Korea’s SK Telecom to Invest $1B in China Unicom

SK Telecom will invest US$1 billion in China United Telecommunications (China Unicom) to give the South Korean company a foothold in China’s mobile market, and a stake in the country’s number-two mobile carrier.

SK Telecom will purchase $1 billion worth of convertible bonds in China Unicom, Unicom’s Hong Kong-listed entity. The bonds are convertible after one year, with a three-year expiration date, and represent about a 6.6 percent stake in China Unicom, SK Telecom said Tuesday.

The investment could potentially be a big win for SK Telecom, as a foreign carrier working with a Chinese counterpart ahead of China’s third-generation (3G) licenses being issued. It is part of a larger agreement for the two companies, which both operate code division multiple access (CDMA) mobile networks, to cooperate for platform development and handset sourcing, SK Telecom said. The agreement is exclusive through the end of 2007, the companies said.

With a stated goal of launching 3G services in time for the 2008 Olympic Games in Beijing, China will have to issue the four to six CDMA licenses it intends to grant no later than early 2007.

“SK Telecom was a 3G pioneer and operates a 3G network that is a textbook study in how to make money in high-speed mobile networks,” said David Wolf, chief executive officer (CEO) of Wolf Group Asia, a Beijing-based technology consultancy. “By contrast, Unicom has thus far had difficulty in its efforts to launch and market a compelling bouquet of value-added services, and could readily use SKT’s strengths in those areas to its advantage when facing China Mobile. It’s a great fit—on paper.”

Only domestic carriers may offer mobile services in China. China Unicom currently has about 150 million subscribers. That puts it behind rival China Mobile Telecommunications (China Mobile), but China Unicom holds the only current license to operate a CDMA network.

Foreign service providers wanting to participate in the world’s largest mobile market must do so in cooperative agreements with China Mobile and China Unicom. In 2000, Vodafone bought about a 2 percent stake in China Mobile for $2.5 billion. In 2002, it bought just over 1 percent more with an additional $750 million investment, also gaining the right to appoint a non-executive director to China Mobile’s board.

This is not the first time SK Telecom and China Unicom have worked together. In 2004, they founded Unisk (Beijing) Information Technology to develop value-added wireless services for the China market, holding 49 percent and 51 percent, respectively.

“SK Telecom has spent much of the past five years searching for a way to expand into China. In that sense, this deal is a triumph for [SK Telecom CEO] Shin-bae Kim and his team,” Wolf said.

China Unicom has aimed primarily at the low end of the Chinese market with both its global system for mobile communications and CDMA offerings. For more price-sensitive consumers in smaller cities and rural areas, Unicom has offered the lowest calling rates until recently, when China Mobile began to discount more heavily. Unlike China Mobile service, which mandates two-way billing, Unicom’s CDMA service charges only callers, not those receiving a call, which is favored by users who have business or personal contacts overseas.

-Steven Schwankert, IDG News Service (Beijing Bureau)

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