SEOUL, KOREA - Regulations to tighten as government introduces subsidy ban in May Competition to add subscribers should ease on tighter subsidy regulations. As the government decided to reinforce regulations on excessive competition from mid-Mar, efforts to add LTE subscribers have eased, after picking up during the 1Q13 business suspensions. Furthermore, the KCC has launched a special audit into competitive practices after the release of the Galaxy S4 to limit illegal handset subsidies and penalize companies fostering excessive competition. Overall, the government has doubled the penalty cap, and will levy additional punishments on principal offenders. Going forward, the government plans to introduce a bill to improve handset distribution channels in May. The bill should include strict regulations, such as mandatory handset prices and subsidy disclosures by mobile telcos, to be enforced on retailers and agents. As such, the subsidy ban should have significant effects as the government encourages mobile telcos to shift competition away from subsidies to services.
Competition to ease on subsidy ban, margins to improve from 2Q13 Margins should improve in 2Q13-3Q13 on lower marketing costs backed by the early termination fee system and tighter regulations. Daily average MNP slipped to 26,265 from Apr 1 to May 23 (down 5.0% QoQ, down 7.9% YoY). While MNP surged 20.4% MoM in May, subsidies per new subscribes were flat and growth was only 4.5% YoY given seasonal factors during family month (Children’s Day, Parent’s Day, etc). And, MNP should fall again from Jun. If the subsidy ban is introduced soon, marketing costs should fall even further, and margin improvement should accelerate.
*Source: Korea Investment & Securities Co.
