[The Long Road Ahead in Internet Policy] Tenants Caught Between Building Owners and Telecom Companies

Monopoly Contract Issues in Multi-Unit Buildings
New Contracts in Owner's Name Cause Problems
Penalty Reduction System Ineffective
Internet Transfers Sought Directly
Complaints About Monopoly Contracts Increasing

[Asia Economy Reporter Cha Min-young] Kang Ji-young (alias) experienced frustration with internet issues when moving to an officetel in Gangseo-gu, Seoul, last July. Although she had more than five months left on her existing SK Broadband contract, she had to switch to KT because the new officetel had an exclusive contract with KT. However, KT refused her request for a 50% reduction in the penalty fee, citing that the product was not subscribed under her personal name. She said, "In the end, I had to search extensively through online communities to find someone to transfer the internet contract to," adding, "What use is a penalty system that I can't even use when I need it?"

It has been revealed that cases where telecommunications providers with exclusive internet and IPTV service rights in officetels, villas, and knowledge industry centers (apartment-type factories) reduce penalty fees for new tenants terminating existing contracts amount to only nine cases per month. Two years ago, the Korea Communications Commission (KCC) devised an improvement plan requiring exclusive operators in multi-tenant buildings to cover 50% of users' contract termination penalties, but it failed to fully reflect the mixed reality of the telecommunications market, where B2C (business-to-consumer) and B2B (business-to-business) products coexist.

Penalty Fee Reductions in Multi-Tenant Buildings ‘Ineffective in Practice’

According to data submitted to the National Assembly’s Science, Technology, Information and Broadcasting Committee by Kim Sang-hee, Deputy Speaker of the Democratic Party, from October 2019 to October this year, the average monthly number of cases where telecom companies, as exclusive operators in multi-tenant buildings, reduced penalty fees by 50% was 9.2. By company, KT accounted for 22.2 cases, LG Uplus 5.5 cases, and SK Broadband (SK Telecom) 0 cases.

Excluding some unreported cases, the total average monthly penalty fee reductions by existing operators amount to 271.7 cases, making the multi-tenant building exclusive operator reductions only about one-thirtieth of that. A KCC official stated, "While penalty fee reductions by existing operators average around 300 cases per month, those by exclusive operators in multi-tenant buildings are much fewer, suggesting that most contracts are B2B agreements with building owners."

The improvement plan for the ‘Full Waiver of Discount Refunds Related to Exclusive Contracts in Multi-Tenant Buildings,’ implemented since August 2019, stipulates that when moving into a multi-tenant building with an exclusive contract between the building owner and a specific operator, and the user must terminate an existing contract, the penalty fee is compensated 50% each by the existing and exclusive operators. The intention was to reduce the burden of penalty fees ranging from 200,000 to 400,000 KRW in situations where the user terminates the service involuntarily.

However, the plan did not function properly because the penalty compensation condition requires tenants to sign a ‘new contract’ under the ‘same name.’ SK Broadband originally only handles B2B products with multi-line exclusive contracts with building owners in multi-tenant buildings, considering only the building owners as contract holders. KT and LG Uplus have similar situations. This is why the B2B market is effectively considered a ‘regulatory blind spot.’

"Exclusive Operators to Bear 100% of Penalty Fees"

Complaints related to exclusive contracts in multi-tenant buildings are also increasing amid a flood of such contracts. From January to September this year, the number of newly opened multi-line connections in multi-tenant buildings reached approximately 550,000, a 23.2% increase compared to 447,000 lines in 2018. As of the end of September, the total number of multi-line connections in multi-tenant buildings across the three major telecom companies was about 2,913,000 lines. Over the past three years, the KCC has received more than 130 complaints related to multi-line connections in multi-tenant buildings. During the national audit, Deputy Speaker Kim pointed out, "The three major telecom companies provide gifts and rebates to building owners, causing actual users?the tenants?to suffer damages."

The KCC plans to introduce an improvement plan within the year to change the discount refund waiver system to a method where existing and exclusive operators directly settle accounts with each other. A KCC official said, "We are negotiating a plan where the exclusive operator bears 100% of the termination penalty," adding, "We are also considering enacting enforcement ordinances and notifications under the Telecommunications Business Act to fundamentally resolve the issue of exclusive contracts in multi-tenant buildings."