Opposition to Designating Financial Ancillary Services for Altteul Phone... System Improvement Needed

Korean Discount Telecom Operators Association Statement Released
"Not a Radical Rate and Gift Innovation... Deterioration"
"Entry Not Allowed Without Fair Competition System Improvements"

[Asia Economy Reporter Oh Su-yeon] The Korea Discount Telecom Operators Association issued a statement on the 11th opposing the Financial Services Commission's move to designate discount phones as ancillary services of financial institutions ahead of the improvement of the separation of banking and commerce system. They argue that institutional measures must first be established to prevent unfair practices where financial institutions use their capital strength to poach subscribers.

The association stated, "Under the current discount phone-related system, there is no way to prevent large financial companies from launching aggressive rate plans below wholesale prices and offering excessive gifts and premiums to lure subscribers from other discount phone operators," adding, "As a result, existing operators who have struggled to build the discount phone market over the past 13 years are left defenseless with no means to counteract."

They particularly expressed concern that if the discount phone business is designated as an ancillary service under these circumstances, multiple banks will consecutively enter the discount phone market. Due to marketing backed by capital strength, small and medium operators will find it difficult to compete, and since the business is based on massive interest income rather than innovative services, it will lead to the overall deterioration of the discount phone industry.

The association explained, "If the Financial Services Commission designates the discount phone business as an ancillary financial service, not only KB Kookmin Bank but also several banks with enormous capital will flood into the discount phone market, leading unfair marketing competition such as bleeding rate plans below wholesale prices and excessive gifts. Consequently, the majority of small and medium operators who sustain their companies solely on profits generated from the discount phone business will inevitably become victims of the sprawling business expansion by large financial institutions."

Furthermore, they added, "The bigger problem is that the source of the market-disruptive rate discounts and gifts from large financial institutions does not come from innovation but from the massive interest income collected from ordinary citizens. Without presenting new types of services that enhance user benefits through the convergence of telecommunications, the excessive marketing by financial sectors based on huge interest income, without intending to generate profits from the discount phone business, poses a significant threat to existing discount phone operators lacking capital, raising concerns about the deterioration of the business."

The association questioned, "In this situation, under the name of deregulating the financial industry, we cannot help but ask whether the Financial Services Commission is an organization representing only the interests of financial institutions or one striving for national economic development through finance, as it attempts to relax the separation of banking and commerce regulations to allow all banks to operate discount phone businesses."

They also urged, "To ensure the continuous growth and revitalization of discount phones, we call for the amendment of Article 38 of the Telecommunications Business Act, the abolition of the sunset clause on the wholesale provision obligation that makes long-term investment by discount phone operators and the very existence of the discount phone market difficult, and the establishment of institutional measures to prevent unfair practices where financial institutions use their capital strength as a means of competition to poach subscribers. We strongly demand that entry of financial institutions into the discount phone market be prohibited in the current state where institutional improvements for fair competition among operators have not been made."