In the Korean mobile communications market, subsidy for mobile communications terminal devices was introduced when the market players began to face competition in the 1990s. The intense subsidy competition that had started from the early stage of the market emerged as a serious social issue as the market became saturated in the 2000s. The Korean government had regulated the subsidies in accordance with the terms and conditions of mobile communications business operators or the Telecommunications Business Act, and then has enforced the Mobile Device Distribution Improvement Act (hereinafter referred to as “the Act”) since October 2014. This paper aims to provide an analysis on the factors that affect compliance of the regulatory target group ? telecommunications operators and agents·sales stores (hereinafter referred to as “distributers”) ? in the implementation of the Act, and present both empirical and theoretical grounds for developing measures to enhance compliance with the Act. To this end, this study applied an analysis model that is commonly used in studies on regulatory compliance. It used factors that affect regulatory compliance, namely regulatory content, authorities, and target group as independent variables and the target group’s compliance level as a dependent variable. Then the study conducted a survey based on this model and analyzed the collected data.
First, this paper analyzed the independent variables with sub-criteria as follows: six criteria for regulatory content of the need for the regulation, acceptability of the regulation, clarity of the regulatory purpose, clarity of the regulatory measures, feasibility of the regulatory purpose, and feasibility of the regulatory measures; five criteria for regulatory authorities of expertise, fairness, and responsiveness of the regulators, clear standards for enforcement, and adequacy of the measures; and six criteria for regulatory target group of operators’ control over distributors, pressure on distributors for non-compliance, opportunity cost, psychological resistance, influence of subscribers, and influence of competitors. As a dependent variable, the level of compliance of the target group including telecommunications operators and distributors was used, with four sub-criteria representing the major violation types in the Act: unfair discriminative subsidy payment, excessive subsidies exceeding the ceiling in the Act, discount of service charges corresponding to the subsidy, and individual contracts linked with subsidy.
Based on this model, a survey was conducted with short questions on the 17 criteria of the independent variables and 4 criteria of the dependent variable. Using the five-point Likert scale, the survey asked respondents to choose their answers from “① Strongly disagree, ② Disagree, ③ Neutral, ④ Agree, ⑤ Strongly agree”. The survey took samples from five groups: telecommunications operators’ HQs, regional HQs, directly managed agents, independent agents, and sales stores. By applying quota sampling, proportional numbers of samples were taken from each of the groups. 330 samples were selected from a population of 11,604 that includes HQs of the three operators (SKT, KT, and LGU+) as well as their regional HQs, directly managed agents, and sales stores located in Seoul and Gyeonggi. The questionnaires were distributed during 40 days between 20 September 2016 and 30 October 2016, of which 310 were returned. The data collected from the survey was analyzed with correlation analysis and regression analysis to find out correlation between the factors and the level of compliance of the surveyed groups.
After exploring factors affecting compliance with the Act, this survey generated several findings based on an analysis of the responses from telecommunications operators and distributors. First, when responses of operators and distributors were compared through descriptive statistics analysis and T-test, the result showed that operators had more positive perception than distributors towards all six criteria of regulatory content as well as towards all five criteria of regulatory authorities.. On the other hand, regarding compliance factors related to the regulatory target group, agents and sales stores agreed more on psychological resistance, influence of subscribers, and influence of competitors compared to the operators, while no significant difference was found for the rest three criteria.
Second, the correlation analysis found that there is a positive correlation between most of the 17 compliance factors and the compliance level of the target group. In particular, a strong correlation was found between multiple compliance factors and the compliance level with regard to the regulations on unfair discriminative subsidy payment. This result indicates that improvement or positive changes in regulatory content, authorities, and target group can lead to better compliance of the operators and distributors when implementing regulations on discriminative subsidy payment. Meanwhile, the responses of the operators showed a weak positive correlation between most of the compliance factors and the compliance level, but influence of subscribers had higher correlation with compliance. Among distributors, significant correlation was found between compliance and feasibility of the regulatory measures in addition to the influence of subscribers.
Third, in the regression analysis on the compliance factors and the level of compliance, the operators and distributors perceived the "need for the regulation", "clarity of the regulatory purpose", "feasibility of the measures", "influence of subscribers", and "psychological resistance" as important factors affecting compliance as the <Table> below summarizes. Particularly, both the operators and distributors responded that “influence of subscribers” has significant impact on compliance, which is in line with an argument that subscribers naturally demand more subsidies in the market economy and therefore non-compliance of distributors is bound to follow. Also, “feasibility of the measures” requires a thorough analysis and plans for improvement. Indeed, there have been calls within the industry for improved regulatory measures to help enforcement, including disclosure of subsidies and more transparency in managing trade allowances between operators and distributors. Meanwhile, both the operators and distributors agreed on the “need for the regulation”. Considering that the government’s regulations on the price of terminal devices have inherent limitations in the market economy, diverse PR efforts are required to build a consensus among subscribers and other market participants. In addition, the regulatory target group responded that “opportunity cost” and “pressure on distributors for non-compliance” are important factors affecting compliance. To encourage better compliance, the background and reasons of this response should be analyzed and feasible measures should be developed accordingly.
<Factors Affecting Regulatory Compliance Commonly Perceived to be Important by Surveyed Groups>

Criteria
Unfair Discriminative Subsidy Payment
Subsidies Exceeding the Ceiling in the Act
Discount of Service Charges Corresponding to the Subsidy
Individual Contract Linked with Subsidy
Regulatory Content
② Clarity of the Regulatory Purpose
③ Feasibility of the Regulatory Measures
④ Need for the Regulation
② Clarity of the Regulatory Purpose
③ Need for the Regulation
② Feasibility of the Regulatory Measures
② Feasibility of the Regulatory Measures
Regulatory
Authorities
-
-
-
-
Regulatory Target Group
① Influence of Subscribers
① Influence of Subscribers
③ Psychological Resistance
① Influence of Subscribers
① Influence of Subscribers


Along with the survey, this study also conducted in-depth interviews with experts who have broad experience in distribution structure of terminal devices and subsidy payment, considering that the result of a sample survey involves risks in validity and reliability due to potential errors in survey design. Based on the result of the survey on the compliance factors and the compliance level perceived by operators and distributors, the interviewees were asked to present their analysis on the background or reasons of the responses as well as suggestions for better compliance. A total of 12 interviewees were selected: business insiders from consumer groups, the three telecommunications operators, and the Association of Mobile Sales for their expertise and career experience in telecommunications service and terminal device distribution business; third party experts from Korea Information Society Development Institute along with lawyers and university professors; and experts of enforcement agencies from the Ministry of Science, ICT, and Future Planning and Korea Communications Commission. These experts presented their analysis on the reasons or background of non-compliance based on the survey result as follows:
They explained that operators and distributors had pointed out the influence of subscribers as the number one factor affecting compliance because the number of subscribers directly relates to their revenue. The experts also analyzed that consensus on the regulation appeared to be weak since there are limitations in regulating natural demand of consumers for more subsidies. They attributed the perceived low clarity of the regulatory purpose to unclear definition of unfair discriminative subsidy payment, lack of standards for manufacturers'' trade allowances, and poor management of the allowances, while pointing out understaffed inspections, challenges of early market stabilization, need for stronger regulatory measures, and lack of self-regulation regarding feasibility of the measures. The interviewees also viewed psychological resistance of operators and distributors as opposition to the government intervening in free trade determined by the supply and demand. They added that the resistance might also come from inspections and crackdown conducted only in certain areas or during a limited period of time, which can be perceived to be unfair by affected businesses. Finally, the experts pointed out that a consensus on the "need for the regulation" is not strong, and called for measures to minimize influence of subscribers as well as more active policy PR.
Using an experimental research model, this study sought to contribute to enhancing regulatory compliance by conducting an empirical survey and analysis on compliance factors affecting operators and distributors. A successful implementation of the Act requires compliance of the regulatory target group. In this regard, the study proposed measures to enhance compliance by bringing positive changes to the compliance factors based on the result of the survey on the target group and in-depth interviews with experts.
First, subscribers and other interested parties should understand the need for the Act to regulate subsidies. A strong consensus must be built on the purpose and measures of the regulations. To this end, the government needs to analyze and publicly disclose achievements and shortcomings from enforcement of the Act, and garner more support from interested parties through active PR efforts. It also needs to encourage telecommunications operators to refrain from subsidy competition and focus more on competitive charges and services so that subscribers can actually feel lower burden from communications charges.
Second, disclosure of subsidies should be firmly established in order to secure clarity of the regulatory purpose. By helping users acquire more information, a transparent disclosure system can enhance clarity of the regulatory purpose as well as the target group''s compliance, which in turn minimizes market failure from information asymmetry and induces natural price adjustment by market mechanism. Moreover, in order to clarify the regulatory purpose of preventing unfair discriminative subsidy payment while allowing reasonable level of discrimination, the current standards for unfair discriminative subsidy need to be revised and complemented with measures such as allowing benefits for subscribers who switch between operators. In addition, since trade allowances provided by manufacturers should be reasonable to bring down the factory prices of terminal devices, a separate disclosure for these allowances needs be introduced with considerations to protect trade secrets. Meanwhile, a fair relationship should be established between operators and distributors in terms of mutual management and control.
Third, measures to ensure successful enforcement should be developed based on a thorough analysis on the enforcement result so far, in order to secure higher feasibility of regulatory measures. The government should take regulatory measures stipulated in the Act in a timely and appropriate manner, while also encouraging voluntary monitoring and self-regulation of the target group. The authorities need to put more teeth in the regulations by imposing penalties on violations so that unlawful gains can be returned, while at the same time providing practical incentives to encourage compliance such as exemption of penalties.
Fourth, encouraging self-regulation and providing diverse incentives for compliance can help reduce psychological resistance to unilaterally imposed regulations and opportunity cost of operators, agents, and sales stores. These voluntary measures are also essential to improve feasibility of regulatory measures, since price regulations should be backed by financial or other forms of incentives that can offset expected gains through unlawful activities.
Finally, influence of subscribers should be minimized since the regulatory target group pointed out this influence as the number one factor of non-compliance. Public consultation on standards and procedures of the regulations should precede implementation of the regulations to build a consensus. In particular, active PR efforts are required at agents and sales stores to persuade subscribers of the need for the regulation and its expected benefits.
This paper extended the scope of the analysis model for compliance factors by applying it to market regulations, and presented empirical analysis on the factors affecting compliance with the Mobile Device Distribution Improvement Act to contribute to successful law enforcement. This study is expected to help explain and predict activities of market participants as it provides a comprehensive summary of the regulations on subsidies that emerged as a social issue from late 1990s, and analyzes how various factors affect compliance with the Mobile Device Distribution Improvement Act that took effect in October 2014. It also shows a possibility that the analysis model for compliance factors could be applied to various market regulations if a survey is well designed on trade activities in the free market which involve various uncontrollable variables.
Although it has generated meaningful findings, this study also had several limitations in terms of the subject, scope, and method. This survey was conducted limitedly on telecommunications operators and their agents and sales stores. Since subscribers and device manufacturers were not included in the survey, validity to generalize the findings might have been weakened. Finally, samples were taken only from agents and sales stores in Seoul and Gyeonggi, and not enough measures were put in place to reduce response errors that arise from the gap between responses and the true intent of respondents. It is expected that higher validity could be achieved in future studies by improving survey design including sampling.