The government’s decision to apply a “data assurance option (QoS)” across the three mobile carriers’ rate plans is raising tension in the MVNO industry. Concerns are growing that MVNOs, which have leaned on price competitiveness, could take a direct hit as even low-cost plans effectively gain unlimited data benefits.

The Ministry of Science and ICT and the telecom industry say QoS, which guarantees unlimited data use at speeds of 400 Kbps, will be applied to the three carriers’ data plans in the first half of the year. The policy’s key aim is to lower household telecom bills by ensuring basic data use such as messaging and searching.

The ministry also flagged the launch of an LTE-5G integrated plan priced in the 20,000 won range that allows unlimited data at 400 Kbps after the included 250 MB is used. It said about 7,170,000 users would see annual telecom cost savings of more than 300 billion won.

A problem is that these benefits would be applied first only to subscribers of the three carriers. MVNO users generally must pay an added service fee of about 5,000 won a month to use QoS, except for some plans. MVNO operators object that the policy is discriminatory and effectively favors the three carriers.

So far, MVNOs have attracted users with low prices. They expanded their reach by cutting extra perks such as carrier memberships and lowering base fees. As of the end of February, MVNO subscription lines stood at 10,397,799. That is about 1 in 5 people using MVNO service. Against this backdrop, the industry view is that the policy will shake up the market by prompting subscribers to move to the big carriers.

An MVNO industry official said, “Price competitiveness, the biggest draw of MVNOs, could fade.” The official added, “If prices are similar, it becomes more likely users will switch to the three carriers’ services with higher brand awareness.”

“Wholesale structure limits” — price competitiveness wavers

Structural limits of MVNOs are also adding to the industry’s burden. MVNO operators lease networks from the three carriers to provide service, meaning they must go through wholesale-price negotiations. In that process, factors that increase traffic, such as QoS, lead to higher costs.

With contracts largely wrapped up between SK Telecom, the mandated wholesale provider, and most MVNO operators, wholesale prices under the usage-based RM model were reported to have been discounted by only about 10 percent. The industry has called for a bigger discount rate under the flat-fee RS revenue-sharing model, which accounts for most plans, but it was not reflected.

The burden of spectrum fees is also significant. The government has been gradually imposing spectrum fees on MVNO operators since last year. It plans to expand the charge to 50 percent this year and 100 percent next year. The MVNO industry objects, saying the move does not sufficiently reflect its contribution to reducing telecom costs.

The amount varies by operator, but if charged at 100 percent, spectrum fees paid by MVNO operators come to about 400 won per subscriber per month. At roughly 5,000 won a year, that is a meaningful burden for MVNOs whose structure centers on low-cost plans. The Korea MVNO Telecom Business Association estimates that if spectrum fees are imposed at 100 percent, the industry’s deficit would widen to about 3.9 percent a year.

An industry official said, “We have to keep rates low, but costs keep rising.” The official added, “If QoS is added for the three carriers as well, we are in a situation where we have to consider the very sustainability of the business.”

The government says the policy is aimed at expanding users’ choices and reducing telecom costs. The science ministry is pushing a plan to apply QoS to the three carriers first and then expand it to MVNOs. Ryu Je-myung (류제명), the ministry’s second vice minister, said at a plenary session of the National Assembly’s Science, ICT, Broadcasting and Communications Committee on April 28, “We are in consultations with operators to expand QoS to MVNO plans as well.”

Specific timing or methods have not been set, so uncertainty in the MVNO industry is expected to continue for some time. Another industry official said, “Reducing household telecom bills is important, but policy design that considers the overall market needs to proceed in parallel.”