Cellphone makers switch to budget handsets after law change

South Korea’s mobile phone makers are breaking away from their premium-oriented smartphone lineups to churn out cheaper phones as consumers are more price-conscious due to tougher subsidy rules, industry watchers said Wednesday.

Samsung Electronics Co. recently rolled out its latest mid-end phone, the Galaxy A8, at an about 20 percent discounted price compared with the flagship Galaxy S6, and the budget phone Galaxy J5 for less than 300,000 won (US$259).

It also started selling the Galaxy Folder, with a price tag similar to the J5 model, which is designed to woo older generations, who need fewer features.

Samsung’s move came after the Galaxy Grand Max, a low-end model that was released in January, became a smash hit in Korea, with 700,000 units sold so far, watchers said.

LG Electronics Inc., Samsung’s smaller rival, has also been bolstering its budget phone lineup, unveiling five new models this year, including the LG Volt, the G style and the LG Bello II.

Industry watchers said such a shift in their lineup strategy is attributable to the enactment of a new law in October last year, which caps the phone subsidies that mobile carriers can provide to retail stores at 330,000 won.

Although the law was revised to restrict excessive incentives that had led to cutthroat competition, it has prompted consumers to look for cheaper phones because of the reduced subsidies.

As part of a bid to diversify portfolios, SK Telecom Co., the top mobile carrier in the country, is apparently mulling launching a cellphone rental service in a joint project with its information technology service unit.

If the rental business kicks off in Korea in fall as widely forecast, it will bring a significant change in the market landscape as it will be an unprecedented move and affect other rivals, market watchers said.

Skeptics, however, played down its growth potential because the device has more personal elements like banking details and photos compared with other common rental products.