier subsidiaries can create service models for companies with high demand for communication infrastructure.”

Kim Youngsik, a member of the People Power Party who attended the commemorative event, said, “If large and small companies compete together, it will structurally be difficult,” and added, “If small companies are given space to survive, they will gain competitiveness.”