[비즈한국] The "Mobile Device Distribution Improvement Act," which the government announced it would abolish in January of this year, marked its 10th anniversary on October 1st without any significant changes. Introduced to lower household communication costs and prevent price disparities among consumers, the Act is set to disappear after much controversy. Amid recent ongoing discussions in the National Assembly regarding post-abolition measures, the Korea Mobile Distributors Association (KMDA), representing mobile device retailers, has stepped forward to call for the Act's repeal and propose alternatives.
The Mobile Device Distribution Improvement Act was introduced in 2014 during a period of fierce marketing competition between mobile carriers. As carriers distributed subsidies, discount levels varied by retailer (agencies and shops), and the fact that consumers bought devices at different prices led to issues of price discrimination and information asymmetry. To prevent this, the Act established public subsidies and introduced additional subsidies that retailers could provide to consumers (up to 15% of the public subsidy). For consumers purchasing devices independently—such as unlocked phones—it provided communication cost discounts (the selective contract discount system). Since last March, a "transfer subsidy" has also been introduced for those switching mobile carriers.
However, the Act is criticized for failing to achieve its goals of lowering household communication costs and eliminating price discrimination. Restricting subsidies led to the proliferation of illegal sellers—dubbed "holy grounds" (seongji)—that sell devices at secret bargain prices, maintaining the information gap among consumers. The fact that device prices and rate plans have steadily risen over the 10 years the law has been in effect is another reason consumers have not felt any cost savings.
Ultimately, the government selected the Act as a regulation that causes public inconvenience and announced its abolition last January. Yet, even nine months later, the Act remains in effect after several amendments. In this situation, the Korea Mobile Distributors Association (KMDA), representing retailers, held a press conference on September 30 to urge the abolition of the Act. Mobile retailers include agencies that deal directly with mobile carriers and shops that sign contracts with agencies to handle products from all three major carriers (SKT, KT, LG Uplus032640).
The association proposed six alternatives to the Act: 1) Strengthening prohibitions against discriminating between online and offline channel discount benefits and forcing high-priced plans; 2) Abolishing self-regulation and the prior approval system (shifting to a mobile distribution business reporting system); 3) Prohibiting discrimination in incentive payments by channel; 4) Banning direct sales by mobile carriers, manufacturers, and large-scale retailers; 5) Unifying laws to punish unfair practices; and 6) Developing measures to reduce communication costs through a household communication policy council.
The association specifically emphasized the abolition of the prior approval system. The prior approval system is a scheme under Article 8 of the Act, requiring retailers to obtain prior approval from the Korea Association for ICT Promotion (KAIT) before they can distribute mobile devices. As of July 24, the system was strengthened via an amendment, imposing fines on retailers who operate without approval or provide false information, as well as on agencies that conduct business with them.
The association argued that the scope of registration should be expanded to include all distribution channels—such as agencies, used device sellers, online stores, budget phone distributors, and large retailers—and be converted to a "reporting system." They argued that since relevant authorities cannot accurately grasp the current state of the distribution network, all stakeholders should be included and required to report their business status. They also proposed establishing a communication policy council composed of industry representatives, the government, and consumer groups to draft alternatives.
The association emphasized that because the Act failed to create fair distribution order, retailers have withered and consumer rights have been infringed upon. KMDA Chairman Yeom Gyu-ho stated, "For the past 10 years, the Act has had absolutely no effect. The reality is that if you sell cheap, your computer system gets blocked, or elderly people are still being pressured into 100,000-won rate plans." He added, "The Act itself is a good law to prevent consumer discrimination, but I believe it hasn't improved because the interests of government agencies and industry players are all different."
The association highlighted, "Our internal survey in August showed that over 30% of stores have closed or plan to do so. It is a very serious situation." They continued, "After the Act, marketing that pays out subsidies from the shadows became more intense, and since the COVID-19 pandemic, these 'holy grounds' have multiplied, with some now even operating with sub-organizations, acting openly." The point is that since the Act, subsidy discrimination between distribution channels has worsened, leading to the collapse of offline retail stores and deepening the information gap for consumers.
However, they expressed opposition to expanding unlocked phones (BYOD/unlocked devices), which has emerged as an alternative to the Act. Chairman Yeom said, "(Discussions on alternatives to the Act) have made no progress, and it hasn't been abolished yet. Due to the nature of the market, I do not support expanding unlocked phones. From a retailer's perspective, it is a method that bypasses the distribution network." KMDA Director Hong Gi-seong pointed out, "Price discrimination also occurs with unlocked phones depending on the sales channel. The benefits provided by manufacturer subsidiaries and online retailers are different." This contrasts with the consumer perception that 'using an unlocked phone with a budget rate plan is the cheapest way to purchase.'"
Regarding the criticism that purchasing cheaply through online channels is better for consumers, he replied, "The online retailers we are referring to are illegal sellers and informal channels that hide and recruit consumers," adding, "These informal channels carry a high risk of personal information leakage, such as exchanging sensitive documents via messengers, which leads to consumer harm."
Meanwhile, in the 22nd National Assembly, the only bill proposed for the abolition of the Act is the "Bill on the Abolition of the Mobile Device Distribution Improvement Act," spearheaded by Representative Park Chung-kwon of the People Power Party in June. This bill is premised on the passage of the previously proposed "Partial Amendment to the Telecommunications Business Act." This is to ensure that parts of the current Act, such as user benefits, the creation of a fair distribution environment, and the activation of used device trading, are transferred to the Telecommunications Business Act. The abolition bill was submitted to the first Information and Communication Broadcasting Bill Review Subcommittee in September, where the Ministry of Science and ICT and the Korea Communications Commission stated they agreed with the passage and legislative intent of the amendment.
A public forum regarding alternatives to the Act was recently held in the National Assembly. While both ruling and opposition parties agree on the need for abolition, various opinions are emerging regarding the alternatives. On August 22, at a seminar titled "Abolition of the Mobile Device Distribution Improvement Act and Preparation of Desirable Household Communication Cost Reduction Policies," hosted by the offices of Democratic Party lawmakers Kim Hyun and Lee Hoon-ki, "complete unlocking" and "compromise-type complete unlocking" were presented as alternatives.
Complete unlocking is a method where devices are sold by manufacturers and communication services are sold by carriers, separating their respective sales domains. Compromise-type complete unlocking is a method where mobile carriers and agencies only provide communication services, and while manufacturers are separated to supply devices, only retailers who have received prior approval are permitted to distribute both devices and services.
On September 15, the People Power Party held an "Abolition of the Mobile Device Distribution Improvement Act Seminar," hosted by Rep. Park Chung-kwon's office, to discuss alternatives. Attendees included telecommunications industry groups, civic groups, academia, and government officials, who discussed ways to minimize market confusion and reduce consumer discrimination after the law is repealed. As stakeholders showed differing positions on issues like lowering device prices, introducing complete unlocking, and strengthening distribution network regulations, the key to drafting future alternatives will be reaching a consensus among all parties involved.