Korean telecoms face penalty over iPhone subsidies

People waiting for the release of Apple's new iPhone 6 and 6 Plus in front of the Apple Store at Tokyo's shopping district.

South Korea's three telecommunications companies are expected to again face punitive measures by communications regulators for allegedly providing subsidies over the legal limit for Apple's iPhone 6 and 6 Plus.

The new iPhone created a stir as soon as it hit Seoul last Friday, with die-hard Apple fans waiting in long lines in front of telecom retail stores in the wee hours to get their hands on the device.

SK Telecom, KT and LG Uplus saw the new iPhone as an opportunity to shake things up in the telecom market in which the three companies struggled to attract new customers with Samsung Electronics' Galaxy Note 4 or Galaxy S5.

Chinese low-cost phones such as the Huawei X3 may have grabbed attention, but not enough yet to gain momentum in the market.

Amid the waning popularity of LG Electronics' G3 and the enactment of a new law on mobile phone subsidies to regulate telecom subscriptions, the iPhone 6 came to the rescue as the first iPhone did in 2007, and again as the US tech giant launched its third-generation smartphone in 2009.

Apple's iPhones have not only changed the way people communicate, but have also boosted the value of the telecom industry following its standstill during the 2G communication era.

"The three companies, whose services are pretty much the same, needed something new, especially KT and LG Uplus, to change the SKT-dominated market," said an industry source.

However, the new iPhone 6 has come at a price to the industry as the three companies went back to old habits ― overusing hype, ignoring the law and competing to give unfair subsidies to new customers.

LG Uplus has also faced numerous consumer complaints as the country's smallest telecom company was ill-prepared to launch its service for some iPhone 6 units operating on 3G networks.

The Ministry of Science, ICT and Future Planning and the Korea Communications Commission immediately summoned and warned executives of the three telecom companies over the weekend after discovering irregularities.

"Despite numerous warnings against illegal subsidy payments, they have done it again," the ICT Ministry and the KCC said in a joint statement.

"We will take follow-up measures by either imposing fines against telecom retailers or file a complaint with the prosecution after a thorough investigation."

They added that they would strengthen their monitoring of the industry to ensure service fairness for consumers.

Under the new law on mobile handset subsidies, consumers cannot receive subsidies of more than about 340,000 won (S$405) for the iPhone 6 with a 16-gigabyte capacity.

Some retailers have been found to give 500,000 won subsidies through various payment schemes both offline and online.