[Initial Insight] Qualitative Growth of the Altteul Phone Market Is Still Far Away

Concerns are growing over the comprehensive budget phone policy that the government plans to release by the end of the year. Critics point out that if the focus is solely on 'reducing communication costs,' it is likely to only increase market confusion.

Korea's budget phone market share (19%) has grown to the world's second largest level, following Germany. The number of domestic budget phone operators (MVNOs) has exceeded 80, more than doubling compared to 2016 (39). As barriers to entry in the telecommunications market have lowered, MVNOs have rapidly increased. Small and medium-sized MVNOs, not subsidiaries of large corporations, have achieved profits on the order of 100 billion KRW over the past five years. It is now time for systematic support measures that can promote qualitative growth in the budget phone market, which has succeeded in quantitative growth.

Judging that the activation of budget phones would directly lead to reduced household communication expenses, the government has focused on building the basic capacity for MVNOs to survive over the past decade. Every year, the government has negotiated wholesale fees for infrastructure rental with mobile carriers on behalf of MVNOs. Wholesale fees for data and voice have dropped by 99% and 89%, respectively, compared to ten years ago. This result could not have been achieved if the clearly hierarchical relationship between mobile carriers and MVNOs had led to individual negotiations. On the 13th, Minister Yoo Sang-im of the Ministry of Science and ICT also met with the CEOs of the three major mobile carriers, urging cooperation to help budget phones grow into genuine competitive players within the three-carrier system.

Instead of merely sitting at the negotiation table, the government has provided various incentives to MVNOs beyond wholesale fees, such as exemptions from radio usage fees. MVNOs have secured a stable business foundation through government support, the expansion of self-supplied devices, and the spread of rational consumption culture.

Now is the time for MVNOs to cultivate the ability to survive independently. If they focus only on financial support such as wholesale fee reductions, qualitative growth will not occur.

Currently, the budget phone market has only new entrants and no exits. Once entering the market, operators can make profits from wholesale-retail margins regardless of size. The government's policy centered on financial support has increased MVNOs' dependency on regulation.

Activation measures are needed for MVNOs to become true competitive partners of mobile carriers. Through mergers and acquisitions (M&A) among small operators and the exit of marginal operators, competitive large operators should emerge. MVNOs with sufficient scale to have their own billing and sales IT infrastructure and design independent products must be nurtured. By analyzing subscriber billing information to plan customized products and reducing billing and collection costs, there will also be room to lower communication fees.

Minister Yoo's statement earlier this year about finding ways to encourage the growth of promising operators into large-scale businesses is not unrelated to this trend. Providing incentives to MVNOs that develop innovative services could also be one of the measures.

Policies to protect users must also be strengthened. There have been ongoing criticisms that budget phones lack user protection policies, customer center operations, and investments in information security. Consumer damages such as fraudulent subscriptions and personal information leaks, exploiting operators' weak systems, have frequently occurred. There is also a high risk that budget phones could be exploited for various crimes such as spam and voice phishing. The smaller the MVNO, the more likely personal information protection measures and convenience will deteriorate. The government must also minimize side effects caused by 'policy disharmony.' It is hoped that the government will present a comprehensive policy that allows mobile carriers and MVNOs to coexist and thrive in the telecommunications market.