[비즈한국] The three major mobile telecommunications companies are facing a headache this year due to significant legal disputes. From 5G quality lawsuits that have dragged on for over three years to a 260 billion won unjust enrichment claim filed by the credit card industry, and damage suits regarding "bid rigging" from nine different institutions, the scale of upcoming litigation is highlighting significant legal risks. While each of the three carriers has different expectations regarding the financial impact of these legal outcomes, the burden is inevitably substantial. While the 5G-related lawsuit against SKT involves relatively smaller units, a loss could trigger a chain reaction of similar industry-wide lawsuits, and the result of the battle with the credit card industry could impact future terms for telecommunications fee partnerships.
KT and LG Uplus032640 each face over 100 lawsuits; SKT does not disclose figures
As of the end of June this year, KT and LG Uplus are each involved in 125 and 108 ongoing lawsuits respectively, on a separate basis. KT’s case count rose by 2 from the 125 recorded at the end of last year, and the total claim amount increased from 134.791 billion won to 137.207 billion won. Over the same period, provisions for litigation decreased by about 4.2 billion won to 21.59 billion won. KT is the only one among the three to disclose all figures regarding the number of lawsuits, total claim amounts, and litigation provisions. Provisions refer to liabilities where the timing or amount of expenditure is uncertain but the probability of occurrence is high. Losing these cases could increase financial burdens due to rising debt.
LG Uplus has recorded over 100 lawsuits for two consecutive years since hitting 111 cases at the end of 2022. It faced the highest number of lawsuits at the end of last year with 122 cases. The company has not disclosed total claim amounts since 2022. Looking at past figures: 95 cases worth 15.1 billion won in 2021; 100 cases worth 15.9 billion won in 2020; 65 cases worth 13.1 billion won in 2019; 80 cases worth 17.1 billion won in 2018; 76 cases worth 10.1 billion won in 2017; 88 cases worth 15.4 billion won in 2016; and 103 cases worth 106.1 billion won in 2015. Given this scale, the claim amount for the first half of this year is expected to be over 15 billion won. LG Uplus does not disclose litigation provisions separately, stating only that it has "recognized liabilities for items where it was determined that the outflow of economic benefits is highly probable to fulfill obligations resulting from litigation outcomes."
SK Telecom017670 does not disclose the number of lawsuits it is facing, the claim amounts, or related provisions. In its annual audit reports, SKT states, "We are involved in various lawsuits, and the provisions set aside for these cases are not significant. Our management determines that there is no present obligation for cases where provisions have not been set." The implication is that they do not see the results of these lawsuits as having a material impact on their financial position or operating results, and thus do not find it necessary to disclose the status of litigation not subject to mandatory disclosure.
Focus on first 5G complaint ruling; Facing 9 state agencies and 8 credit card companies
The lawsuit attracting the most attention from general consumers is undoubtedly the damages suit regarding 5G service quality. Five years have passed since the commercialization of 5G, yet consumer complaints about quality persist. The industry is watching the outcome of the class-action lawsuit filed by approximately 230 5G consumers against SK Telecom, as it could set a precedent for similar ongoing lawsuits involving competitors. The plaintiffs argue that despite using expensive 5G plans, they experienced persistent network instability and dropouts, citing issues of consumer deception regarding exaggerated and false advertising. Their demands include a refund of 5G fees paid and additional compensation for emotional distress. Lee Eun-hee, a professor of Consumer Science at Inha University, pointed out, "This is the limitation of a telecommunications business that has been operated only at a maintenance level without sufficient technological innovation." While the filing fee calculated per plaintiff is around 470,000 won and the total claim amount for the plaintiffs is around 120 million won—not a huge sum for the company—the burden of compensation is expected to grow if this leads to chain-reaction lawsuits.
The legal battle, which began in April 2021, has become a long-term struggle. The first-trial ruling scheduled for April 25 was canceled, and proceedings were reopened, causing further delays. Previously, the Korea Fair Trade Commission (KFTC) imposed a total of 33.6 billion won in fines on the three carriers for false advertising of 5G services: 16.829 billion won for SK Telecom, 13.931 billion won for KT, and 2.85 billion won for LG Uplus. The three companies are currently contesting this through administrative litigation.
The KFTC's decision to impose fines for bid-rigging in state projects has also triggered a backlash of lawsuits. In 2019, the KFTC uncovered that the three carriers had colluded on 12 public-sector exclusive line projects ordered by the government over two years starting in 2015, imposing a 13.3 billion won fine and corrective orders. The companies had agreed to decide in advance which carrier would win the bid and which would act as a 'decoy,' or agreed not to participate in auctions to allow for private contracts. Following the KFTC's judgment, a total of nine agencies—starting with the Ministry of Science and ICT, followed by the Ministry of the Interior and Safety, the Ministry of Employment and Labor, the Korea Meteorological Administration, Korea Post, the Korea Racing Authority, the Korea Institute of Science and Technology Information, the Military Manpower Administration, and the Korea SMEs and Startups Agency—filed lawsuits. With instances of individual damage claims increasing (such as the Ministry of Employment and Labor raising its claim from 1 billion won to 6 billion won), the total scale of damages is expanding.
There is also a fierce legal battle over a 250 billion won lawsuit filed against the three carriers by eight domestic credit card companies (Shinhan, Samsung, KB Kookmin, Hyundai, Lotte, BC, Hana, and NH NongHyup Card). In July of last year, the card companies filed a lawsuit at the Seoul Central District Court claiming restitution for unjust enrichment. After the government issued a legal interpretation in 2022 that credit card telecommunications fee discounts were not subject to VAT, the three carriers received VAT refunds from the National Tax Service for the previous five years through tax correction requests. The card companies argue that since they funded the telecommunications fee discounts, they should receive the refunded amount. The card companies are claiming 102.2 billion won from SK Telecom, 86.1 billion won from KT, and 78.9 billion won from LG Uplus. The second hearing is scheduled for the 22nd.
Furthermore, the telecommunications industry is deliberating over a separate case regarding the alleged collusion on mobile phone subsidies, which could result in fines exceeding 4 trillion won from the KFTC. Hwang Yong-sik, a professor of business administration at Sejong University, noted, "Due to the nature of the telecommunications industry, which has a broad base of stakeholders and business areas, it tends to be entangled in various legal battles." He added, "Constantly being subject to KFTC sanctions is a bad signal in terms of moral hazard. They need to focus on minimizing legal risks and ethical management."