[Initial Insight] 5G Mid-Tier Plans, Building Trust

[Asia Economy Reporter Lim Hye-sun] Among South Korea's population of 51.67 million, 23.47 million people use 5th generation (5G) mobile communication services. Considering the rapid increase in the number of 5G subscribers, it is analyzed that the penetration rate will exceed 50% by the end of this year, the fourth year since the 5G launch. This is why the three major telecom companies, who had previously expressed reluctance to diversify 5G plans as urged by the government, are accelerating the launch of 'mid-tier plans.'

The number of 5G service subscribers increased from 4.66 million in 2019 to 11.85 million in 2020, and surpassed 20 million by the end of last year. Although the number of people using 5G services is rapidly increasing, consumers' choices of plans remain limited.

The three major telecom companies divided 5G plans into extremes based on data allowance: 20,000 to 40,000 KRW for 9?12GB or less, and 70,000 to 100,000 KRW for 100GB or more. However, since the launch of 5G services in 2019, the average monthly traffic per 5G subscriber has remained around 20GB. Last month, the average monthly traffic per 5G subscriber was about 25.87GB. Even subscribers to unlimited plans costing around 80,000 KRW per month use less than 50GB on average monthly. Those using between 15 and 50GB of data have been paying an unnecessary extra 100,000 to 150,000 KRW annually, effectively 'under-consuming data.'

Last year, the average monthly communication expense per household rose by 3.4% from the previous year to 124,000 KRW, marking an increase after four years. Spending related to mobile phone fees and internet usage increased by 4.9%. Excluding expenses related to food, clothing, housing, and education, this was the highest growth rate among spending categories last year. Experts attribute this to increased data usage due to the rise in non-face-to-face activities during the COVID-19 pandemic and the growing number of people using 5G services.

How about overseas? Like South Korea, the United States and Japan do not have mid-tier plans. Australia and Canada have segmented plans by data brackets such as 20GB, 40GB, and 60GB. Germany, China, and the United Kingdom offer a variety of plans across low, medium, and high data usage tiers to expand consumer choice. Germany's Vodafone divides 5G plans into 4GB, 15GB, 30GB, and 40GB options, while the UK's Three offers plans of 1GB, 4GB, 8GB, 12GB, 30GB, and 100GB. China's China Mobile structures 5G plans with 30GB, 40GB, 60GB, 80GB, and 100GB options.

With the government and the three major telecom companies beginning consultations, the first steps toward realizing 'mid-tier plans' have been taken. The telecom companies have entered a period of deliberation over setting prices according to data allowances. This is because if high-tier plan users switch to mid-tier plans, an average revenue per user (ARPU) loss of about 7,000 to 12,000 KRW per subscriber is inevitable. However, there is no need to focus on short-term profit declines. Although launching mid-tier plans may lead to short-term profit decreases, it can be beneficial in the long term. With more diverse plans, more people will use 5G services, and through 5G killer content, increased data traffic can generate profits. Now is the time to build 'trust' by meeting consumers' expectations rather than focusing on immediate 'numbers.'