Government's Urgency on 5G Mid-Tier Plans [Cha Min-young's Post-it]

Inducing Release Within Q3 by the Three Major Telecoms
Marking the 3rd Anniversary of 5G Commercialization This Year
Increasing Consumer Complaints About Mid-Tier Plans

[Image source=Yonhap News]

[Asia Economy Reporter Cha Min-young] #. As part of measures to stabilize people’s livelihoods, the government is encouraging the launch of a mid-tier 5G plan in the third quarter of this year. With consumer prices soaring due to international instability, the government aims to reduce the burden felt by the public. The telecommunications industry, which has been reluctant to introduce mid-tier plans citing the burden of 5G network capital expenditures (CAPEX), is expected to show a changed stance.

Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho announced the 'Emergency Livelihood Stabilization 10 Major Projects' on the 30th of last month, which included the introduction of a mid-tier 5G plan. It explicitly stated, "Encourage the launch of a mid-tier 5G plan in the third quarter of this year to reduce the burden of communication fees."

Although the term "encourage" was officially used, it is presumed that there was prior consultation between the industry and the relevant ministries. This is because the introduction of a mid-tier 5G plan has been mentioned as a national task since the presidential transition committee before the inauguration of the Yoon Seok-yeol administration. A Ministry of Science and ICT official explained, "Since it is a private plan, we are actively consulting, but the government cannot set the launch timing or the level. We are requesting the telecom companies to launch such plans as there is demand and continuing discussions." This is also why there is keen interest in the first official meeting between the newly appointed Minister of Science and ICT Lee Jong-ho and the CEOs of the three major telecom companies to be held later.

The government is encouraging the launch of a mid-tier plan because among 5G plans, there is dissatisfaction that the commonly used monthly data packages of 20 to 100GB are insufficient. The average monthly data usage of 5G users is 23 to 27GB, and excluding the top 5%, it is around 18 to 21GB. However, since there is no plan corresponding to this usage, users are forced to subscribe to expensive plans, a criticism raised mainly by consumer organizations such as the Korea Consumer Federation and People’s Solidarity for Participatory Democracy.

This criticism has also been raised in the National Assembly. According to data submitted by the Ministry of Science and ICT to the office of Kim Sang-hee, a member of the Democratic Party, in February, the average monthly data usage per 5G smartphone subscriber from the commercialization of 5G services in April 2019 to December 2021 was 25.788GB. Considering that most 5G subscribers are on plans of 100GB or more, it means about 75GB of data is wasted every month.

There is a lack of plan options that match the average data usage. Among the current 5G plans of the three major telecom companies, there are plans of 10 to 12GB (55,000 KRW), which is about half the average, and plans of 110 to 150GB (69,000 to 75,000 KRW), which is about five times the average, but there is no widely used mid-tier plan, which has also been pointed out.

The three major mobile carriers

Another reason the government is encouraging the launch of mid-tier plans is that the profitability of the three major telecom companies is improving as the number of 5G subscribers increases. The combined operating profit of the three telecom companies in the first quarter of this year was 1.3202 trillion KRW, an increase of 20.7% (226.2 billion KRW) compared to the same period last year. SK Telecom’s operating profit rose 15.5% year-on-year to 432.4 billion KRW, and KT’s increased 41.1% to 626.6 billion KRW. However, LG Uplus recorded a 5.2% decrease to 261.2 billion KRW.

The improvement in profitability is largely due to the increase in 5G subscribers who pay relatively higher fees and the reduction in marketing costs. According to the Ministry of Science and ICT, as of the end of March, the number of 5G subscribers was approximately 22.91 million, an increase of 1.99 million (9.5%) compared to the end of last year. The number of 5G subscribers is estimated to continue increasing even after the third anniversary of the 5G service in March. Meanwhile, the marketing expenses of the three telecom companies have decreased. Since the early days of 5G network construction, the three companies have refrained from excessive competition to attract subscribers.

The telecommunications industry is also expected to cooperate more actively with the government’s demand to expand plan options. An industry official said, "Mid-tier plans are intended to diversify consumer choices and are not expected to significantly harm profitability," adding, "We have been reviewing various plans as the number of 5G subscribers increases."