The Samsung Galaxy S5 is set to release in over 150 countries starting April 11; however, a carrier ban recently established in South Korea could hinder initial sales of the upcoming device.
South Korea's communications watchdog group has been coming down hard on companies involved with the development and distribution of mobile technology lately. Most recently, watchdogs found several major mobile carriers in Korea guilty of heavily undercutting the prices of their devices, and subsidizing their handsets well over the maximum 270,000 won or $250 allowed to be taken off the price of mobile devices for a contract. This essentially happened because mobile networks continued to drop their prices lower than competitors to urge customers to switch carriers. The price cut race, reportedly spurred by carrier SK Telecom came to a head when carrier LG Uplus subsidized the price of its Samsung Galaxy S4 model by 1.2 million won ($1,100), a price greater than the actual $894 retail cost of the Galaxy S4.
Subsidizing devices notably allows carriers to make more of a profit from consumers in the long run. Carriers offer a price lower than the actual retail cost of a device and take on the additional cost. In exchange, customers must sign a service contract for a set amount of time, which ultimately leads to them paying prices greater than the price of the device for service to power said device. There has been no indication on how the subsidies affected the cost of customer’s contacts.
However, watchdogs stepped in and implemented a 45-day ban on carriers, which prevents them from accepting new customers or upgrading existing customers to new handsets. According to Reuters, the ban will be staggered with carriers having to halt new sales at different times. SK Telecom, South Korea’s largest mobile network will have to adhere to a ban period from April 5 to May 19. KT, the second largest carrier, will have to adhere to a ban period from March 13 to April 26. LG UPlus, the third largest carrier will have to adhere to a ban period from March 13 to April 4 and then from April 27 to May 18.
The ban brings concern about the upcoming release of the Samsung Galaxy S5, which will launch worldwide amid this time when South Korea’s biggest mobile networks cannot sell the new devices. As Samsung is a South Korean company, carriers in the nation usually get among the first supply of new Galaxy devices, and there is concern that initial sales of the Samsung Galaxy S5 may be affected by the carrier ban.
"The Korean market accounts for a relatively small portion of Samsung's overall smartphone sales, but given that they need to maximize sales in the first three months of the launch, the operation suspension of mobile carriers could hit initial S5 sales," said IM Investment & Securities analyst Lee Min-hee in a statement.
The launch of the Samsung Galaxy S5 follows the Galaxy S4’s reign as Samsung’s 2013 flagship. The device was hailed as Samsung’s fastest selling smartphone in history. Though the device has sold over 40 million units since its launch last April, investors don’t quite count it as a sales success, seeing as analysts predicted the “life companion” would sell 100 million units during its first year on the market – a goal of which it has fallen short.
Consider that analyst projected a sales goal of 10 million units for the Galaxy Note 3, which the device quickly surpassed in two months after its September 2013 launch. The Galaxy Note 3 is considered a sales success by analyst and investors. In comparison, the Galaxy S4 sold 20 million in two months after its launch, beating out popular predecessors like the Galaxy S3 and Galaxy S2. Seeing as every Galaxy S device has sold better than the device before in a shorter amount of time, it is likely the Galaxy S5 is expected to sell faster and better than the Galaxy S4. Amid the carrier ban, Samsung is advertising over $500 worth of gifts to be included in the Galaxy S5 as an incentive to prospective customers. Reports indicate that Samsung is also launching the Galaxy S5 two weeks earlier than it released the Galaxy S4 in order to maximize sales.