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Apple Korea has unveiled a tentative 100 billion won (US$84.4 million) remediation plan that would provide a 10% discount on insurance premiums and repair fees for current iPhone users. The plan emerged from deliberations with South Korea’s Fair Trade Commission (FTC) about allegations that Apple forced South Korean telecommunications companies to advertise its iPhone and provide free repairs.

On Aug. 24, the FTC announced that it would be collecting opinions from stakeholders about Apple’s remediation plan for 40 days following the plan’s unveiling. The FTC and Apple reached a tentative agreement on the plan following deliberations about how Apple had abused its market position.

The 100 billion won in Apple’s support package includes 25 billion won (US$21.1 million) aimed at benefiting customers, 40 billion won (US$33.7 million) for setting up a R&D center to help small and medium-sized enterprises (SMEs) in the manufacturing sector, 10 billion won (US$8.4 million) for digital education in the public sector, and 25 billion won (US$21.1 million) for training future workers at an academy for developers.

The first measure will be a 10% discount on the cost of repairs for current iPhone users who want to fix displays, batteries, or the device itself. A 10% discount will also apply to an insurance product called AppleCare Plus. iPhone Users who have already purchased AppleCare or AppleCare Plus will also receive a 10% refund on the cost of their purchase. Those measures will remain in place until the company has spent the 25 billion won (US$21.1 million) it has allocated for benefiting customers, which is expected to take about a year.

Apple will be investing 40 billion won in setting up an R&D support center for strengthening the smart manufacturing capabilities of South Korean SMEs, with the support center remaining in operation for at least three years. Apple also plans to give SMEs training and collaborative opportunities to experience the latest equipment in smart manufacturing processes. The location of the support center and the timing of its opening have yet to be determined. But presuming that Apple’s remediation plan is approved without any hitches, the center is expected to open sometime next year.

Another component of the plan is investing 25 billion won in the operation of a developer academy, which would provide a nine-month training course in information and communications technology (ICT) to 200 or so students each year. Students will have access to courses about software development, business, marketing, design, user interface (UI), and user experience (UX) and will also receive career counseling and networking with global companies. Apple is already operating developer academies in Italy (Naples), Indonesia, and Brazil.

As for the 10 billion won in support for digital education, Apple intends to collaborate with social enterprises and impact investment funds to provide digital devices and content to public facilities (such as libraries and science museums) and to underprivileged students, including children at charter schools, in special education, and from multicultural households.

Furthermore, Apple has proposed a plan for reforming the controversial “advertising fund” at telecoms. It has agreed to clarify that the advertising fund is supposed to be a partnership for pursuing joint interests and to specify the principle of sharing advertising costs in the contract. Telecoms will be given autonomy over a portion of the advertising fund, and improvements will be made to deliberations in the advertisement planning and approval process. Other types of marketing will also be permitted, assuming agreement between Apple and the telecoms.

However, telecoms’ responsibility for covering the cost of advertising Apple products will not completely disappear under the proposed plan. “While telecoms’ share of the advertising cost would be reduced, it wouldn’t be completely eliminated. Apple’s unilateral orders and meddling would give way to deliberations with the telecoms over advertising costs,” explained Song Sang-min, head of the FTC’s bureau of market oversight.

In addition, Apple has deleted clauses in contracts that forced telecoms to cover the costs for free repair promotions and that gave Apple the right to unilaterally cancel contracts. The minimum subsidies have been adjusted to correspond to the amount of phone bill discounts provided by telecoms under relevant legislation, and a procedure has been created for deliberating any necessary changes to those subsidies that may arise.

Apple formerly boosted its iPhone sales by having telecoms pay huge subsidies, but recently those subsidies have gotten smaller. Going forward, those subsidies will be tethered to the telecoms’ phone bill discounts. Apple has also dropped a punitive clause that forced telecoms to contribute to a business development fund when they didn’t apply the minimum subsidy.

Under the voluntary remediation procedure that Apple is currently engaged in, a company that the FTC is investigating for potential illegal behavior submits a remediation plan; if the FTC accepts that plan as valid, the case is closed. The FTC views Apple’s remediation plan as adequate to correct its unfair business practices and genuinely benefit SMEs and consumers, which is why it decided to canvass the viewpoints of consumers and other stakeholders.

After the opinion canvassing process ends on Oct. 3, the FTC plans to incorporate those opinions into the remediation plan and submit that for review by a plenary meeting. If the plan is approved by the plenary meeting, it will be finalized. But if the plenary meeting concludes that Apple’s plan isn’t suitable, the approval process will be terminated and the FTC will resume its review of possible sanctions against the company.

In April 2018, the FTC sent Apple a review report — akin to an indictment by prosecutors — in which it concluded that the company had violated the Monopoly Regulation and Fair Trade Act by abusing its market status to force telecoms to assume the cost of its free repair service and by intervening in subsidy payment and advertising activities. The FTC reviewed those issues in three plenary sessions; in June 2019, following the third session, Apple applied for voluntary remediation.

By Cho Kye-wan, staff reporter

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