IN Korea, the Handset Distribution Act is scheduled to be implemented from Oct 1. Basically, the Act aims to prevent discrepancies in handset prices for end-users. Same handsets could have different pricing largely due to the subsidies provided by telcos and handset makers. With this Act, telcos and handset makers will have to provide the regulators with the handset subsidy amount, which will prevent telcos and handset makers providing illegal subsidies.
We view the Act will be a positive for the overall telco sector in that the telcos will not be able to engage in cut-throat subsidy competition. However, in relative terms, we expect SKT to have more to gain and LGU (which will want to increase market share further from the current 20%) less, considering that muted subsidy marketing activities in the sector will help stabilize current market shares.
Will the Act Later Cover Tariffs ? If one operator initiates tariff cut we believe competitors will react almost simultaneously to nullify any competitive landscape changes. This was well witnessed in last Apr when LGU introduced unlimited LTE data plan. LGU and KT, which have incentives to initiate tariff cuts, have much weaker financial muscle vs. SKT to bear the tariff cut burden.