A legal battle is unfolding as South Korea’s major mobile carriers are scrutinized over allegations of colluding to adjust subscriber numbers for number portability. The core of the dispute centers on whether these actions constituted illegal collusion among businesses or were a necessary response to government regulations aimed at stabilizing the market, particularly concerning year-end subsidies.
Court Proceedings Underway for Telecom Giants
The Seoul Administrative Court recently held a hearing concerning KT’s lawsuit against the Fair Trade Commission (FTC). This case, along with similar actions by LG Uplus and SK Telecom, is examining the legality of their past practices. KT is arguing that its adjustments to subscriber portability were not a result of anti-competitive agreements but rather compliance with directives from the Korea Communications Commission (KCC) regarding the enforcement of regulations on year-end subsidies.
LG Uplus’s case had its first hearing on May 21st, and SK Telecom’s initial hearing is scheduled for October. The total fines imposed on the three companies amount to 96.3 billion KRW, with SK Telecom facing 38.8 billion KRW, KT 29.9 billion KRW, and LG Uplus 27.6 billion KRW.
FTC Alleges Subscriber Competition Suppression
The FTC contends that SK Telecom, KT, and LG Uplus jointly manipulated subscriber portability data between November 2015 and September 2022. The commission asserts that this concerted effort aimed to prevent any single carrier from excessively attracting or losing subscribers, thereby restricting competition in the mobile market. Evidence cited includes a pattern where if SK Telecom increased agent commissions, KT and LG Uplus would subsequently lower theirs, leading to a significant decrease in the average number of monthly portability requests from 28,872 in 2014 to 7,210 in 2022.
The FTC views this as a clear indication of significantly limited competition among the three carriers, leading to the imposition of market directives and substantial fines.
Carriers Argue Regulatory Compliance
KT, however, maintains that the mobile telecommunications market is subject to stringent regulations, including the Mobile Device Distribution Improvement Act. This legislation governs year-end subsidies, agent commissions, and discriminatory practices against users. KT’s position is that any adjustments were made to prevent excessive competition in agent commissions and subsidies, which could have led to regulatory sanctions from the KCC.
The core of KT’s defense is that the companies did not voluntarily agree to limit competition. Instead, they claim their actions were in line with the regulatory bodies’ objectives of market stabilization and were a response to the prevailing policy environment.
Distinguishing Regulatory Guidance from Collusion
A critical aspect of this legal challenge is drawing a clear line between government administrative guidance and illegal collusion. Collusion under the Fair Trade Act involves businesses jointly determining prices, transaction terms, or transaction volumes to restrict competition. However, in heavily regulated industries, companies often argue their actions were a response to regulatory demands or administrative guidance.
Legal experts suggest that courts will examine whether the administrative guidance was based on clear legal grounds, how specific it was, and whether businesses had genuine freedom to make independent decisions. The key question is whether the companies went beyond mere compliance and entered into separate agreements to restrict competition.
Attorneys note that while simple administrative guidance might not absolve businesses of responsibility, it can be a mitigating factor in determining penalties if it demonstrates governmental influence or direction. The strength and clarity of the administrative guidance are crucial. In situations where guidance is so forceful that it precludes independent communication between businesses, the existence of an agreement itself could be denied.
For the FTC’s decision to stand, it must be proven that beyond merely sharing information, the carriers engaged in explicit agreements to set subscriber numbers or agent commission levels, not just to adhere to regulatory ceilings.
Conversely, the mobile carriers must persuade the court that the KCC’s directives were akin to administrative orders and that their room for independent competitive action was inherently limited.
Potential Ramifications Beyond the Telecom Sector
This case could have far-reaching implications for other heavily regulated industries such as finance, energy, and platform services. In sectors where government oversight is intense, communication between businesses and regulators is frequent, often concerning market stability, consumer protection, or price controls. Such interactions can inadvertently lead to situations where information sharing or coordinated actions to meet regulatory goals could be construed as collusion under fair trade laws.
Legal professionals highlight the difficult position companies are placed in: defying government guidance risks punitive measures or subsequent regulation, while complying through communication can lead to fair trade violations. This creates a paradoxical situation where adherence to one set of rules can violate another.
The conflict between the objectives of the Mobile Device Distribution Improvement Act, which aims to curb excessive agent commissions and discriminatory pricing, and the FTC’s interpretation of competition restriction is at the heart of the matter. Businesses are left navigating a complex legal landscape where they bear significant legal risks.
Ultimately, the court’s decision will determine whether the adjustments in subscriber portability were a legitimate response to government-mandated market stabilization or a covert agreement to avoid competition. Given that all three major carriers have appealed the FTC’s ruling, the court’s interpretation of the boundary between administrative guidance and collusion will set a precedent for future fair trade cases in regulated industries.
