[Market Analysis]② Mobile Carriers and Altteul Phone Symbiosis = Regulation as a Price? ... Opening the Lid Reveals

Market Thrives After Sunset of Wholesale Obligation System
Active Autonomous Market Competition... Diverse Fees from 0 to 100,000 Won
Experts: "A Mutually Competitive Market Structure Must Be Formed"

The Ministry of Science and ICT is set to announce the 'Policy Measures to Promote Competition in the Telecommunications Market' around the 28th. The main focus of this policy is measures to revitalize MVNOs (Mobile Virtual Network Operators). The ministry plans to present improvements to the wholesale provision obligation system, which expired last September. MVNO businesses operate by purchasing wholesale services and facilities from the three domestic mobile carriers that have built the network and reselling them. In this process, MVNO operators pay wholesale fees (network usage fees) to SK Telecom, KT, and LG Uplus.

The government has been negotiating wholesale fees annually with SK Telecom, the wholesale provision obligation operator, on behalf of the MVNO industry. The wholesale provision obligation system is a lifeline for small MVNO operators who rely on the three carriers to simply resell plans. It appears that the government is preparing to extend the wholesale provision obligation period and revise the system to allow flexible determination of wholesale fee calculation standards through official notices. Opinions are already divided regarding the government's MVNO revitalization plan. Some argue that regulations are still necessary to grow the MVNO market, while others criticize the plan as merely providing a 'life support' to keep MVNO operators barely alive.

How Has the MVNO Market Fared Since the Regulation Sunset?

Will the MVNO market collapse once the wholesale provision obligation system, stipulated in the Telecommunications Business Act, loses effect due to the sunset clause? MVNO operators have said survival would be difficult. However, the results were unexpected. For eight months after the regulation sunset, the MVNO market experienced a heyday. Market-driven competition became even more active. Small operators led a 'subscriber poaching war' by launching 'zero-won plans' first. This phenomenon occurred as the three mobile carriers provided sales subsidies up to 210,000 KRW and additional data to protect their market share. Even while receiving wholesale fees, carriers offered sales subsidies to expand their market share.

During this period, the number of MVNO subscribers increased by 1.63 million. The mobile telecommunications market share rose from 16.1% to 17.6%. MVNO subscribers grew by 10%. Meanwhile, the three carriers’ mobile phone subscribers decreased by 460,000. This proved the argument that MVNO prices can be lowered without government intervention to regulate wholesale fees. Still, immediately abolishing the wholesale provision obligation system carries significant risks. Experts agree that protective measures are necessary until small operators can stand independently.

Government’s Direction for MVNO Policy

Experts say it is time to reconsider MVNO policy from the ground up. When MVNOs were introduced, the government’s goal was to nurture full MVNO operators with their own IT infrastructure. This was because an independent operator capable of checking the three major carriers was needed in the oligopolistic mobile market. The government continued policy support. According to a parliamentary review report at the time of the second extension of the wholesale provision obligation system in November 2016, the government argued that the operators were small in scale with weak subscriber bases, necessitating an extension of the system’s validity period. At that time, 39 operators shared a 10% market share. However, currently, more than 90 operators are competing in the MVNO market. The government’s incentives have only produced small-scale operators engaged in simple resale.

Professor Shin Minsu of Hanyang University explained, "Although MVNOs have surpassed a 17% market share in mobile telecommunications, operators still depend on policies for survival," adding, "From a long-term perspective, the current MVNO market is unsustainable." He continued, "Competition in the MVNO market is driven by subsidies from the three carriers," and suggested, "It is necessary to review whether the wholesale provision obligation system’s effectiveness period has expired and to revise regulations regarding the role of MVNOs." The government is discussing providing incentives to full MVNO operators.

Coexistence Between MVNO Operators and the Three Carriers Is Essential

For MVNO operators and the three carriers to coexist in the market, a market structure where they compete mutually in both wholesale and retail markets must be formed. Some suggest monitoring the market atmosphere for the time being and discussing strengthening regulations if issues such as competition hindrance arise later. There are also voices advocating maintaining the wholesale provision obligation system but allowing autonomous determination of fees. This is seen as a compromise between the carriers’ positions and public opinion. Of course, protective measures for small operators are necessary. Yoon Young-chan, a member of the National Assembly’s Science, Technology, Information and Broadcasting Committee from the Democratic Party, said, "Instead of strengthening regulations, the market should move toward a competitive structure among operators," adding, "If MVNO operators fail to secure competitiveness and differentiation in a market-driven environment, many will be weeded out despite their proliferation."