Korea's SK Telecom looks to China

SK Telecom had been suffering from limited opportunities for growth in its crowded home market

SK Telecom, Korea's leading mobile phone service provider, has invested $1bn to buy a 6.6 per cent stake in China Unicom, and hopes for a closer relationship in the future, according to Korean media reports. 

SK Telecom had been suffering from limited opportunities for growth in its crowded home market, and announced that it will purchase $1bn of convertible bonds in China Unicom's Hong Kong-listed holding company in early July. 

"SK Telecom holds more than half of the 39 million subscribers in South Korea's wireless market and has been looking to expand into the Chinese market, " said analysts from Korea Investment & Securities in a research briefing. 

"The company's plans to develop new revenue sources at home are struggling with the market's near-saturation."

China Unicom's 131 million users make it China's second largest mobile phone company behind China Mobile.

The company generated $620m in profits on just over $10bn revenue in 2005. SK Telecom has about 20 million mobile phone subscribers, but generates similar revenues.

The Chinese firm operates a GSM and a CDMA network in China. Korean service providers, which pioneered CDMA-based mobile phone technologies, have had difficulty expanding outside their home market because of a lack of experience with the more common GSM mobile phone standard.

"The combination of the world's largest market and the world's finest technology will mark a new era in CDMA market worldwide," said Shin-bae Kim, chief executive at SK Telecom.

The convertible bonds, which can be converted to shares one year after purchase, give the Korean firm control of about 6.67 per cent of China Unicom.

SK Telecom is eager to increase its stake after rules on foreign investment in Chinese telecoms firms are relaxed at the end of the year, an executive said.

"The most important factor in the bond purchase is that the two companies will have an 18-month strategic alliance relationship in which China Unicom will grant SK Telecom an exclusive status," said Seo Jin-woo, a senior vice president at SK Telecom, according to the Joongang Daily.

"As China joins the World Trade Organization, the maximum foreign ownership of shares will be increased to 49 per cent in December. In a sense, we will be in an advantageous position in buying shares."