Are Korea`s Mobile Phone Rates Too High or Low?

A fierce debate has erupted over whether domestic rates for mobile phone use are the most expensive worldwide.

Surveys conducted by the Korea Consumer Agency and the Organization for Economic Cooperation and Development say Korea’s cell phone rates are the world’s highest. In the wake of media coverage of this news, telecommunications providers are claiming that the survey methods employed the agency and association are misleading.

President Lee Myung-bak promised a cut of 20 percent in mobile rates in his 2007 presidential campaign, so the debate will figure prominently in this year’s parliamentary inspection of the administration.

○ Japanese survey

The Japanese Internal Affairs and Communications Ministry conducted a study on world telecommunication rates that The Dong-A Ilbo obtained. The study said mobile charges in Seoul were relatively lower than those in seven other major cities in the world.

The report compared telecommunications rates in Seoul, Tokyo, New York, London, Paris, Dusseldorf and Stockholm in March.

Seoul’s mobile rates were the lowest for light users, or those who used an average of 44 minutes and sent seven text messages per month, among the seven cities except Stockholm. New York had the highest rates followed by those in Paris and Tokyo.

Those who use voice services for 95 minutes and send 385 text messages and 16,000 packets of data are charged with the third-lowest mobile rates. Heavy users also pay moderate bills for using voice services for 246 minutes, sending 770 messages, and utilizing fixed-fee data services.

When the average use rate for subscribers was applied, the rate in Seoul was 1.60 dollars a month, lower than those in Paris (four dollars), New York (three dollars) and Tokyo (2.10 dollars).

○ Different results from different survey methods

Citing Merrill Lynch’s “global wireless communications matrix,” the Korea Consumer Agency and the Fair Trade Commission said late last month that Korea’s mobile phone rates were the highest among 15 surveyed countries.

The OECD also said Tuesday last week that Korea’s mobile rates are relatively high.

The discrepancy arises from different survey methods, as does the reflection of differing purchasing power parity among countries and foreign exchange rates. Because of this, the domestic sector for wireless communication has no confidence in such results.

An industry source said that for light users, the OECD compares each country’s lowest rate for monthly use of 44 minutes, adding, “If we offer a discount system for users who use 44 minutes a month, Korea’s rates will be the lowest among OECD countries.”

Another problem is the lack of model to appropriately reflect Korea’s unique culture of mobile phone use. The average mobile phone traffic in Korea is 313 minutes a month, much higher than that of heavy users surveyed by the OECD.

Japan has developed its own standards to compare rates and utilizes the comparison data in devising policies.

○ Room for rate cuts

The domestic wireless communication industry can cut mobile charges if it wants to because of the monopoly in the market with steep entry barriers. The sector posted an operating profit of 12.1 percent on average last year.

Though mobile providers say they cannot afford a cut since they have to invest in next-generation communication facilities, they spend most of their profits to expand market shares. In the second quarter of the year, SK Telecom, KT and LG Telecom spent up to 40 percent of sales revenue on marketing.

The Korea Communications Commission is reluctant to push mobile carriers to reduce rates. It wants to produce a discount effect by promoting competition among mobile carriers and introducing more rate systems.

Mobile operators, however, are under heavy pressure to cut their rates after Korea Communications Commission Chairman Choi See-joong mentioned a plan to cut rates in the wake of the OECD report’s findings.

Choi will hold a seminar tomorrow with the Korea Information Society Development Institute on cutting domestic rates for mobile phones.

smhong@donga.com