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Mobile carriers under growing pressure to cut rates

Both ruling and opposition parties pledge rate reduction to court voter support


A mobile rate cut is a campaign promise made by political parties every election year. Regardless of their political ideology, parties pledge rate cuts to lure voters in a nation where the penetration rate of smartphones is nearing 50 percent.

This year’s parliamentary election to form the National Assembly ended Wednesday and the presidential election will take place in December. Apparently mindful of the elections, political parties are driving the local telecom industry into a “deadly situation” for votes, industry analysts said.

“It’s actually meaningless which party will win a parliamentary majority or who’s going to be the next president because all of them out there pledge mobile rate cuts,” an industry source said, declining to be named.

During the 2007 election, then-presidential candidate Lee Myung-bak also included a mobile rate cut in his major campaign pledges. Last year, facing growing pressure from the ruling Grand National Party (now Saenuri Party), the nation’s three telecom carriers ― SK Telecom, KT Corp. and LG Uplus ― offered a 1,000 won discount on the basic service charge.

While the nation’s network service becomes faster and more advanced, the requests from political parties show no sign of abating, but are rather becoming more aggressive amid recent disputes over universal welfare.

With their dramatic win to secure a parliamentary majority, industry sources predicted that the pledges by the ruling Saenuri Party would gain the upper hand in the coming campaign races for presidential election in December.

The party has promised that it will cut rates for voice calls by 20 percent, with another 20 percent discount for overseas-made or used handsets.

Under the scheme, the three telecom companies would lose a combined 1 trillion won in revenue every year, according to estimates.

What’s more worrisome within the industry is the party’s pledge to offer limitless data use for the fourth-generation Long Term Evolution. Currently, companies offer the faster service under limited data plans, citing the greater traffic on the networks.

“We cannot even calculate the financial impact from the limitless data use of LTE service. Lawmakers have no insight about the telecom industry at all,” said an official from a telecom company.

Meanwhile, sources expected some 7 trillion won in lost sales following pledges by the main opposition Democratic United Party that include the abolishment of basic charges and subscription fees, free text messaging and the public use of Wi-Fi networks.

Teaming up with other minor parties, the party is also expected to step up the offensive against the Korea Communications Commission so that the state-run telecom watchdog induces companies to lower service charges.

“Even though the telecom industry has led the nation’s IT development, there is no change in lawmakers’ mind that the network service is just a basic social service like tap water and electricity,” said another source.

“We are still ailing from the saturated market. Without further investment, the industry itself cannot survive. Political parties need to approach the issue more carefully.”

Company officials said that disputes on mobile rate cuts would just get more severe in the coming months, coupled with the renewed discussions on network neutrality, under which consumers can use services without discrimination while content businesses like smart TV and Kakao Talk are likely to “free ride” on the networks.

According to the OECD Communications Outlook 2011, Korean households were paying less on communications than the average amount spent among 34 member countries as of 2009.

The charges in Korea were 13th-cheapest for 30 calls for 50 minutes, 15th for 100 calls for 188 minutes, and 12th for 900 calls for 1,787 minutes. When it came to text messaging, the rate was the 10th-cheapest.

The biannual report also found that Korean households were spending 4.4 percent of their expenditures on communication, the second highest rate among the 34 member countries behind only Mexico.

By Lee Ji-yoon (jylee@heraldcorp.com)
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