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S. Korea: Regulator Restricts Telecom Marketing
Source: koreaherald.com
Source Date: Thursday, May 13, 2010
Focus: Electronic and Mobile Government, Internet Governance
Country: Korea (Republic of)
Created: May 17, 2010

The Korea Communications Commission yesterday set the market cost ceiling for telecom companies at 22 percent of their annual sales starting this month to prevent excessive competition.The state telecom watchdog said the telecom service companies will be permitted to invest 22 percent of total sales on marketing in each of the wireless and wired sectors. The restriction will be readjusted after looking at the results in late July. Marketing costs mainly include the fees injected to attract new customers such as fees given to outlets which sell mobile phones to individual customers, the costs spent to maintain their customers such as fees for mileage and incentives, and the subsidies paid to purchasers of new mobile phones.

Although the KCC has potential plans to lower it to 20 percent beginning next year, it will look at the conditions of the local market at yearend to devise a final figure for marketing costs. The state watchdog said it expects to save nearly 1 trillion won ($880.36 million) in this year’s marketing fees compared to last year if the guideline is abided by the three major telecom firms. “As we’ve seen in the past, the market doesn’t change through marketing. What is more important is the type and quality of service, technology and the level of contents provided,” said Shin Yong-sub, director-general of telecom policy division at the KCC.

“There were many conflicts about the specifics of the guideline but we decided to give it a green light on the basis that it could no longer be delayed. We could make alterations to it later.” According to the guideline, the telecom firms could shift the unused marketing fees -- up to 100 billion won -- from the wired to wireless sector and vice versa if necessary. The measure was designed to promote the growth of new areas under development like WiBro and Internet protocol television.

It also states that the sales of mobile devices will be exempted from the total yearly sales which will be calculated to determine the maximum for marketing costs. Advertisement fees will not be included in the calculation either. SK Telecom and LG Telecom agreed to follow the guideline but KT Corp., the country’s largest telecom operator, refused to do so arguing that the figure 100 billion won should be increased up to 300 billion won, said Shin.

“We will publicize the outcomes per quarter and we believe the telecoms will abide by the rules,” he said. The guideline was released after KCC Chairman Choi See-joong held a meeting with the CEOs of the nation’s three telecom companies earlier in March. They also requested last year that the state telecom regulator must make efforts to curb marketing competition between the telecom firms. In the wireless sector, KT used 29.8 percent of total sales on marketing in the first quarter of this year, while SKT and LGT spent 26.8 percent and 32.9 percent, respectively. This was an increase compared to the percentage used in marketing -- 27.5 percent for KT, 21.4 percent for SKT and 24.4 percent for LGT -- in the first quarter of last year. For the wired sector, KT used 7.9 percent of total sales, SK Broadband invested 19 percent and LGT spent 13.4 percent on marketing in the same period.
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