Korean cellcos may sue govt over subsidy hike

South Korean mobile operator’s SK Telecom, KT and LG Uplus are considering taking the government to court over an order to increase discounts for new subscribers.

The operators last week received a formal order to implement a 25% discount rate for regular new subscribers as part of the current government’s objective of reducing telecoms expenses for household.

The change would represent a five percentage point increase of the current selective discount rate of 20% for regular subscribers, which was itself raised from the previous 12% in 2015.

But the operators are reportedly considering taking administrative litigation to counter the order, citing a lack of sufficient discussion and consultation about the change as well as a need to prevent further revenue declines and asset depreciation.

Another potential avenue for challenging the decision involves the way the discount rate was calculated.

The mobile sector has also expressed concern over the potential for the 25% figure to be raised further in the future – the ICT ministry has proposed to review the discount rate every two years to reflect the average length of a postpaid contract.

South Korea’s ICT ministry has estimated that the higher discount rate will reduce the country’s mobile costs by around 1 trillion won ($884.6 million) per year.

Analysts have meanwhile estimated that the cut would lead to a 300 billion won reduction in sales for the three operators if applied to all customers currently benefiting from the selective discount rate, and 600 billion won in losses if it is expanded to apply to all existing subscribers.