South Korea Ponders Further Cuts to SK Telecom Rates
By Eric Lin, Thu Aug 05 03:00:00 GMT 2004

SK Telecom is already heavily regulated, but now the South Korean government is considering using SKT's calling rates to try to control inflation, not just regulate the wireless market.

Unlike many other technologically developed nations, South Korea's cellular carriers are not only regulated by the government, they are practically managed by it -- despite the fact that operators there are private companies. SK Telecom currently has the lion's share of subscribers there, and because of this dominance, its pricing is actually set by the Communication Ministry.

The Communication Ministry has been torn trying to decide whether to continue setting SKT's pricing or merely set a cap on prices like it does for the other two carriers, KT Freetel and LG Telecom. While the Communication Ministry is considering giving up control of SK Telecom, the Finance Ministry actually wants to take further advantage of the current situation. It wants to force even deeper rate cuts on SK Telecom in hopes of slowing down South Korea's rising inflation, which recently hit 4.5%. The ministry has already cut SKT's rates 8.3% in 2002, 7.3% in 2003 and was considering a cut between 6 and 8% this year.

Countries like Lebanon are using revenues from mobile phones to make up for deficits, and the Philippines has considered this tactic as well. These countries are actually taking money directly from phone subscribers, not using their subscription rates to somehow shift the economy. Calling plans are not like interest rates, forcing the dominant carrier to lower its tariffs does not lift an entire country's economy. Worse yet, it could worsen the economy in that sector. These rate cuts have already been driving down SK Telecom's profits. If they dip too far SKT could have to lay off workers or cut the amount of money it spends on advertising, revenue sharing with developers and other businesses that are a part of the mobile ecosystem.