End of the Telecommunications Terminal Device Act, New Rules to Curb Terminal Distribution: 'Unfair Subsidy Discrimination' in Focus

A comprehensive plan has been drawn up to flesh out the government's new duty to manage the handset distribution market, which was added to the Telecommunications Business Act after the Telecommunications Terminal Device Distribution Act was repealed. The Broadcasting and Media Communications Commission held its 35th plenary meeting on the 16th and passed, as originally drafted, the "Measures for Creating a Healthy Distribution Environment for Mobile Communication Terminal Devices, etc." and detailed implementation plans. The plan serves as a comprehensive blueprint that specifies the government's duty to manage the handset distribution market after the repeal of the Telecommunications Terminal Device Distribution Act.

The Broadcasting and Media Communications Commission decided to shift the focus of its inspections of the mobile handset market from the size of subsidies to unfair practices and whether users are being harmed. Accordingly, it set a policy of allowing subsidy competition.

However, for incentives from manufacturers and mobile carriers, it will examine whether they create user discrimination and whether they encourage subscriptions to specific rate plans. A set of materials that also included an AI-generated image of a smartphone store display was presented.

The commission plans to further establish detailed criteria to distinguish normal subsidy competition from unfair discrimination. It also plans to present separate interpretive guidelines after policy research in areas where it is difficult to make judgments based solely on the current legal framework.

The Telecommunications Terminal Device Distribution Act was repealed in July 2025. As a result, regulations that could restrict competition, including bans on subsidy discrimination by subscriber type and rate plan, disclosure obligations for subsidies, and caps on additional subsidies at retail stores, were eliminated.

On the other hand, provisions related to user protection were transferred to the Telecommunications Business Act. The transferred provisions include bans on subsidy discrimination by region of residence, age, and physical condition, prior approval for sales outlets, and unfair practices by mobile carriers and manufacturers.

Accordingly, the new policy focuses more on the background to subsidy and incentive payments and their effects on users than on the total amount of subsidies. The main points of assessment are whether unfair discrimination against users occurs, whether users are steered toward higher-priced rate plans, and whether they are induced to sign up for value-added services, while the key criterion is whether user harm occurs.

The monitoring scope will be expanded from the three major mobile carriers to include manufacturers and budget mobile carriers. Items subject to inspection include manufacturers' excessive differential incentive payments by specific region, specific commercial area, specific distribution channel, and specific age group, which could be problematic if they lead to subsidy discrimination. The inspection will also cover concentrated incentives for specific subscriber types, concentrated incentives for specific rate plans, and excessive differential incentives without justifiable reason between unlocked devices and carrier-branded devices.

The commission laid out which marketing practices by mobile carriers will be treated as unfair under the new rules and targeted for inspection. These include differential incentives for number portability, new subscriptions, and device upgrades without reasonable cause, as well as types of differential payments intended to induce user discrimination. It also said it would inspect concentrated incentives for specific high-priced rate plans, linking rate-plan acquisition rates to sales performance evaluations, and differential incentives and commissions based on subscription or retention performance for value-added services.

According to the commission's announcement, the average common subsidy per subscriber at the three major mobile carriers in 2025 came to KRW 399,000. The 2025 average common subsidy rose 14.5% from a year earlier.

Number portability in 2025 rose 25.1% from a year earlier to 7.87 million cases. However, the commission said the increase appears to reflect both the effect of penalty fee waivers tied to telecom companies' security incidents and the impact of marketing competition. It therefore said it would be difficult to conclude that this was solely the effect of the Telecommunications Terminal Device Distribution Act's repeal.

The commission decided to separately prepare interpretive guidelines on unfair practices. This was based on the view that, for the new rules to work, there must be a distinction between permitted subsidy competition and unfair discrimination.

The policy was designed as a case-by-case approach that comprehensively considers the content and background of subsidy and incentive payments, the degree of discrimination by subscriber type, subscription method, region, and age, as well as competitive effects and normal business practices.

If necessary, it can set a range for average subsidy and incentive amounts from mobile carriers, and cases that fall outside the set range can be prioritized for inspection.

However, during the plenary meeting, there were calls for greater predictability in the criteria for judgment. It was pointed out that the phrase "excessively discriminatory incentives" alone makes it difficult for businesses and distribution outlets to determine in advance the scope of permissible sales activities, and that the phrase "economic benefits exceeding expected profits" also makes advance judgment difficult for businesses and distribution outlets. In addition, there were calls to make the criteria more specific so that deceptive acts against users and inducements to unnecessary subscriptions to high-priced rate plans or value-added services can be identified, rather than focusing on subsidy amounts themselves. In response, the commission's secretariat said there are gaps in the subordinate statutes and that it plans to prepare interpretive guidelines after policy research.

Rules on incentives will shift away from a single numerical standard such as a subsidy cap when determining whether a practice is within the permitted range. The criteria for judging the illegality of incentives will also exclude a standalone standard based on the size of the incentive. Instead, the illegality of incentives will be assessed comprehensively based on the purpose and method of payment and the actual degree of user discrimination.

The scope of inspection will also be broadened. Cases without direct discriminatory instructions from manufacturers or mobile carriers will also be included. The commission will also inspect cases where the incentive payment structure is designed to favor discrimination and where performance evaluations are designed to favor discrimination.

At the same time, the information provided to consumers when purchasing a handset will be expanded. Mobile carriers will promote a plan to send automatic text alerts to users after the maintenance period for the rate plan they subscribed to ends. This measure is intended to reduce cases in which users continue to use unnecessarily high-priced rate plans after the time for change has passed.

The range of items to be disclosed will also expand from the common subsidies that mobile carriers already make public to include additional subsidies offered by retail outlets. Additional subsidies will be posted in a standard format. To respond to false and exaggerated online advertising related to handsets, a separate "false, exaggerated, and deceptive advertising guideline" will also be drawn up.

At the plenary meeting, there were calls for clearer presentation of the costs users actually bear during the contract period, in addition to handset prices. The issue raised was that information disclosure should be improved so users can more easily understand the total costs they will bear over the contract term and the various conditions attached. Accordingly, the total amount payable, including handset payments, telecom charges, value-added services, and card usage conditions, as well as discount conditions, was presented as an item that needs to be made easier to check.

Also identified as an item requiring improved information were penalty refunds and termination fees when bundled products are canceled. The plenary meeting concluded that the way related information is presented needs to be revised so users can more clearly understand the actual costs they bear during the contract period.

Along with these discussions, the way the handset distribution market is managed will also change. The commission determined that government enforcement and sanctions alone are limited in their ability to manage the national handset distribution market. Accordingly, the operating policy was set as a co-regulatory framework with joint participation by the public and private sectors.

To that end, it plans to form a "Distribution Environment Improvement Council" with participation from experts, consumer groups, mobile carriers, manufacturers, and distribution channels. The council will have up to 15 members, and plenary meetings will be held every half-year. Subcommittee areas will cover mobile communications, budget mobile carriers, manufacturers and users, distribution channels, and bundled products, and subcommittee meetings will be held quarterly.

If market inspections find clear violations of the law, investigations and sanctions will follow. If improvements in business procedures or distribution structures are needed, the commission will recommend corrective action and then check whether it has been implemented.

This policy will take effect on the day it is adopted, and the commission plans to review its validity every 3 years after implementation, reflecting market changes and implementation status.

Source: IT DAILY · Kim Byung-ju
Original: https://www.itdaily.kr/news/articleView.html?idxno=241668

References

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