[The Era of One Phone Two Numbers⑤] Changes in Smartphone Distribution... Growth of Online and Jagupje Markets

Commercialization of e-SIM Service Reduces Role of Offline Mobile Stores
Phone Purchase → Activation → Subscription → Service All Online

[Asia Economy Reporter Lim Hye-seon] Once eSIM (embedded Subscriber Identity Module) services become commercialized, there will be no need to visit mobile carrier stores. Non-face-to-face and online activations will become commonplace. The role of offline stores, which have been the hub of smartphone distribution until now, will also significantly diminish. The rapidly growing unlocked phone market is expected to expand further.

From Phone Purchase → Activation → Subscription → Service, All Online

Office worker Lee Jin-seon (32) searched through the smartphone sales malls of the three major mobile carriers, as well as open markets like Coupang and 11st, and home shopping channels to find the best rate plan at the lowest price to purchase the newly released Galaxy Z Fold4. Receiving the latest phone via next-day delivery service, Lee switched her device to the new smartphone by changing her existing phone plan to a cheaper voice call plan. She was reluctant to change her long-used phone number or port her number to another carrier because she had been with her current carrier for over 10 years and was receiving long-term subscriber benefits.

For additional data, she subscribed to a data-only plan from a budget phone provider using the eSIM service. She was able to use it cheaply through a long-term subscription discount at one place and a new subscriber promotion at another. After briefly scanning the QR code on the monitor screen, downloading the eSIM, and verifying some personal information, the subscription process was complete. Using applications provided by the carriers, she could manage billing, subscribe or change additional services, and receive various after-sales services. There was no need to visit a physical phone store at all.

Number of Mobile Carrier-Operated Phone Stores Falls Below 10,000

According to the Korea Mobile Distribution Association (KMDA) and Statistics Korea, the number of phone stores, which exceeded 20,000 before the implementation of the Device Distribution Structure Improvement Act (Device Act) in 2014, has slightly decreased to about 19,000 currently. The estimated number of store employees is around 70,000. The term 'phone stores' includes only those operated by individual business owners. The phone distribution market is divided into agency stores and sales stores. Agency stores are operated directly by the three major carriers or managed through consignment and can handle phone sales as well as communication service tasks such as activation and device changes. Sales stores act as agents selling phones on commission from agency stores. The number of agency stores directly operated by carriers is estimated to be about 10,000.

Since the COVID-19 pandemic, the status of offline distribution networks has declined due to the increase in non-face-to-face activations and demand for unlocked phones, marking a turning point in the phone distribution industry. According to the research firm Consumer Insight, the proportion of online internet purchases of phones rose from 12% in 2015 to 22% last year. Consequently, the unlocked phone purchase market has also grown. As of the second half of last year, 35% of all consumers who purchased a phone within six months chose unlocked phones. The market share of unlocked phones, which was about 8% in 2015, is estimated by the industry to have increased by 15% as of the first half of this year. Introduced in 2012 to promote distribution competition, unlocked phones refer to devices without a designated carrier. They are mainly preferred by young consumers who do not want to be bound by contract periods or carrier plan conditions. Carriers are also strengthening online sales channels and unmanned stores. With the launch of eSIM services, the unlocked phone market is expected to grow further due to changes in consumer behavior.

To replace a regular USIM, a separate pin is required. Additionally, a tray to hold the USIM chip is also necessary. With eSIM, the USIM is embedded within the smartphone itself, eliminating the need for both a tray and a pin.

Phone Distribution Shifts Toward Unlocked and Online

The competitiveness of offline stores is expected to worsen further. As the unlocked phone market grows, the profits that offline stores can expect will also decrease. The current structure, where sales stores receive rebates worth tens of thousands of won for selling a single phone, is likely to change. It is also predicted that various illicit tactics will become rampant as customer inducements for survival. Cases of pinpointing sales store 'coordinates' online for promotion are already common. In particular, 'holy sites' engaging in illegal or unfair practices based online may become more prevalent. They operate by imposing conditions such as subscribing to high-priced plans and additional services, mandatory usage periods, and providing tens of thousands of won in illegal subsidies for device purchase costs in a discriminatory manner.

A representative from the Korea Mobile Distribution Association said, "If we include stores that are temporarily closed or permanently shut down in the statistics, the actual number of stores has decreased even more," adding, "While the introduction of eSIM has positive aspects such as increasing the number of subscribers, there are many negative factors arising from the restructuring of distribution into the online market." He emphasized, "To reduce the damage to offline stores, various benefits need to be created."