The Korean government and Samsung Electronics collide head-on

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The Korean government and Samsung Electronics collide head-on

디지털데일리 발행일 2013-11-20 15:33:05

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- MSIP says mobile device manufacturers are ‘misleading’ the public on the pending Mobile Device Subsidy Act

- It is an exaggeration to claim that the law would destroy mobile phone industry ecosystem

- Samsung Electronics, which dominates the distribution system, is disturbing the market

By Yun, Sang-ho crow@ddaily.co.kr

The Digital Daily

The Ministry of Science, ICT and Future Planning (MSIP) and the Korea Communications Commission (KCC) have declared a head-on tackle of Samsung Electronics. The action came out of the judgment that the current movement by mobile phone manufacturers against the ‘bill on the improvement of the mobile devices distribution system’ (the subsidy regulation act or the mobile phone distribution act, in short), which is now pending at the National Assembly, has gone too far, even attempting to distort facts. All parties in the telecommunication industry as well as the government are supporting the bill, except mobile phone manufacturers. Leading the voices of mobile phone makers against the bill is Samsung Electronics.

MSIP and KCC held a joint press briefing at the office of the ministry in Gwacheon, Gyeonggi-do, on Nov. 18 and refuted the claims of the mobile phone manufacturers concerning the bill. They rebutted, one by one, the claims of the mobile phone makers that the bill represents over-regulation and may drag the development of the mobile phone industry, which they have propagated through media.

Although the ministry and KCC officials at the briefing did not directly mention the name of Samsung, only calling it ‘company A’, their criticisms were apparently aimed at the giant. Along with two other organizations headed by Samsung CEOs, the Korea Electronics Association (KEA), which is chaired by Samsung Electronics CEO Kwon, Oh-hyun, made public their comments on the bill on Nov. 11, saying, “If passed, the act may bring a collapse of the local mobile phone industry ecosystem and encroach on the interests of all stakeholders including the mobile phone manufacturing industry and market.” The other two organizations which joined the KEA in criticizing the bill are the Korea Display Industry Association chaired by CEO of Samsung Display Kim, Ki-nam and the Korea Semiconductor Industry Association chaired by Jun, Dong-soo, head of the Memory Business in Samsung Electronics’ Device Solutions Division. These movements of Samsung CEOs also seemingly had an effect on the government’s response.

Hong Jin-bae, director of the Software Industry Division of the MSIP, refuted the claim that the act will destroy the mobile phone industry, saying, “There is a leap in the logic.”

He said, “Despite that we have repeatedly explained to mobile phone manufacturers that the government would neither force them to open business secrets nor implement double regulations, and we are collecting opinions from many parties on any controversial matters that may need revision, they are distorting the facts. They can make an argument of their own but they are now attempting to mislead public opinion by distorting facts.”

The keys of the mobile devices distribution act includes; the prohibition of discrimination in subsidies based on subscription type, payment plan or place of residence; opening of the conditions and contents of subsidies; the nullification of contracts when customers are forced to subscribe a certain payment plan or additional services; the provision of corresponding discounts to customers who do not get subsidies; and the investigation of subsidies offered by phone makers and the introduction of related regulations. The law will be enforced only when mobile phone manufacturers are found to attempt to disturb the market through subsidies. Ordinary sales activities and non-discriminative subsidies for all customers are excluded from investigation.

Government officials said the law will encourage fair competition concerning the price of mobile devices, which will contribute to the diversification and reduction of mobile device cost.

“We understand there are some concerns that the law may only result in less benefit for consumers, but consumers will eventually benefit from it since they will be able to avoid forced subscription to expensive data plans and get subsidies even when they choose inexpensive plans,” said Hong. “Giant phone-makers and mobile carriers may conspire for high pricing of mobile devices and sell them to consumers at seemingly lower prices by offering subsidies, which is basically cheating consumers. By eliminating these practices, we can prevent a certain mobile device manufacturer from disturbing the market, which will result in a fair competition.”

He also countered the argument that the law may result in reverse discrimination against local manufacturers compared with foreign companies. The official said foreign companies have been very cooperative in government investigation, and it is in the interest of consumers to diversify the market which is currently dominated by a local company, since they then can have a wider range of choices. The KCC conducted an investigation on Apple and Google in 2011 for their alleged violation of the Privacy Act for Location Information.

Hong said, “During the investigation by the KCC, Apple was much cooperative even when the commission examined its head office in California. Moreover, Apple does not offer discriminative subsidies and rather has adopted a policy to gradually lower the price of mobile devices.”

“If Apple wants to learn from Korean companies and provide subsidies to customers, it would have to pay the necessary expense to the local branch here. In that case, the company of course becomes the subject of investigation by Korean law,” Hong further noted.

On the argument that the law would cause difficulties for other local mobile device manufacturers such as LG and Pantech, the officer said the current market dominated by Samsung causes much bigger difficulty for them. He reminded that Samsung Electronics had virtually destroyed the neighboring market by offering excessive subsidies to customers at its Digital Plaza. Hong said Korean companies also open the details regarding subsidies when they operate in overseas countries.

“Latecomers often face difficulties not because their products are low in quality but because a certain company is attempting to distort the market. It would be better for them to wage a fair competition rather than be confined in a small share of the market allowed by a leading manufacturer,” he analyzed.

Hong also criticized the excessive profits harvested by domestic phone makers in the local market. “Manufacturers may attribute it to the taste of Korean consumers but it’s time for us to change the practices of artificially manipulating the market,” he noted.

Hong claimed that there are only premium phones in Korea, while other products such as cars have a wider range of varieties. He said manufacturers say they don’t produce low-end phones because Korean consumers tend to prefer expensive phones. “But if there are choices and their prices are reasonable, people in any part of the world would make wiser choices,” he said.

Meanwhile, the government has asked people to accept the law not as another regulation but as a tool for the normalization of the market. They expected the law to become useless when the prices of mobile devices are lowered and the subsidies for customers become more transparent.

Hong also told that manufacturers of mobile devices do not have to worry about the effect of the law if they participate in the market in a right manner. “The law is not aimed at harnessing manufacturers. Now manufacturers and mobile carriers share profit while pretending to spend a lot of money in subsidies. We only want to make the process transparent and deliver the profits to consumers,” the official added.