Illegal Subsidies Released in Large Scale... Fold4 at Half Price, Flip4 at 380,000 Won

Illegal Subsidies Centered on Online 'Seongji'
8 Years of the Mobile Device Distribution Act... Government's Deepening Dilemma

The collective mobile phone market at Sindorim Techno Mart, Seoul, visited on the 27th

[Asia Economy Reporter Oh Su-yeon] "Did you come after seeing the Flip4? If you purchase right now, we can offer it for this price (400,000 KRW)."

On the afternoon of the 28th, the first weekend after the launch of the Galaxy Fold and Flip4, the mobile phone collective market at Sindorim Technomart was lively for the first time in a while. Although offline retail districts have been depressed due to COVID-19 and the rise of so-called online 'holy sites' like Band, the unprecedented pre-order enthusiasm for the Fold and Flip4 seemed to have a significant effect on this place as well with the release of the new flagship devices.

How much have you checked before coming?

Each store had at least 2 to 3 customers, and some had more than 5, sitting and inquiring about mobile phone prices. Previously, it was difficult to walk through the aisles due to aggressive solicitation, but now it felt like the solicitation by retail staff had decreased because they were busy attending to customers. Citizens leaving the collective market were also carrying shopping bags containing new mobile phones.

The reason why customers kept coming to stores that were usually deserted is that Samsung Electronics' Galaxy Z Fold4 and Flip4 prices dropped sharply as illegal subsidies were massively distributed mainly at so-called 'holy sites' right after their release. Depending on the carrier and subscription conditions, the Fold4 price dropped to 970,000 KRW, and the Flip4 to 380,000 KRW.

Upon entering one retail store, the owner asked, "How much have you checked?" while showing a calculator. When the price confirmed in advance from the online holy site price list was entered, the price instantly dropped by another 10,000 KRW. The owner asked if a pre-order was made and said, "If you didn't pre-order, there is a difference, but this is the real bottom price," adding, "The dealer fee is less than 20,000 KRW. There's no profit, but I'll give it to you at this price," encouraging the purchase.

The prices at other visited stores were similar. Based on the subscribed carrier and using a plan in the 90,000 KRW range, the device change price was formed in the mid-400,000 KRW range. However, if only the official subsidy and additional subsidy without illegal subsidies are received with the same plan, the maximum discount is 575,000 KRW, making the device price 778,000 KRW.

At another store, the price already checked was written down on paper. The staff said, "You came after checking like this?" and replied, "If you purchase right now, we can offer it at this price," showing 400,000 KRW. When hesitating, they said, "If you visit more places, it will be similar," and confidently added, "This is the cheapest. You can even post this on mobile phone communities."

The official release prices of the Fold4 and Flip4, launched on the 26th, are 1,998,700 KRW and 1,353,000 KRW, respectively. The official subsidy for the Fold4 and Flip4 is up to 650,000 KRW. Including the additional subsidy (up to 15% of the official subsidy), the discount reaches 747,500 KRW. If the Mobile Device Distribution Improvement Act (DanTongBeop) is complied with, the lowest price for the Fold4 is 1,251,200 KRW, and for the Flip4, 605,500 KRW. The Fold4 price dropped to half, and the Flip4 to less than one-third immediately after release. This is due to the expansion of illegal subsidies timed with Samsung Electronics' new smartphone release during the summer off-season.

8th Year of DanTongBeop, the 'Holy Sites' Remain Strong

The Korea Communications Commission urged the three major mobile carriers to increase official subsidies rather than illegal subsidies and to be cautious about market overheating ahead of the Galaxy Z series launch. Market monitoring was also strengthened. However, due to the closed nature of the 'holy sites' mainly operating online, it is practically impossible to crack down on all of them.

The phenomenon of massive illegal subsidies instead of official subsidies is influenced by the Mobile Device Distribution Improvement Act (DanTongBeop), enacted in 2014. Its purpose is to set a cap on additional subsidies to prevent excessive user discrimination caused by information asymmetry. However, carriers provide sales incentives (rebates) to some distribution channels, and part of these rebates are used as illegal subsidies, further deepening the discriminatory price structure.

The government is facing deep concerns in the 8th year of DanTongBeop. The Yoon Seok-yeol administration recently selected 'abolishing the cap on additional subsidies for mobile phones' as one of the seven major tasks of the regulatory review system. The Office for Government Policy Coordination plans to collect public opinions through an online discussion on the regulatory information portal. Although the discussion was originally scheduled to start on the 19th, it has been postponed due to issues found during the previous two discussions.

If the cap on additional subsidies is removed, it would effectively have a similar effect to abolishing DanTongBeop. On the other hand, the Korea Communications Commission, which is responsible for regulation, insists that DanTongBeop should be maintained. Without DanTongBeop, the braking mechanism on discriminatory sales disappears, worsening the asymmetric price structure. Last October, the Commission proposed an amendment to DanTongBeop to expand the cap on additional subsidies from 15% to 30% of the official subsidy.