[Reporter’s Note] Government Response to Illegal Subsidies

The overheated subsidy competition triggered by the so-called "SK Telecom Exodus" in the mobile telecommunications distribution market is rapidly subsiding. Until the end of April, "Seongji" stores?locations in Seoul's Gangbyeon Techno Mart known for offering higher subsidies than elsewhere?were offering Samsung's latest smartphone model, the Galaxy S25, for free to customers switching carriers, even adding "chabi" (immediate cash payments) as an incentive. However, now store owners shake their heads, saying that not only is it difficult to offer cash incentives, but even free devices are no longer possible. The spark of the subsidy frenzy, ignited by the leak of SKT's USIM information, has now been extinguished.

The government is what changed the atmosphere in just a few days. Since April 28, the Korea Communications Commission has been convening the marketing departments of the three major telecom companies?SKT, KT, and LG Uplus?every day for meetings on "disruptions in the device distribution market." There were no exceptions, even during the holiday period. The inspections did not end at the conference table. The scope was expanded to include everything from how dealerships set prices to the flow of USIM supply. Regulatory officials have been visiting stores in person, even on holidays, to look for signs of excessively high subsidies. As the three telecom companies are called into meetings every single day, there are now reports from the field that "illegal subsidies" have visibly decreased.

The effect is also evident in the numbers. The total number of new subscribers soared to 44,825 on April 28, right after the hacking incident, but fell to 17,080 on May 7. The number of customers switching carriers dropped to about one-third within a week. Even at Seongji, the response is that "as the subsidy frenzy ended, so did customer visits." There is also evidence that the three telecom companies have internally instructed their distribution networks to "reduce subsidies." A store owner at Techno Mart, whom the reporter met during the holiday, said, "Now, if we lower the price, the headquarters calls us immediately." Although no specific violations have been detected yet, the government's message and consistent action alone have changed the behavior of the telecom companies.

This response could mark a significant turning point in the regulatory paradigm of the telecommunications market. With the upcoming repeal of the Mobile Device Distribution Improvement Act, the telecom market is effectively entering an early "self-regulation experiment." In July, the act will be gone, leaving only business autonomy and government oversight in the market. When the SKT USIM crisis threatened to shake the market, the government responded quickly. Although some predicted that the turmoil would reignite competition for market share, so far, government intervention has helped calm the market. Whether this ability to stabilize the market will continue after the act is gone remains to be seen. The current calm may be a litmus test.