Handset subsidy and market growth in Korean mobile telecommunications industry

Abstract

Korea has experienced remarkable growth in the mobile telecommunications industry. Mobile telecommunications subscribers number over 32 millions people as of March 2003. Recently, however, the growth of 3G service market has become quite stagnant, and allowing handset subsidy for 3G service has become one of the debatable policy issues in Korea because the handset subsidy has been effective for the rapid growth of 2G service. Noting this current issue, this paper focuses on the handset subsidy as one of contributing factors to a boom the mobile telecommunication industry. We examine how the handset subsidy influence the market growth by conducting statistical test using data on price, income, periods with or without handset subsidy, and so on. Furthermore, we attempt to examine the relationship between the handset subsidy and critical mass. This paper will also provide some policy implications regarding whether the handset subsidy is a useful means for developing new service in the telecommunications industry.