Recently rebates were greatly raised for older smartphones, but cell phone shops are not strongly recommending them. Penalties were increased as much as the rebates were increased. So consumers may end up paying a fortune as penalties. It has been pointed out that manufacturers urgently need to lower the factory prices of mobile phones and reduce the penalties for handsets that were released more than 15 months ago before raising the rebates.
According to communication industry insiders on December 29, LG Uplus raised the rebate for the Galaxy Note 3 (factory price KRW880,000) from KRW300,000 to KRW650,000 (for the unlimited 89.9 plan), and SK Telecom will raise the rebate to KRW725,000 (for the everyone unlimited 100 plan) on January 1. As for SKT, if the additional rebate provided by cell phone shops, i.e. 15% (KRW108,750), is added, the total rebate will amount to KRW833,750, enough to buy the Galaxy Note 3 for about KRW50,000.
The Galaxy Note 3 was released in September 2013, but as its performance is as good as that of the latest mobile phones, it is still very popular. However, cell phone distributors, selling mobile phones to customers, are not at all happy with the higher rebates. If you receive KRW833,750 as a rebate, buy a cell phone and lose it or cancel the contract, the penalty will be a whopping KRW833,750. It means that you will end up paying a penalty over 16 times more than the price you paid for the phone, i.e. KRW50,000.
“The Galaxy Note 3 is a perfect choice for customers who find the Galaxy Note 4 and the Galaxy Note Edge too expensive and do not need a new model,” said a cell phone distributor. “There is a steady demand for it, but since it`s not easy to tell them ‘if they lose the phone or cancel the contract soon after they buy it, they will have to pay a penalty as much as the rebate they received,’ I cannot bring myself to recommend it to them.”
The situation is very much the same with the Galaxy Note 2. As this model was released more than 27 months ago, the rebate is the same as the sticker price, i.e. KRW847,000 (for the SK Telecom everyone unlimited 100 plan). It means that the penalty for the Galaxy Note 2 is higher than that of the Galaxy Note 3.
To reduce the burden on customers, the consensus in the industry is that the manufacturers must lower sticker prices before the mobile carriers raise rebates. The sticker price of the Galaxy Note 2, released more than 2 years ago, is still not very different than that of the Galaxy Note 3.
“The pure manufacturing cost of a new smartphone selling for KRW1 million is about KRW300,000~KRW400,000. Even if the marketing cost is added, the cost will be about KRW500,000~KRW600,000,” said an executive of a mobile carrier. “If the prices of cell phones are not rationalized, the communication expenses of households will never go down no matter how much mobile carriers increase rebates.”
The penalties for mobile phones older than 15 months must be lowered as well as the sticker prices of manufacturers. The government and telecom service providers agree that the penalties for cell phones older than 15 months need to be reduced and they are discussing specific ways to do so. If they lower penalties blindly, however, there may be customers who pay the penalty, receive the ‘12% fee discount’ and port their mobile number. So they are mulling over ways to reduce side-effects.
“The transparent rebate disclosure system, which came into being thanks to the enforcement of the Mobile Communications Terminal Distribution Structure Improvement Act, may be viewed as a side-effect of the Act,” said an industry insider. “To prevent this problem, manufacturers are urgently required to lower their sticker prices and reduce penalties for cell phones that were released more than 15 months ago.”