The Mobile Device Distribution Improvement Act prohibits smartphone price discrepancy

Since May, rumors regarding the abolition of the 'Mobile Device Distribution Improvement Act' have been spreading in South Korea. Since October 1, 2014, the government announced the law which prohibits setting different prices for smartphones in order to create fairness for consumers. The law also limits the maximum subsidy to 300,000 won which the manufacturers provide.

Before the Mobile Device Distribution Improvement Act, it was possible to receive mobile phones for free or purchase them at cheap prices through subsidies which telecommunication companies covered. It was up to buyers to find the best price in the market. The difference in price of mobile phones was significantly high depending on where someone bought the product. This caused the need for some restrictions to reduce cases where smartphones were purchased rather expensively. The law was written to improve fairness in the market which led to everyone being forced to buy phones at the same price. The government made the law thinking that it would benefit many people. However, it had the complete opposite effect.

Consumers showed dissatisfaction of the law and complained that it just caused them to lose the opportunity to buy mobile phones cheaply and questioned for whom the law is really for. The Mobile Device Distribution Improvement Act significantly reduced the benefits to consumers and only increased the profit of telecommunication companies as well as it being a cost-cutting advantage for manufacturers. As the subsidies for mobile phones were restricted by the law, telecom companies were less likely to compete with each other. According to data, telecom companies’ profits nearly doubled compared with the period before the law was enforced. Telecom companies’ rebate costs have also fallen sharply due to the ban. A rebate is a system which gives back part of the amount paid to the payee. The rebate reduced from 156,000 won to 78,800 won which is a decrease of 49.8%. On the other hand, sales prices didn't shrink visibly which allowed manufacturers to achieve a costs savings of 92.5 billion won. Opinions were that the law should be revised according to the data.

Furthermore, rumors of the abolition in October weren’t true. Only the standard price cap in subsidies was abolished. So it still isn’t easy to buy a mobile phone at a discounted price like before since the other provisions of the law are still valid.

For three years since the law’s enactment, there have been some merits to it. No particular information was needed to buy discounted mobile phones since everyone had to buy them at the same high prices. As an alternative, the ‘Mobile Device Selfsupporting System’ is receiving growing attention. This separates the telecom company and the manufacturer from each other. By enforcing this law, it is expected to have the positive effect of lowering prices by causing competition among manufacturers. If the Mobile Device Selfsupporting System becomes adopted as an alternative, the Mobile Device Distribution Improvement Act will be abolished. On the other hand, some people are doubtful that telecom companies nor manufactures will confer on costs rather than compete with each other.

In the near future, it will be necessary to revise the current law and also correct the right distribution structure so that the law truly benefits everyone.

By Jeong Seung-in, reporter  samcandothat@naver.com

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