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Korean Networks Introduce Early Termination Fees
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Two of South Korea's mobile networks have announced plans to introduce early termination fees when a customer seeks to cancel their contract early. Both SK Telecom and Koreat Telecom have announced the change, and LG UPlus (LGU+) is reported to be considering the same.
The networks introduced smartphone rate plans without any cancellation penalties in Jun 2010, but from Nov, smartphone subscribers will also have to repay rate discount benefits if the plan is cancelled before the contract expires.
In a research note, the Korea Investments and Securities (KIS) noted that SK Telecom's profit should improve with the new cancellation plan via lower churn and marketing costs. Churn should fall as subscribers will have to pay both the remaining handset installment payments and the rate discount penalty fees to prematurely cancel contracts.
Of note, churn fell when telcos introduced obligatory contract plans in 1998 (cancelled Apr 1999) and 2008 (still applied to feature phone users). As such, KIS believes the latest decision will also lower churn and marketing costs. Furthermore, marketing competition should ease on the smartphone rate cancellation policy and KCC subsidy regulations
Tags: [early termination fees] [Korea]
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